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Secrets the other guys don't want you to know

Don’t kid yourself. If you think management companies make money solely off management fees, you will be shocked to learn that for some management companies, management fees are only a fraction of their income.

Property management can be a very lucrative business; not because it is easy, far from it, but because there are multiple ways to make money from a single property.

Keep reading and you will quickly see what I mean.

Management fees are the most obvious form of income for any property management company. Some management companies charge a flat fee, while most charge a percentage of the collected rent — usually between 7-10% of the rent amount.

However, even this is not so simple. Make sure to check with your management company as to when they charge a management fee. Some management companies charge a management fee every month regardless as to whether your home is tenant occupied or not. Similarly, some management companies have set billing dates, usually the 1st of the month, and will bill you even if your tenant has not paid rent yet.

1st Rate Rentals currently charges 7% of the rent collected per month; moreover, 1st Rate Rentals billing is tied to rent collection, so we get paid only when you get paid.

Some management companies have a sign-up or start-up fee, while others, like 1st Rate Rentals, have lease fees.

The difference between the two is simple: Sign-up fees you pay up front and hope that the management company can find you a tenant before your contract expires. Lease fees, on the other hand, are fees collected for the marketing, showing, screening potential applicants, drafting the lease, and completing the move-in inspection AFTER your new tenant has moved in.

1st Rate Rentals is a firm believer in lease fees over sign-up fees. Management companies should have to work for their money.

Sign-up/Lease fees typically range from $199 to 50% of the first month’s rent. 1st Rate Rentals currently has a lease fee of $329.

Application fees can be a huge money maker for a property management company.

Many management companies charge a non-refundable application fee to even see a property, and we’ve seen these application fees range from $40 to $55 PER applicant!

Think about it this way: if a management company charges a $40 application fee and your home attracted 5 families (which is a very low number), each with two primary applicants, then the property management company just made $400. This is why some management companies are so eager to list properties– it’s not for the management fee.

At 1st Rate Rentals, we have no application fees. We feel that adding a fee to view a property or to simply complete an application adds an unnecessary barrier that may slow the rental process; heck, we don’t even require an application to view properties.

Read the fine print! Some management companies will charge you to collect late fees. No really, they will.

Many management companies will take a portion or all of the late fees collected. They argue that they had to follow up with the tenant and post notices, which is added work; therefore, they are entitled to more money.

We think this is crazy. They are already collecting a management fee. A m-a-n-a-g-e-m-e-n-t fee! You would think rent collection was part of that management — late or not.

Consider this: if your management company takes a portion of the late fee, what incentive do they have to place a quality tenant in your property? They make money when you get paid late.

1st Rate Rentals does not take nor charge a fee on late fees.

This one is tricky as these fees are often hidden.

Sure, your management company should handle tenant repair requests so you do not have to, but you should check to see if they affiliated with the maintenance company they use and/or if you contractually required to use the management company’s contractors. If you are, there is a good chance your management company is making money off repairs.

Some management companies actually employ in-house handymen and general contractors. These are employees of the company and may work directly for the company or under a dba of the company.

Ask your management company if you can use your own handymen/contractors for repairs. It is your home, shouldn’t you get to decide who works on it?

1st Rate Rentals only works with third-party handymen and contractors. For large repairs, we’ll even get you a second estimate. Moreover, you will always receive a copy of the invoice and the contractor’s information should you wish to speak to them directly. Even better, we always allow you to use your own repair people or even do the work yourself.

You would think that your monthly management fee would cover, you know, the complete management of your property, but that is not always the case.

Be sure to read your management contract thoroughly as some management companies will charge for notices or other things they consider outside the scope of merely collecting rent.

These service charges may include:

  • 3-day notices
  • 24-hour notices
  • HOA violation notices
  • Complaint notices
  • Returned check fees (NSF)
  • Uncashed check fees
  • Debt collection
  • Vacant property service/maintenance fees

Got a question?

Shoot us a message, we’d be glad to help.

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