In Miami, professional property management fees fall into two different types of models: the flat fee model and the percentage based model. Today, we’re explaining the difference and also talking about additional fees you need to consider when you work with a property management company.
The Flat Fee Model
With flat fees, you are charged a set rate per month. You need to understand that in some cases, you are paying that flat fee whether the property is vacant or occupied. You may also still have to pay the monthly rate even if you have a tenant in place who is not paying rent. Within the flat fee model, there is also a variation that’s known as a tiered system. Under a tiered system, you’re paying management fees based on a tier of services. So on the lowest level, you might be charged a minimal amount for your property manager to handle something as basic as rent collection. For a little more per month, you can have accounting involved too, and for more money, you pay to be at a tier that includes all-encompassing services.
The Percentage Based Model
I like to call the percentage based model a performance based model. That’s because the management fee is directly tied into the success of the property. A property manager is only getting paid when rent is collected. So, if the property is vacant, the management company is not collecting their fee. If a tenant is in place and not paying rent, the property management company won’t get paid. The fee is dependent upon the performance and collection of rent.
Regardless of the model that’s used, you will come across additional fees as well. Some of these might include fees for postage and long distance phone calls. Your management company may add a percentage on top of material invoices, or in addition to contractor invoices. Sometimes, a company will charge you to oversee turnover work and renovations, or to manage insurance claims. You could even be charged a convenience fee when your management company is transferring funds to your account. Look for lease renewal fees as well.
Other charges you might not have considered are those fees assessed to tenants. Some of these are application fees when a tenant applies to rent your property, or a re-application fee that’s charged on lease renewals. Sometimes, there’s a convenience fee to pay rent online, annual inspection fees, and lease renewal fees. You might not think these are important since they are tenant fees, but they are. If a tenant thinks these fees are too much, they will be less inclined to renew a lease. When a good tenant doesn’t renew, it can cost you between two and three months of income in turnover.
No matter which fee model you end up with, remember the cheapest company is not always the best company. Just as you wouldn’t want the cheapest surgeon performing work on your heart, you don’t want the cheapest property managers to be responsible for your investment property. You want a company that’s professional, experienced, and responsive.
If you have any questions about property management fees, please contact us at Trident Real Estate.