As each PCS season rolls around, many military homeowners must decide if hiring a property management company to tend to their rental property is a smart investment. Each scenario has pros and cons, and the answer comes down to whether you have the funds to hire a service and how involved you want to be with the rental property operation.
Understanding how property managers earn income from you and other clients is important in deciding if a professional property management company is a good solution.
Property Management Fee Breakdown
Property managers typically earn their money in one of two ways.
1) Most property managers charge a fee, usually anywhere from 8% to 12% of the rental income, plus expenses. Keep in mind that it’s 8% to 12% of the total rental income, not just your profit after the mortgage payment.
2) Alternatively, the management company may prefer to charge a flat fee instead of a percentage, typically from $100 to $200 a month. You’ll have to calculate several costs, like your property’s rental value and the potential services provided by the company, to discover if the flat fee is a wise choice.
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Additional Property Management Fees
These numbers sound reasonable, but you should know they aren’t the only fees you can expect to pay. You’ll probably need at least one of the additional services listed below. Remember to ask for a military or bundled service discount.
New Client Set Up
Some property management companies tack on a one-time set-up fee for new clients (you). Your contract with the company should lay out the “how” and “why” the cost is incurred.
New Tenant Placement
A property management company may impose a fee for securing a new tenant for your property and finalizing the lease agreement. This fee could amount to as high as 50% of the first month's rent and is a one-time charge upon the arrival of a new tenant, rather than a recurring monthly expense.
Vacant Unit
It’s possible the company will charge the equivalent of one month’s rent upfront if your unit is vacant. This gives the management company money to pay for marketing and advertising, a real estate agent to show your property, and managing the lease paperwork.
Tenant Occupied Unit
On the other hand, some property managers only charge fees if a renter is living in the home.
Late Payment Collection
Late fees add up to large amounts quickly, so be aware of the costs your management company charges for late payments from either you or your tenant. Some property management companies will keep 25% to 50% of the collected late fees.
Maintenance and Repairs
A rental property needs ongoing maintenance, so you’ll rely on the property management company to have a dedicated maintenance crew. Before calculating how much you’ll pay, negotiate what is included in regular monthly or bi-monthly routine maintenance. Some companies will include a semi-annual or annual inspection for no charge.
Usually, vendors will charge property managers a lower fee than you could find on your own, as they'll be in regular business together. For repair and maintenance calls, you’ll likely pay per maintenance person, per hour, plus materials. Like any repair service, management companies usually charge higher rates for emergency repair calls.
Tenant Evictions
Unfortunately, you may sign a tenant that just doesn’t work out. They might suffer a job loss and be unable to pay rent, or they could be disturbing the neighbors. Whatever the reason, evicting a tenant is time-consuming. The property manager will need to file court forms to file and possibly appear in court. Expect to pay your property manager $300 to $500+ to process an eviction, in addition to court fees.
With all of these fees, you may think you’re better off managing your property yourself. While that may be true, but there are some things to consider with self-management.
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Partial Property Management Fees
If you’re an experienced homeowner and will remain local to your property, there’s a chance you have some of the skills needed to take on some property management tasks and won’t require a full-service management company. You could save thousands of dollars, but you’ll invest plenty of your sweat equity and time. Note that not all property management companies offer partial services.
To save money, you could
- Create the property’s marketing and advertising
- Perform tenant screenings
- Take on handyman or routine maintenance
If you leave large projects like emergency repairs (plus costs), rent collection, and evictions up to a management company, you’ll likely pay a partial fee, such as 50% of one month’s rent. Beware that some property managers will tack on extra fees like an annual inspection fee to supplement their lower income from you. Most terms are negotiable, so you can work out a plan that benefits you and the company.
If you think property management sounds like a good gig, read Becoming Your Own Property Manager for more information.
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Should You Hire a Property Management Company?
Finding an affordable and reputable management company is a prolonged process, but it can be well worth the research time, especially if you’re a long distance or even an OCONUS homeowner.
Answer these questions to help you decide if hiring a professional property manager is the right decision.
- Will you live near the property?
- Is there enough rental payment money remaining to pay a property manager after deducting the mortgage?
- Will you sleep better at night knowing professionals will handle an emergency?
- Are you comfortable handling renter conflicts like evictions?
- Can you find a company you feel is invested in protecting your home?
The only way to feel confident about hiring a management company is to rely on recommendations from your personal network, read public online reviews, and interview representatives from each company.
Property Management Takeaways for Military Homeowners
Many military landlords have productive and reliable relationships with their property managers. You shouldn’t let your tenants and property languish because you feel no one can care for your property as well as you if you were there. Manage your expectations, diligently research management companies, and create feasible financial boundaries before signing a contract.
Hiring a management company is really about crunching all of the numbers. Of course, you’ll need to run the income figures to decide if you can afford the service, but you’ll also need to tally how much of your time you can afford to invest into the property. If you don’t have much time, it's probably best to rely on professionals. But, if you have time and skills to spare, you could save money each month taking care of the property yourself.
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