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Property Management Fees Explained

Property management fees vary depending on the services offered, but are generally charged in similar ways across the industry. Property management companies typically either charge a fixed price, percentage basis, or a hybrid combination of the two. Fixed prices are usually based on the local market and can be price-per-door, flat rate, or a combination thereof. Percentage basis fees are calculated as a percentage of the rent each month. Most property management companies require a contract period to start (e.g. 1 year term) and can add on a la carte fees for additional services performed such as a setup fee, cancellation fee, maintenance fees, renewals fees, etc.



Property Management Fee Definition

Property management fees (also called leasing fees) are fees that property owners pay property management companies to ensure that their property is properly operated and maintained. They are usually paid on a monthly basis and can range from ongoing management fees, to one-time service specific fees.


Types of Property Management Fee Structures

Property management companies usually structure their fees in one of three main ways: Fixed Fee, Percentage Based, or Cost Plus. We take a look at each type below:

Fixed Fee

Fixed Fee Property Management Fees

Fixed fee (also called flat fee) is a common fee structure found in property management where the management fee is a fixed dollar amount, usually paid on a monthly basis. The amount is typically based on property type, square footage, and property management services provided. For example, the national average flat rate fee to manage a single-family home is approximately $125 per month, however, these rates can vary depending on your local market and property type. While it is nice for landlords to have a fixed budget for property management expenses, the drawback to this type of pricing is that the fee is usually required to be paid regardless of the property’s vacancy status.

Percentage Based

Percentage Based Property Management Fees

Percentage based is a common fee structure found in property management where the fee is based on a percentage of the rent. This is the most common type of fee structure in property management. The average fee is 4% – 15% of monthly rent. This large variance in this range is due to the economies of scale pricing model (i.e. pricing is discounted proportionately for the larger the property and more units you have under contract with them). The rate to manage 1 unit might be on the higher end around 12%, whereas the  rate to manage hundreds of units could be on the lower end around 4%.

Within the percentage based property management pricing model, it is important to note that this type of fee structure can be calculated off of “rent due” or “rent collected”. Each way can have drastically different outcomes on the total amount of fees property manager will have to pay, as we take a look at each below:

Rent Due

Rent due is when the percentage of rent calculated for the property management fee is based on the total amount of rent due per month. As an example, a property with 4 rental units each priced at $1,000 per month would be $4,000 in gross monthly rent; at a 6% management fee would be $240 total monthly management fee ($4,000*6%). The concern with this type of fee structure is that fees are still billed even when units are vacant or tenant’s are not paying rent.

Rent Collected

Rent collected is when the percentage of rent calculated for the property management fee is based on the total amount of rent “actually collected”. As an example, a 4 rental unit rental property with each unit priced at $1,000 per month, however, 1 unit is vacant and 1 unit is not paying rent. In this case the gross monthly “rent collected” would be $2,000; at a 6% management fee would be $120 total monthly management fee ($2,000*6%). This is a much more favorable option for rental property owners as you are only paying fees on actual revenue being brought in, and also incentivizes the property management company to lease up vacancies and quickly deal with non-paying tenants.

Cost Plus

Cost Plus Property Management Fees

Cost plus (also called hybrid) is a property management fee structure that combines both the flat fee and percentage of rent collected pricing structures. An example of this pricing structure would be a flat $100 monthly management fee, plus 4% of monthly rents. This type or pricing is preferable to landlords who prefer a balance in pricing, while seeking to get the highest rent as possible. In cost plus pricing structures, it is common for additional services to be billed separately. These additional services can include charges such as a setup fee, cancellation fee, extra maintenance fees, renewals fees, etc.


Fixed Rate vs Percentage vs Cost Plus

Now that we’ve taken an in depth look at each type of property management pricing structure, let’s compare all 3 types in an easy to understand chart.

Fixed RatePercentage (%)Cost Plus
Pros• Easier to Understand Pricing
• Consistent for Budgeting Purposes
• Increased Motivation to Increase Rents
• Paid Based off of Performance
• Increased Motivation to Increase Rents and Lease Up
• Balanced Average Pricing
Cons• Less Incentive to Increase Rents
• Can Overpay During Vacancies
• Amount Can Fluctuate With Vacancies
• Possibility to Pay More Than Fixed Rate
• Can Overpay During Vacancies
• Can Overpay for Additional Services

Additional Property Management Fees

In addition to the three main types of property management fee structures, property management companies have developed many additional fees based on various services. We take a look at the most common ones below:

Onboarding Fee

An onboarding fee, or a setup fee, is a one-time fee charged for setting up the accounts of new tenants. This fee covers overhead costs such as administration, property condition inspection, and welcome materials to be used by the tenant in the future. While it is a fee common throughout the industry, not all companies charge it. The price usually ranges between $200-$500.

