Property managers serve as real estate’s third party. They handle the day-to-day operations of landowners. And they receive a fee or a percentage of the rent received by the landowners.
What do Property Management Companies do?
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But to know more about the property management company, we need to ask, what is it that they do? If you’re going to play the real estate game, you need to understand this very well.
The main responsibility of property management is to find tenants. If you have a vacant house, it is the property manager’s job to find someone. Also, it still pertains even if you want to rent it out. Most property managers do not sell lease options. They only deal with property management. They will find your tenants and will also replace tenants.
Also, property managers will collect the money. If you are a big-hearted person, being a landlord will not be easy for you. People are always looking for some wiggle room. To avoid that, the property managers will take care of collections. And they will enforce a contract to the tenants for late payments.
They will also take care of evictions. These property management companies have standards for a good tenant and for a bad one too. They will do background checks or some reference checks on the tenants. This way, you as a landowner will not have to deal with “nightmare tenants.”
If your property needs repairs, property managers can act as the repair company. They might also be the third party to the repair company.
So, in a nutshell, property managers find people for your house. Also, they enforce the contract and get people out.
How profitable is a Property Management Company?
Suppose you create a property management company with integrity. It should charge a fair amount of money, somewhere between 8%-9% for small projects. And a little less for larger projects. Only then can you make good profits in this business.
Now you can leverage that and make more money for yourself by buying rentals in the area. You will need to manage them and create a solid system to manage your assets.
By doing so, you can reap the benefits of your rentals and manage properties for other people. And you will be able to keep your overhead met and to pay the company bills.
But how many do you need to have, and what kind of profitability will they provide?
Here is what you need to do:
You will need to charge 8%-10% for managing smaller properties like single-family units. And lesser for larger or multiunits. So, if you are managing a property that charges $1000 in rent, you get $100 in revenue.
To make a reasonable amount of revenue for your salary and your workers, you will need to expand. Also, you will need to hire a maintenance person for your company. Thus, you will need to have at least 60 to 75 units under management to pay yourself and your staff.
In short, property management can be a very lucrative business. But with a work ethic and a solid system, you can generate more than enough revenue. Also, you can build your real estate investment portfolio through the business.
How do Property Management Companies make money?
Management Fees
The most obvious source of income for any property management company is the management fees. As mentioned earlier, you can charge 8%-9% for a single-family duplex. Even if the property is not leased, some management firms can charge the landowner a monthly fee. Similarly, others have a set payment date, which is usually the first day of the month. They have the right to charge a fee whether the tenant paid the rent or not.
Lease Fees or Signup Fees
The companies charge either signup or lease fees. The main difference between the two is the upfront signup fees. It will cover the cost of advertising your rental, drafting a lease, and inspecting the house. But in the case of a lease fee, property management companies charge a fee after a tenant moves in.
Property management companies also charge a nonrefundable application fee per applicant. The price varies depending on the company, but it is usually about $40-$45. By doing so, they can earn six months to twelve months’ worth of management fees.
The other ways a property management company makes money is by charging late payment fees, service fees, and maintenance fees.
FAQs
How much do Property Managers make?
Property managers, on average, make just under fifty thousand dollars a year. So their salary could be anywhere from 33k to 74k. By getting a rental occupied, it creates cash flow that makes income for the investors. And that creates visibility for the property manager. Thus, it will give the manager a chance to gain more responsibility, compensation, and incentives.
Property managers will also have some bonus structure. It might be anywhere between $350 a year to $1000 profit-sharing. The profit-sharing with management, landowners, and investors can also be $7000 a year. In profit-sharing, the commission could be $600 to $10000 a year. And that will bring their pay to a minimum of $29000 or a maximum of $740000 a year.
Plus, the average compensation is trending towards the $53000 mark over the last five years. There has been an 8 percent increase in property managers’ salaries. It is outpacing almost every other career out there.
So if you’re considering being a property manager, there is a tremendous opportunity to earn money.
How much are the Property Management Company’s fees?
Every property management company will charge different rates. It depends on the services they offer and the city or state they live in. The companies structure their fees based on what they are and what their services are worth.
So, this is an average fee breakdown of what property management companies charge. It involves move-ins, move-outs, inspections, posting notices, and monthly management fees.
The companies charge about 8%-10% of the gross monthly rent for an individual property. Also, they can charge a flat fee percentage per month. Plus, $100 for lease renewal fees.
In flat fee, multifamily units that are apartments might cost up to $60 per unit. And a single-family home might be up to $125. Property management is very time-consuming. And the property managers will need to take into account a lot of factors. Besides this, the prices will also involve advertising the property and doing background checks on applicants.