Guide To Property Management Fees and Operations

The most important function in managing a property is managing its operations. Typical activities in managing a property include:

• Collection of rent along with assessing penalties in the event of delinquency
• Accounting services including creating monthly financial statements, preparing annual tax statements and disbursing rental proceeds
• Administration of the lease including lease enforcement, tenant qualification and collection of security deposit
• Performing day to day repair and maintenance activities including providing twenty four hour emergency services
• Monitoring and managing vacancies which includes aggressively marketing vacant units (based on market rents) to potential tenants and coming up with promotional plans

As a property owner you should be concerned about the way management company structures its process including the collections system. Most of the manage¬ment companies combine their collections from all the different properties they manage into one single account. All the properties' expenses are taken care of from that single account. As a property owner you would not want to hire a management company which functions from a common account as this can lead to lot of confusion and financial mix ups. You should hire a management company that creates separate checking accounts for each property. The checking account is usually used to deposit all the rent collections. Once all the bills are paid, if there is any balance left it belongs to the property and its owner(s). One another important point to consider is whether the owner would have authority to sign all the checks and approve all the expenses.

Another important aspect of management company's operation is its fee structure. The management fee should be clearly mentioned in the contract. Usually, management fee is determined as percentage of effective gross income (after accounting for vacancy and credit loss). Generally, management fee is between four to six percent for smaller properties and between two to four percent for bigger properties. Normally, residential properties have higher fees than commercial properties because they entail relatively more work.

In addition to the above mentioned responsibilities, management companies also take care of supervision of construction work and capital improvements made to the property. The management company is responsible for reviewing plans and proposals, negotiating bids with various contractors and vendors and for supervising the construction and capital improvement process. Generally, the fee for this kind of work ranges between five to ten percent for jobs under $20,000, and from three to five percent for jobs above $20,000.

Property management companies also make money by getting leasing commission. They are responsible for either renewing old leases or getting new leases. Usually the lower fee is charged for lease renewals and a higher one for new leases. These lease commissions are usually shared with a tenant agent - an agent who is representing the tenant in finding the space.

Property owners are responsible to reimburse some expenses to the property management company. These expenses include but are not limited to mailing expense, bank service charges, travel expenses etc.

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