These tips will save you at least $600 a year on each rental property you own. You will be surprised at all the hidden fees and overcharges that occur in this industry on a regular basis. You should be well informed.
1) What is your rental rate?
A large percentage of management companies charge 100% of the first month’s rent to find you a tenant. I would recommend paying no more than 50% of the first month’s rent. There are real expenses in finding a tenant. A property manager will typically list the property on a Multiple Listing Service, post a Craig’s List Ad, and post signs on your rental property. All of this takes time and money, but it certainly doesn’t equate to a full month’s rent.
Make sure the rental fee is only due when they successfully rent your rental property. Some companies try to charge you this fee up front, whether they are successful or not.
2) Avoid National Real Estate Companies with a Property Administration Division.
Because most of these companies are franchises, they charge a ton of additional fees and higher commissions because of their franchise fees.
Their core business is selling houses and not providing quality long-term property management services. This is usually just a side business for the owner/broker and is a good way to develop future listings for your business to sell.
Stick with a non-brand local property management company that doesn’t sell houses for most of their business. You want a company that specializes solely in property management. These companies will generally provide better services and are much more creative in finding you a qualified tenant.
3) Late fee to landlord if tenant pays late.
This is ridiculous because they also charge the tenant a late fee. Why should you pay more to have them do their job? That’s why you pay them a management fee in the first place.
4) Advertising Fee:
There should be no advertising fees, but I have seen some management companies charge up to $750. They claim that you need to pay for all the advertising you do in newspapers and magazines. Let me point out one important change in all markets: newspaper ads no longer work! CraigsList is far superior, free, and dominates all markets with the exception of small and rural towns. We receive 8 times more calls from our CraigsList ads compared to newspaper ads.
Real estate magazines also do not generate much interest because their main objective is to sell houses and not rent them.
5) Setup/Application Fee:
Many companies charge you between $300 and $500 to set up and process your rental property in their system. This fee really bothers me. It takes 5 minutes to put a rental property into a typical property management software. This is simply a profit center and should not be paid for.
Again, it only takes 5-10 minutes tops to enter your rental property into the computer. Even if it took 2 hours, $250 is a bit high for data entry work.
6) Can you fire them without penalty?
This is a tricky question that really costs homeowners a lot. You must request their management contract and review it very carefully. Most of these contracts state that you cannot fire them without paying $500-$1000 in penalties.
His explanation goes something like this; “We put a lot of time and effort into finding you a tenant and we deserve to earn the entire year’s management fee.” His response should be that he covered that time and effort by paying a lease fee. If they are doing a poor job or overcharging you, you should be able to fire them with 30 days notice. If they don’t agree, you should find someone else.
I have come across numerous examples of management companies holding their owners hostage and threatening lawsuits if they are fired before the management contract is up. Be very careful with this because you don’t want to be stuck with a management company that is doing a horrible job.
7) Check to make sure you are aware of all additional charges
You will be very surprised at the small fees that some property management companies add on top of the administration fee. I have already mentioned some above, but there are others. For example, they may charge you $50-$100 to give a tenant 3 days’ notice if they are late in paying their rent. They may also charge you extra money if you request copies of receipts for maintenance performed on the property.
The company might add a fee to send your money by check instead of direct deposit, or vice versa. The best thing would be to make sure that they put everything in writing, in the management contract. You don’t want surprises.
8) Can you speak to the owner of the business?
You want to talk to the owner and ask about the items I mentioned above because the owner is the only one who can negotiate and gets the real answers out of the horse’s mouth.
It’s a good idea to casually ask the owner if he or she invests in rental properties. It is a positive sign if the answer is yes. Listen carefully to how he feels when the owner answers his questions. It should convey a feeling of professionalism and competence. Be sure to ask for some testimonials or references from other clients. If any excuse is given for not providing them, politely find another company.