Lease-Up Fee

A lease-up fee (also called tenant placement fee) is the one-time fee charged for finding and successfully placing a new tenant. It takes significant effort to successfully screen and place a qualified tenant. This fee covers all of the back end work such as property showings, applicant screenings, and compiling lease paperwork for signing. The amount for a lease up fee can be a flat fee or a percentage of the first month’s rent. The price is typically either a fixed amount or percentage of the first-month’s rent (50% to 100%).

Advertising and Marketing Fee

Advertising and marketing fees are those applied when property management companies are putting forth external efforts to advertise a vacant rental property to fill. Much of this fee could simply be the property management company trying to recoup some of their expenditures since physical signage and advertising on some third party listing platforms can quickly add up. The amount of this fee can vary based on many different factors and is mostly dependent upon the type of rental property, advertising requirements and frequency of ads to be ran.

Lease Renewal Fee

A lease renewal fee is one that may be charged when a tenant’s lease comes up for renewal and the property manager has to renegotiate and administer the new lease agreement. This fee helps cover the human capital efforts put forth to negotiate updated terms and draft lease renewal documents for signature. Due to inflation, rental rates are typically escalated upon renewals, so the fee usually becomes a net-positive for owners over the course of the term. The price for lease renewal fees is typically 25-50% of the first month’s rent in the new term.

Early Termination Fee

While most fees are geared toward tenants, early termination fees are put in place to ensure that landlords uphold their part of the agreement by continuing with the property management services throughout the duration of the contract term. Should a property owner wish to discontinue services prematurely, they may be charged an early termination fee. These fees should always be put into the initial property management service agreement and taken into consideration before signing. Depending on the terms of the rental contract, this fee can range  from a nominal flat fee, to several months of management fees or even legal action for breach of contract.

Eviction Fee

Evictions are an unfavorable part of the rental real estate industry, however, they shouldn’t be feared. Property management companies often have excellent experience handling them and can take care of the process for a fee. Larger property management companies may have the ability to handle evictions on their own, while others may contract out the work to a local law firm. Eviction fees can be billed in many different ways such as a flat initial fee (e.g. $500) plus any additional court and legal fees, hourly fees for court appearances (e.g. $20-$100 per hour), or an all-in fixed amount (e.g. $2,000). Furthermore, if a property owner was awarded a judgment in court, collections agencies and attorneys generally charge a collections fee between 20% – 50% of the money collected. Eviction laws vary greatly from state to state and are constantly changing, so it is important that the property management company is up to date on the local eviction laws.

Repair and Maintenance Fee

A maintenance fee is a property management fee that covers the cost to cover inevitable maintenance expenses. This fee can be based a variety of different structures: percentage of the overall maintenance cost (e.g. 10% of a $1,500 emergency plumbing repair), a la carte fixed pricing per type of service (e.g. $150 per clogged toilet), and vendor pricing plus markup (e.g. $1,500 plumbing updates + 10% markup). Property management companies usually have in-house maintenance personnel, as well as trusted vendors that ideally should satisfactorily complete the job at a reasonable market rate.

Inspection Fee

Inspection fees are fees charged for sending out personnel to physically perform inspections of a rental property. Rental properties should be routinely inspected inside and out annually at a bare minimum; potentially more frequent depending on the age and location of the property. Some property management companies conduct regular inspections as a part of their management fee in a full service management agreement, while others may charge the fee if the agreement is only a partial service property management agreement. Results of the inspection should always be forwarded to the property owner including a detailed inspection report, photos or videos, and any potential recommendations if applicable.

Late Payment Fee

Late payment fees (commonly just called late fees) are fees billed directly to tenants for rent or other billable charges that are paid after the contractual due date. Late fees are great motivators to incentivize tenants to pay on time and also another revenue source for property managers and landlords. Note that late fees don’t necessarily go straight to the property owner, as some property management companies retain between 25% – 50% of late fee income collected as compensation for having to chase after the tenants to collect unpaid rent. Furthermore, it is vitally important that any type of late fees should be outlined within the lease agreement as it will have to be agreed upon in writing in order to be enforceable. Lastly, check local and state laws before setting a late fee amount, as local governments have begun setting limits to the amounts that can be charged for late fees.


Residential vs Commercial Property Management Fees

Is there a difference between property management fees when it comes to residential properties and commercial properties? The short answer is yes. Each type of rental property brings a different host of management responsibilities which need to be compensated accordingly. Residential property management is usually more labor intensive but is also prone to greater competition, with more property management companies focusing on residential management. Commercial property management might be less labor intensive, but requires specialized knowledge of the commercial properties and comes with higher stakes since commercial tenants are savvy business owners.


How to Calculate Property Management Fees

Property management fees can be calculated in many different ways. From a simple flat fee, to a percentage of the property’s monthly rent. Our property management fee calculator is a convenient tool for property owners to easily understand and calculate how much in fees they would be paying to have their rental property professionally managed.


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