As a rental property owner, it will be in your interest to hire the services of a property manager who can ensure that your property remains in top shape, while you keep receiving the rental income on time.
In recent years, Canadian real estate investors have been blessed with the influx of a sizeable number of property management companies!
So, what do these companies do exactly, and how do they come in handy?
Well, in most cases property management services are aimed at assisting property owners in the management of their rental property. In lieu of these services, the property managers charge a fee which may vary widely based on the region, the type of property, the rental income, and the services provided by the property manager.
Factors That Influence Property Management Cost
Let us understand some of the most prominent factors on which the property management fee is decided. These include -
Rental Property Size
As is obvious, the management of a bigger property will take up more time, effort and resources then that for a smaller property. Hence, the fees will vary accordingly.
Type of Rental Property
Right from a bachelor home to single family home, from multi-family properties to commercial properties, there are a wide variety of property types in the market including currently vacant properties. Depending on the same, the property management fees will vary.
Most property management companies charge a higher fees for older properties as they expect a higher number of maintenance requests from the prospective tenants.
Rental Property Region/Areas
In areas where the property owner is expected to earn higher rental income, the property management fees will be higher and vice versa.
Last but not the least, it is the extent of services that plays a vital role in deciding the property management fees. Some of the most commonly offered services include -
- Rent Collection
- Lease Renewal, other lease paperwork
- New tenant placement
- Routine maintenance
- Residential evictions
- Financial records management
- Pre-screening of prospective tenants
Various Heads Under Property Management Fees
Hiring a property manager usually comes at an upfront cost, and then an ongoing cost, both of which largely depend on the factors we discussed above. Let us take a look at each of these cost heads, and what they entail.
One-Time Initial Setup Fee
Most property managers across Canada charge this fee. It can be deemed as a registration fee that is simply meant to cover the cost of setting up the account of a new property owner under their gambit. In some cases, this initial fee is inclusive of a visit to the property to assess its condition, and that of communicating their presence to the existing tenants.
The initial set up fee is almost always within a $500 limit.
Monthly Management Fee
As the name suggests, this will be a recurring fee that you, as the property owner, will need to shell out every month. When signing the property management agreement, make sure to go over the specifications of the fee and what it includes. Depending on the offerings of the property management company, this fee may seem on the higher side. However, you must only make the final call after you carefully consider the inclusions.
More often than not, property management firms charge between 8-12% of the monthly rental income that you earn from each of your rental properties.
Types of Monthly Management Fee
This is essentially a stipulated amount that you would need to pay the property manager, every month. The average fee for the property management of a single family rental property can incur anywhere up to $300 per month. As the size of the property, or the rental income increases, the flat fee may also witness a rise.
Many property management companies believe in collecting a percentage of the monthly rent as the management fees.
Percentage Fee for Residential Property - Up to 10% of the Monthly Rent
Percentage Fee for Commercial Property - 8-12% of the Monthly Rent
Of course, the percentage fee will vary widely depending on the rent collected. If for instance the rent collected is just $500, charging a 8% fee would mean that the property management company only earns $40 a month, which might not be sufficient to cover their expenses. In such instances, it makes more sense for them to charge a 12% fee. For rental properties with higher rents though, the company may be willing to charge a lower percentage fee.
Other Fees Charged by Residential Property Managers
New Tenant Placement Fee
This is a distinct fee, that the property manager may charge in exchange for helping you find a new tenant for your property.
In case you are on the lookout for a new tenant, you should discuss this fee beforehand with your property manager. In most cases, the manager may charge you a placement fee amounting to 50% or 100% of a single month's rent towards this service.
The placement fee usually includes the following services - marketing the property, arranging tenant visits, tenant screening, preparing lease paperwork etc.
As indicated by the name, this fee is levied by the property management company in case a rental property lies vacant for a period of time. This fee is usually dependent on the services required for a vacant home.
Reserve Repair Fund
This is a separate account that the landlord puts money in for necessary repairs at the property. The landlord can choose to authorize repair deduction from the account, can choose to only be notified for repairs over a certain dollar amount or can choose to let the property manager use the account at their discretion. A minimum amount must be kept in this account, such as the equivalent of one month’s rent.
If you want a property manager to handle tenant evictions, you will have to pay for it. Expect to pay a few hundred dollars for each eviction, plus any associated court costs.
Early Termination Fee
If you break the property management contract early, you will often have to pay an early termination fee. This fee will vary greatly based on the terms of the contract. You may only be responsible for paying one month of additional management fees or you could be taken to court for breach of contract.