With so many financial considerations for buying a tiny home or investment property, it’s easy to push property management fees to the back of the list. However, property management is essential for any rental property owner and should be calculated into the investment.
Property management companies vary widely for short-term and long-term rentals in their services and what they charge. A good property management company should be able to keep your property booked out, maximize profits, and handle most of the responsibilities of managing the property.
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Property Management Fees Explained
When researching property management companies for any rental investment, it’s essential to understand the details of their services.
Different management companies are available depending on the property owner’s needs. Understanding if the company focuses on long-term or short-term rentals will be the first thing to look for. Then learning what services they offer and how they collect fees will be a significant deciding factor on who the property owner uses.
How do Property Management Fees Work for Annual Rentals?
A property management company can structure fees on annual leases in two ways: Either by taking a percentage of the monthly payment or charging a flat rate for the year.
Percentage Fee
This is the most commonly used option. Paying a percentage fee means that when the rent is paid each month, the property management company takes a cut off the top before paying out the investor.
Percentage fees range between 8%-10% of the total monthly amount. For example, if the property rents for $2,000 a month, the investor can expect to pay the property management company $200 monthly at a 10% average fee.
Flat Fee
As with all things in life, a flat fee service model has pros and cons.
Investors can expect to pay $100 monthly for a flat rate contract. This may be more affordable than a percentage fee depending on the monthly rent; however, some property management companies may not put forth as much work to get top dollar for the rental if the cost is the same either way.
Management Fees for Short Term Rentals
Short-term rentals, such as Airbnb or vacation rentals, have a wide range of fees that can be collected.
An investor can expect to pay between 10% – 50% for short-term rentals, depending on what the property management company is tasked with. A full-service property management company will charge more than a company that manages a few aspects of the home.
There are three different models for short-term or vacation rentals:
Guaranteed Income
The property manager pays the rental owner a fixed monthly rate with a guaranteed income. This rate is paid whether there are bookings or not.
A benefit of this model is that the property owner receives a consistent passive income all year.
The downfall of the guaranteed income model is that the payout will not change during peak season rentals when the nightly fee may be higher.
Fixed-Rate
Similar to annual rentals, the fix-rate model will charge the owners a flat fee for a certain number of services.
The property manager and property owner will determine what services are needed, and then a flat fee will be calculated. Any additional services throughout the year will be treated as an add-on and cost more money.
Commission
A commission-based model means that the property manager is entitled to a percentage of the monthly rental rate.
Depending on the services performed and the rental location, fees can range between 15% – 40%. The average commission fee is 28%, with a lower percentage for urban vacation rentals and a higher percentage for mountain rentals.
What Services does the Management Fee Cover?
There is no one-size-fits-all for the services that property management companies cover. When looking into a company, it’s essential to ask questions about what problems are covered, what structure they use, and to understand the fees if the owner needs the management company to do an additional service at any time.
Marketing
One benefit of hiring a property management company is staying up-to-date on the rental trends in specific areas.
Count on local property management companies to know what to charge per night/month, where to advertise, and how to get guests into the property. Marketing might be included in your property management fees or an additional charge, so make sure to ask!
Cleaning Services
After each guest leaves, the property must be cleaned before the next one arrives. Some companies have the cleaning fees already worked into their rates, while others charge an additional cost.
Maintenance and Repairs
Upkeep and repairs are essential to maintaining any structure. Additionally, sometimes emergencies happen that aren’t converted by insurance or warranties.
Extensive repairs such as a leak or something breaking have to be addressed immediately, especially if a renter is in the home at the time. Many property owners don’t have the time or ability to rush to the house if something arises.
Additional Fees for Rental Owners
Many other fees can come up, so reading through the contract and understanding what is included is essential. Here is a list of additional services that can come up when renting a home.
- Setup fee – this is usually a one-time fee that is charged when creating an account with a property management company.
- New tenant fee – when it comes time for the property management company to find a renter, they may charge up to 100% of the first month’s rent. The company is expected to do tenant screening, deal with application processes, etc.
- Booking management – The site will charge a booking fee if the home is a short-term rental or an Airbnb.
- Vacancy fees – some companies don’t charge for vacancies; others charge an average of $50 a month for a vacant property.
- Eviction fee – there is typically an hourly rate charged if a company has to present an eviction notice, work with attorneys, and potentially attend court.
The First Step
Hiring a property management company can save time and undue stress. It provides a barrier between the property owner and the renter and a sense of security that the renters will be screened correctly and the unit will be adequately cared for.
If you have further questions about property management fees or anything else in the world of Tiny Homes or Tiny Rooms, we’d love to help you answer them.
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