The Costs of Hiring, or Not Hiring, a Property Manager
by Tara Harris

Excerpted from the Rental Housing Association Magazine, Sep/Oct 2008

The most common reason rental owners decide not to hire a property manager is cost. Often the rent barely covers the monthly payment for their property, so they don’t want to add the expense of a property manager. Or an owner may just be hoping for the greatest possible cash flow. Despite these factors, hiring a property manager may make sense.

Consider, for example, a single-family home with the following monthly expenses:

• Mortgage: $1,100
• Taxes: $100
• Insurance: $50
• Utilities: $50
• Total monthly expenses: $1,300

If that home only rents for $1,250 per month, the result is a negative cash flow. So, why add the expense of a property manager?

What many rental owners don’t realize is that all of these costs, including property management fees, are tax deductible. More importantly, property management fees are very reasonable when you consider everything received for a fee that is usually only about $100 per month.

Managing one unit requires, at a minimum, two to three hours of an owner’s time per month. During some months, there will be: rent collection issues, maintenance concerns or other problems that could easily double or triple this time requirement. A property management fee of $100 will seem like a bargain in that case. Keep in mind that a situation that will be simple for a seasoned property manager to resolve quickly may be time consuming for a new investor to sort through.

So, if you are considering hiring a property manager and want to make sure you are paying reasonable rates, here is a guideline: most property management company’s charge somewhere between 6-10% of the monthly rent for property management services on a single family dwelling, and 35-60% of the first month’s rent for leasing only services. There is usually also a flat minimum fee for each of these, something like a minimum of $85 or $100 per month for a single-family unit and a minimum of $500 for leasing service of one unit.

Rates are usually discounted as the number of units increases. For example, a property manager may charge 8% of the monthly rent with a minimum fee of $90 per month for one unit, but charge only $150 per month to manage both units of a duplex, $300 per month to manage a 4-unit building, and so on.

The lowest price is not always cost. Be leery of property management companies offering their services for next to nothing. It is quite possible that is what you will receive.

Perhaps you want to manage your property, but you’d rather avoid the trouble of finding a renter? Consider hiring a property manager for leasing services only. Many property management companies offer full management services, which include monthly services or leasing services a la carte. You may decide to hire a property manager to: market the property, show it to prospective residents as many times as required until it is leased, complete the application and screening process and complete the move-in process. All of this is completed for one flat fee. A percentage of the first month’s rent is usually charged (50% is common) and is not paid until the resident moves-in, meaning there is usually no up front cost to the owner.