There are typically 2 business models in property management: charge a flat percentage of the rent collected, or charge a flat fee. If the expected rent were $2,000 a month, and one company charged 5%, they would collect $100. If another company charges a flat fee of $100, the effective rate would be 5%. But if the collected rent were $3,000, the flat fee company would still charge 5% or $150, while the flat fee company would only collect $100 for an effective fee of 3.3%. So, which model is best for you?
Percentage
- We charge a percent of the rent collected for our services. If the rent is higher, we collect more. This works for both the owner and us for 2 reasons:
- The more rent a tenant pays, the higher their expectation for the condition and usability of the property. Someone leasing a beach house for one week at $10,000 expects every fork to be in the drawer, every appliance to work properly and the unit be as advertised. That creates more work for us and we expect compensation. Property management companies who specialized in vacation rentals charge as much as 25% of the collected rent to provide this high level of service. We do the same.
- The more rent a tenant pays, the more both we and the owner make. It is in our best interest to make certain rents are at “market rate” because our income increases. If we increase a rent from $2,000 to $2,100, we make $5 more a month, and the owner received $95 more.
Fixed
- There are a few companies with a flat fee model. It usually hovers around $100 for single family homes and townhomes, and then decreases for multi-unit properties. I can see the accounting appeal for a property management company: if you manage 200 properties you know your monthly income is $20,000. The appeal is the same for the property owner: even if the rent increases, the owner keeps the entire increase.
The Bigger Picture
- Whether a property management company is flat fee or a percent model, you need to pay attention to all of the fees being collected. For example, if a flat fee company charges $100 a month even if the property is vacant, that may cost you quite a bit if your property has vacancy issues. If a company has a tenant acquisition fee of 5% of the first year’s rent, no matter which model you pick, it could cost you more.
Most importantly, regardless of which model you pick, what is the level of service the company provides? If a company is cheaper, they only charge 3% of collected rents or $70 per month, and their service is inferior, what will that cost you in tenants who vacant because work is not done in a timely manner, or the frustration to you if your calls and inquiries are not returned?
We all have to make a profit in order to keep our doors open. There is a fine line between paying too much and getting too little and paying too little and getting less. You need to weigh all the factors of a company before picking the one to manage your asset: customer service, value propositions, cost, convenience, reputation, location and business model. We have created our Comparison Chart to help you with this decision.
