Are you considering hiring a property management company for your investment property but unsure about the costs involved?
Understanding property management fees is essential for every landlord. These fees can vary based on several factors, and knowing what to expect can help you make informed decisions about your investment.
The management fee of property managers typically ranges from 5% to 12%, mostly staying within the 7%–9% range. However, there are other fees you should learn about.
In this guide, we’ll break down the typical property management fees, helping you understand what each fee covers and how much you can expect to pay.
A Breakdown of Typical Property Management Fees
Property management fees aren’t limited to one category; there are different fees to consider when choosing your service provider.
Here are the main types of property management fees:
Management Fee
This fee covers the day-to-day management of your property, including tasks such as rent collection, maintenance coordination, and tenant communication.
The average property management fee in Australia is 5% to 12% of the monthly rent, but it may differ according to the type of property management you’re looking for.
Leasing Fee
The leasing fee is charged when a property manager finds a new tenant for your property. It covers advertising costs, screening prospective tenants, and lease preparation.
When you reach a lease agreement, you can expect to pay one to two weeks’ rent as a leasing fee, but it may differ across property management agencies.
If you want to learn more about the landlord-tenant dynamics of lease agreements, read ahead to know what you can and can’t do during lease.
Lease Renewal Fee
The lease renewal fee is charged when a tenant renews their lease. It covers the administrative costs associated with lease renewal.
The average renewal fee in Australia is one week’s rent.
Advertising Fee
The advertising fee covers the cost of advertising your property to attract potential tenants in the rental market, including marketing fees and extra costs.
Just like you’re looking for the best property management company for your needs, your property manager will look for the best tenants for your property, which comes at a cost.
See also: How To Find a Good Rental Management Company
This fee varies depending on the property management company you choose because it relies on the channels used to advertise. Whether it’s a billboard or a social media post, each method pays differently.
Maintenance Fee
The maintenance fee is an ongoing cost that covers the cost of maintaining and repairing your property. It varies according to the type and size of your property, and some property managers include it within the monthly management fee to make matters easier for you.
Additional Property Management Fees to Consider
In addition to the standard property management fees, there are several other costs that property owners should be aware of:
Hidden Fees
While most property management companies are transparent about their fees, as a landlord or an owner of a real estate agency, it’s essential to be aware of any potential hidden costs.
These could include charges for services such as maintenance, routine inspections, or administrative tasks you didn’t take account of.
Before signing a contract, ask the property management company to outline all potential fees to avoid any surprises down the line.
VAT (if applicable)
In Australia, goods and services tax (GST), commonly known as VAT, may apply to property management fees.
The current GST rate is 10%, so make sure to factor this into your budget when calculating the total cost of property management services.
Factors That May Increase or Decrease Property Management Fees
Though the rates of property managers are mostly within the same range, some factors can influence the fees you’ll be paying:
Location
The location of your property plays a significant role in determining property management fees.
In general, fees tend to be higher in major cities and urban areas compared to regional or rural locations. This is because property management companies in high-demand areas often have higher operating costs, such as staff salaries and office rent.
For example, property management fees in Sydney or Melbourne are typically higher than those in smaller cities or towns.
Property Type and Size
The type and size of your property can also impact management fees. Larger properties or those with more units generally require more time and effort to manage, which can result in higher fees.
Additionally, different property types, such as residential, commercial, or industrial properties, may have varying fee structures.
For example, managing a commercial property may involve additional tasks such as negotiating leases and maintaining common areas, which can increase management fees.
Property Management Company
Each property management company sets its own fee structure, which can vary based on factors such as the company’s size, reputation, and level of service.
Larger, more established companies may charge higher fees, but they may also offer additional services and expertise.
On the other hand, smaller companies or independent property managers may offer lower fees but may have less experience or fewer resources.
It’s essential to consider not only the cost but also the level of service and expertise provided by the property management company when comparing fees.
Tips for Negotiating Property Management Fees
Negotiating property management fees can help you find a balance between cost and quality of service. Here are some tips for negotiating fees with property management companies:
Research and Compare
Before approaching a property management company, research and compare the fees charged by different companies in your area. This will give you an idea of the average cost and help you negotiate from a position of knowledge.
Negotiating blindly may cause you to take on a higher fee without meaning to.
Understand the Fee Structure
Take the time to understand the fee structure offered by each property management company. Some companies may charge a flat monthly fee, while others may charge a percentage of the monthly rent.
Understanding how fees are calculated will help you negotiate effectively and choose the structure that fits your business best.
Get Everything in Writing
Once you’ve negotiated a fee with a property management company, make sure to get the agreement in writing. This will help avoid any misunderstandings or disputes in the future.
Final Thoughts
Typical management fees range from 5% to 12% of the monthly rent of your rental properties, but the rate may vary according to the size and type of your property, its location, and the company you’re hiring.
When negotiating with the company, make sure to get everything in writing and understand their fee structure well. Additionally, ask for a full transparent view of the fees you’ll be paying to avoid hidden fees and disagreements later on.