What commission do rental property managers usually charge?
Property managers provide on-going services and handle most of the tasks concerning the financial and physical management of the investment on your behalf. After opting to hire a rental property management company for your investment, the next step is to find out how much you’re expected to pay for the service.
Of course, the commission property managers charge varies depending on the service packages they offer. Because their fees depend on a variety of factors, choosing based on the best rate offered is a bad idea.
To make an informed decision and choose the best value-for-money option, you need a transparent overview of the services covered with each. Below we provide you with some basic guidelines on what commission rental property managers usually charge.
How Rental Property Managers Charge for Their Services
Rental property managers usually charge for their services using a property management fee system.
Flat-rate system
The flat-rate system is the less-often-used of the two and refers to a property management fee system where you pay based on an average, monthly flat rate. This amount is stable and not dependant on the type of property they manage, how high the rent for it is or whether or not the property is currently let.
Some property managers advertise this payment system as an “all-inclusive fee” and stress the advantage of having just this one and only cost to cover, without additional charges for other services.
As practical as it sounds, you need to make sure this kind of fee actually covers all the services you actually need. These packages tend to be limited in the range of services they cover without a tailor-made offer adjusted to the specific client’s needs.
Percentage-based system
This is a dynamic type of property management fee that formulates the amount you need to pay based on a percentage of the gross monthly rent paid for your property. This way of calculating the rental property manager’s commission allows for a tailor-made, personalized combination of services suited to the investor’s specific needs.
Most likely you will end up hiring a property manager that charges a certain percentage-based commission fee.
How to Recognise a Realistic Property Management Fee?
Before you can decide between price offers, make sure you know what exactly you’re comparing. Always ask the property management agency to specify what services their management fee offer covers.
A quality property manager will cover the basic bundle of services including:
- Rent collection and lease enforcement
- Dealing with the paperwork and daily administrative tasks
- At least two property inspections per year
- Organising and overseeing maintenance
Additional benefits that a property manager can guarantee and include in their commission could be:
- A professional team with flexible availability, reachable for emergencies
- Internal practices to guarantee shorter vacancy times
- Up to four property inspections per year on a quarterly basis
- Extended property inspection reports with guidelines for improvements
- Local industry insights
In most cases, there are certain costs not covered by the monthly management fee and you should anticipate extra charges for these. Additional fees not included in the basic management fee usually include:
Letting fee
The letting fee covers a professionally performed tenant screening process and the handling of administrative work involved after finding a tenant. The specific services covered include:
- Marketing the vacancy such as an online listing of your property on specialized websites and any kind of offline advertisements.
- Sometimes a professional photography fee will be included, usually after consultations with the owner.
- Performing detailed checks on prospective tenants in line with a thorough tenant screening policy
- Organising property showings
- Regular communication with the owners and updates concerning the process
- All administrative work involved in placing the selected tenant including the signing of the lease
- The move-in inspection is often also calculated under this cost
The letting fee is a one-time additional cost usually paid as half of the first month’s rent. In some cases it will cost you one weekly rent or, less often, a flat rate is charged. In either of these two cases, make sure to find out exactly what services the letting fee covers as some of the above may be omitted and charged additionally.
Lease Renewal Fee
You may not need to pay an additional renewal fee as some property management companies include this in the commission. Most often, a renewal fee is charged in the same amount as a lease fee.
Lease renewal is an important aspect of ensuring high rental yield since keeping good tenants for a longer period of time has a beneficial effect on the yield. Paying a renewal fee can additionally serve as a strengthened incentive for the property manager to work for tenant retention.
Various Administrative Fees
Your rental property manager can take over extra tasks that come with unforeseen circumstances. In such special cases most likely an extra fee will be charged, part of which is to cover administrative costs. These cases include:
- Evictions
- Civil and administrative costs for court proceedings in case of tenant-landlord disputes
- Postal service fee in case of mailings
- Move-out inspections
- Insurance claims, for instance in cases where the tenant doesn’t pay the last monthly rent
- Annual financial statement fee
What Is the Average Rental Property Management Commission?
Property management commission ranges from 5% up to about 15% of the rent paid for your investment property, plus GST. This amount covers the basic property management services including the monthly management tasks and rent collection. The exact commission will vary from area to area and will depend on the type and value of your property.
Property management agencies that charge a flat rate in the form of a fixed annual fee usually set it at about 7.5% plus GST.
Don’t forget that you’re also paying GST, so when looking at property management offers, make sure to check whether they are stated in amounts inclusive of the GST or not.
As noted above, a number of additional costs get charged in addition to the commission fee. Expect to have more of these additional costs with agencies that charge closer to the 5% for the management fee, whereas a higher percentage for the management fee is likely to have less additional costs later.
And in the end, bear in mind that you need to inform yourself about the specifics of this before concluding a contract with a rental property management agency.
What Determines the Property Management Commission Rate?
The average property management commission rate will depend on several factors, including the location of the property. As a rule of thumb, in areas where an abundance of rental property management agencies compete on the market, you can usually secure a good deal for lower prices. Likewise, in areas with a few property managers, the prices will be higher.
In a similar vein, property management fees tend to be lower in inland suburbs and areas closer to the CBDs, while a good property manager will likely cost you more in outer and more secluded suburbs.
Population density also matters. In areas with a greater number of apartments, houses and units, and especially localities with many higher-value properties, management fees will be lower.
The experience of the agency also plays an influential role in setting the rate. Of course, more experienced agencies with a long list of satisfied clients will charge higher fees. You need to decide on the quality-cost trade-off, however, sometimes newcomers to the market can surprise with a far more meticulous and personalized service than a more established property management company. Thorough research can help you assess offers and land a good deal.
Takeaways
You can’t have a simple answer to the question of how much commission do rental property managers charge. To a great extent, what you end up paying depends on the kind of rental property management services you want.
In any case, make sure you inform yourself well before taking a decision. To choose the most efficient property management offer you should have a clear idea of what you will get with each. Ask many questions and consider whether the offer matches your specific property’s needs.
