One of the most common questions we are asked here at PPMI is about calculating property management fees and what the best option is for paying property management fees. We know how important this is when considering whether or not a property manager makes sense for your rental properties. There are three main options to choose from when figuring out the best way to pay your property manager for their services, and there are pros and cons to each of these. We are going to discuss each of these options today and what situations they are most commonly used in. Then you can decide which option is best suited for you and your needs and calculate what it would cost to hire a property management company.
The Percentage of Monthly Rent option is the most common option for paying a property manager and makes the most sense for most rental property owners. This fee is normally 8-10% of the monthly rent, but this can fluctuate depending on how many rental properties you have being managed. A percentage monthly rate makes calculating the property management fees easy and lets you know exactly how much rent money you will be paid each month after the percentage fee is taken off the top. For long term financial security and planning, a percentage of monthly rent is the best option. The downside to this option is that if your margins are very thin, you will not make a lot once the monthly fee is taken out and you have to pay the mortgage on the property each month. However, if your properties are being handled by a property manager, that frees up your time to bring in extra money from other sources, so it could be a great option for you even if you don’t have high margins on your properties.
The Flat Fee Per Month option is normally used for larger buildings being rented and is introduced if a property manager believes the property will take up a lot of time. This could be due to a higher volume of maintenance issues, the tenants being known to cause problems or a high turnover rate. No matter what the reason may be, a flat fee per month is usually requested by the property management company. A positive of this option is that if the building does require more time to manage, having a property manager will free up a lot of your day again. The negatives however are that the fee will most likely be higher than a percentage based fee and a flat fee is normally per building, not per unit rented, so the money you make will fluctuate based on how many units are rented out at any given time.
The third option is a Per Project Fee that is generally only used for specific one-off jobs that a property management company is hired to do. This could include finding a tenant for a vacant unit, one-off maintenance projects, consultations, and more. The per project fee varies in price, so this will completely depend on the property manager you hire for the project. The upside to this option is you can choose when you need help and want to hire a property manager and when you don’t. This comes in handy especially during tighter cash periods when you have several empty units and are not making as much as other times. The downside being property managers may not be able to do the project based on how busy they are, and you may spend more time looking for help than you have time for when you are already very busy.
If you are considering hiring a property management company, the first step is to figure out all of your expenses and how much you are currently making from rent each month. Then you will want to calculate the management fees to see if you can hire a property management company and still make enough money to pay your bills. If you can, then you could save yourself a lot of time and focus on things that are important to you, like family, hobbies, and more. You could also work on other ways to make money while you have a passive income coming in each month. If you can’t pay your bills by hiring a property management company, there are a couple options. You could wait to hire the property management company until you have enough units rented for it to make sense for you, and you can pay all your bills still. Or, you can hire the property manager and work on other ways to bring in income with the time you freed up from hiring the company. Both are good options, but they differ based on your specific needs and situation.
You can contact PPMI any time with questions about calculating management fees or deciding if our property management company is right for you. Our company has served the greater Baltimore area for more than a decade, and we have helped dozens of rental property owners free up their time, grow their business, and reduce their stress through our property management services. We look forward to working with you and helping you reach your goals for your business through growth.
Premier Property is dedicated to providing the very best property management services in Baltimore City, County and surrounding communities.