In the quest to increase the return on your rental property investment, you are probably concerned with the fees you’ll need to pay for professional management. You need to remember, however, that working with a professional property management company will often increase what you’re able to earn on your property. Professional managers can price your home better, protect it from bad tenants, and ensure that it’s increasing in value. You’ll have lower vacancy rates, and you won’t run the risk of making expensive mistakes.
Professional property management isn’t a commodity. It’s a valuable service that you need in order to be a successful investor. It’s also important to remember that your property management fees are tax deductible. Talk to your tax advisor or CPA about how you can use these fees to offset your rental income at tax time.
Fees will range from high to low, and today we’re sharing some of the costs you can expect when you work with a professional Dallas property manager.
Dallas Property Management Fee Structures
There are two different structures that most property management companies use when they are charging their customers. You will either pay a flat fee or a percentage of the rent that is collected on the property.
Before you sign a management contract, make sure you understand which system your property manager uses. You’ll also want to know what’s included in those fees. A flat fee can seem like a great idea, especially if your property rents for a lot of money. But, if that flat fee doesn’t include things like inspections, serving notices, or accounting reports, you may end up with a bigger price tag than you realize.
Each pricing structure has its own set of pros and cons. Just make sure you understand the way you’re being charged, how you’ll be expected to pay, and what you’re getting in return for those management fees.
Dallas Leasing Fees
Before you start paying your management fee, you’ll likely need to pay a leasing fee or a tenant placement fee. This is the cost of finding a resident for your vacant home. Again, depending on the management company, you could find yourself paying a flat fee or a percentage of your first month’s rent. It allows your property manager to take professional pictures of your home, advertise the property, answer questions about the listing, show the home, and collect applications.
The leasing fee should also include the cost of screening tenants. Your property manager should collect an application fee from your tenant, which will cover the cost of collecting credit reports and running background checks. Your leasing fee will compensate the property manager for using the necessary knowledge, skills, and resources to thoroughly and completely screen a tenant.
Before you start to worry about the cost of a leasing fee, think about what you’re getting from an experienced, competent professional:
- Recommendations on how to make your property more attractive to high quality tenants.
- Help with pricing the home properly, which reduces vacancy and gets a good tenant placed quickly.
- Access to all the best rental sites as well as the property manager’s website and even the Multiple Listing Service (MLS).
- Complete tenant screening, which includes eviction and background checks, credit checks, criminal history checks, employment and income verification, and rental references.
Protection against fair housing mistakes that could get you into legal trouble.
Your leasing fee will either be charged at the signing of your management contract, or you’ll have it deducted from your first rental payment.
Dallas Property Management Fees
The leasing fee is a one-time fee, but the management fee is something you’ll pay on a monthly basis. It covers the cost of managing your home on a day-to-day basis. This is typically a percentage of the monthly rental income you earn on your home, but some management companies will charge a flat fee instead.
What does this fee include? It depends on the management company you’re working with, but at the very least, it should include:
- Rent collection
- Tenant relations
- Lease enforcement
- Serving notices of late rent and lease violations
- Move-in and move-out inspections
- Responding to and scheduling maintenance
- Code and legal compliance on a local, state, and federal basis
If you’re paying a percentage of the rent that’s collected, you can usually expect to pay between 8 percent and 12 percent. Finding a lower price might seem enticing, but remember that you have to compare services when you’re comparing fees. You will get what you pay for, and a discount management company might not be interested in providing you with the best service.
When you receive more services, more experience, and more responsiveness, you’re also receiving a higher ROI. It’s worth paying a management fee that’s a little higher than the discount prices when you can count on that type of value.
Most management fees are simply deducted from the rent you bring in every month. So, if your property earns $1,500 in rent, and your property manager charges a 10 percent management fee, the $150 you owe your property manager will be deducted from your rent, netting you $1,350 before any other expenses or invoices are paid.
Additional Fees in Dallas Property Management
The leasing fee and the management fee will likely be charged by every property manager you consider. Some will have all-inclusive fees, and others will charge additional fees. You might run into an extra charge for advertising, or for your account set-up. Some property managers will charge an administrative fee or a technology fee.
You shouldn’t pay any management fees when your property is vacant, because a vacant property isn’t earning any money. If your property manager still collects a management fee on a vacant property, what incentive is there to place a tenant?
Another additional fee might come in the form of maintenance mark-ups. Some property management companies will include an additional fee on top of what you pay to a vendor or a contractor when maintenance is needed at your property. For example, if a plumber needs to fix a leak or replace a water heater and the amount of the bill is $250, your property manager may assess a 10 percent mark-up, in this case a $25 surcharge, which they would keep themselves.
One of the benefits of working with a professional property manager is that we have relationships with some of the best local vendors in Dallas, and we can negotiate lower rates for our owners. Make sure you aren’t offsetting those savings with mark-ups that are too high.
Other additional fees that might show up include inspection fees, eviction fees, and expenses for other services that are not covered by your management fee. Additional fees aren’t necessarily unjustified, but you do want to be aware of them. No one likes hidden fees or surprises when monthly statements show up.
Dallas Property Management Expenses
In addition to management fees, you need to be prepared for property expenses. These are different from fees, and they depend on a number of things, including the age, condition, and location of your property. You’ll need to set aside some money for maintenance. Repairs will be necessary, even if you’re renting out a brand new home in excellent condition. Your property manager may require a maintenance reserve, in which you’ll keep a few hundred dollars to pay for minor repairs.
There are other expenses that come with being a landlord. If your tenant needs to be evicted, you’ll need to pay for court costs and possibly attorney fees. You’ll have to pay a locksmith to re-key the property and possibly hire movers to take any of the evicted tenant’s personal belongings out of the property. Some management companies will offer eviction protection for an additional fee so you won’t be responsible for those costs if eviction does become necessary.
Turnover costs are also something you need to be prepared for. That time between tenants can be expensive because not only are you not earning any rent, you’re also paying for things like new paint and carpet cleaning. These are not expenses that your property manager will cover, so make sure you’re prepared to pay for them.
Do a little budgeting for property improvements as well. These are worthy investments. If all of the appliances in your property are old and inefficient, you may have a hard time attracting great tenants. You don’t have to remodel your whole kitchen, but a few small upgrades and updates will make a difference in what you can charge for your property and how quickly you’ll rent it.
When you’re looking for a property management company, it’s critical to ask about their fees. You want to understand how much you’ll be paying, when you’ll be paying it, and what you’re getting for your money. Talk about these things when you’re interviewing potential managers, and remember that the cheapest property manager isn’t always the best one. You’re looking at more than the price tag; you’re looking at the quality of management, the experience, and the responsiveness that your management company can provide.
If you have any questions about the cost of professional property management in Dallas or you’d like to know what we charge, please contact us at Specialized Property Management.