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Maybe you’ve just started thinking about hiring a property manager for your expanding portfolio - or, you might already have a property manager and simply want to know if what you’re paying is reasonable? We know how hard it is to find transparent information on property management fees and discern the best service among the hundreds of options available.
In this article, we’ll investigate the mysteries surrounding property management fees and help you understand where your money is going. By the time you reach the end of this article, you’ll have some newfound knowledge of property management fees and services that will help you make better informed decisions.
"How much does a property manager cost? What is included in the property management fee? And where exactly does my money go?"
The traditional property management fee pricing strategy
Usually, property managers charge for services as a commission of your weekly rent plus GST. If you’re unfamiliar with the business, or if it’s your first time, it can be hard to get a sense of how much you can expect to pay or what the average cost of property management is. Various factors may influence the amount you’re charged, and it can be tricky to know how to weigh these costs.
The location of your property is one of these factors. While property management in Sydney would average a 5.5% fee, Melbourne property managers average 6% as their fee, and you’ll find that the fees in Perth easily hit the 8-10% range. Fees can even vary within a state and it wouldn't be unusual to find lower management fees in popular metropolitan areas than in regional areas.
Another factor to consider is property management fees are negotiable. Owners with more properties under management can often negotiate a lower fee. Property owners with a single investment can also benefit from this by negotiating 'additional costs' in the base rate that might not make financial sense for you down the line.
These reasons alone make it really difficult to find accurate, up-to-date information on the price of property management fees. Whether you want to do a simple comparison or shop around for the best deals, you might find the going tough.
What is included in a property management fee?
So, what exactly should you expect your property management fee to pay for?
Again, this can differ widely, but many traditional property managers charge fees based on a percentage of the rent. This fee will typically cover just the basic, ongoing property management services. A separate fee will be added for other services.
It’s important that you carefully review your property management contract prior to signing. Understand the structure of the property management fee and ensure that there are no hidden extras that will cost you more down the road.
It’s hard to say exactly what typical property management fees look like. Every property management agency will have its own terms on what is and isn’t included in the fee structure. Always review the property management contract carefully - know what you’re paying for regularly, and what extras you might be expected to fork out down the line.
The services listed below are typically included in your ongoing property management fee or base rate:
- Collecting rent and following up on arrears
- Organising and managing the payment of bills, council rates, strata levies, and other ongoing costs
- Organising maintenance and repairs for the property
- Keeping you updated on legislation and laws that might affect you
The following services can also be included as additional benefits that may be optional and cost extra.
Here's what you should look out for:
- Leasing fee - Usually 1-2 week's rent. This includes receiving and assessing applications, negotiating lease terms and finalising the contract.
- Advertising/marketing fees - This can average around $300. As part of this fee, your property manager should arrange professional photos of the property, write the advertisement listings, and advertise the property to prospective tenants.
- Inspection fees - Some property managers will charge you an extra fee for regular property inspections. This means that they will periodically check that your home is well-kept by the tenant and identify any potential maintenance issues.
- Tribunal preparation fee - If evicting a tenant gets messy and you need to go to the Tribunal, many property managers will charge extra to prepare the documents you need for your case. The cost of this ranges widely - it can cost upwards of $100/hour, but it's also often charged as a flat fee that varies.
- Annual statement fee - Around $55. This is the administrative fee for preparing statements for the end of the financial year.
- Lease renewal fee - Usually 1 week's rent. This involves preparing lease contract renewals and advice on rent pricing.
- Admin fee - Around $11.50/month. This covers miscellaneous administrative fees such as postage, photocopying documents, preparing reports, spare key creation, storage, etc.
These are the typical duties you should expect a good property manager to do, and it's pretty much the reason why you need to hire a property manager in the first place.
Each property manager will have their own pricing model and the services they provide with their property management fees.
Paying a low ongoing property management fee may sound tempting, but always read the fine print and factor in the extra costs of leasing and regular inspection fees (among others!). You might be paying hundreds of dollars more each year than you budgeted. On the other hand, paying more for an all-inclusive property management fee could leave you with a dent in your finances. But if you find yourself in a sticky situation, like needing to go to the Tribunal, you won’t need to fork out additional fees.
How do you calculate property management fees?
The best way to figure out how to calculate your property management fees is to use a practical example.
Let's assume you own a 1 bedroom apartment in Sydney CBD and are renting it out at $550 per week.
Below is what you would be expected to pay, per year, when employing the services of a traditional property manager:
Property management fees in action
Ongoing property management fees
(5.5% of $550 per week) x 52 weeks = $1573
Property leasing fees
Leasing fees (two week's rent) = $1100
Property marketing fees (est. flat rate) = $300
Lease renewal fee (one week's rent) = $550
Monthly admin fees ($11.50 x 12 months) = $138
Annual statement fee (est. flat rate) = $55
$3716 a year
So, how much should you be paying for property management fees? At the end of the day, every property and property owner is different and has different needs. While the world of rental property management fees can be difficult to navigate, we highly recommend taking the extra time to review your property management contract and ensure you know exactly what you are paying for before signing on with a new property manager. These smaller costs can add up when balancing out your return on investment.
Here are some frequently asked questions about property management fees
Traditional property management firms will charge you somewhere around 6% of your weekly rental return in Melbourne. A flat fee model would be better giving you a more predictable cost as an investor and helping you save money over time.
Let's take this hypothetical -
Say you own a 2 bedder in Melbourne fetching you $680 per week, you can then use this formula to calculate your property management costs.
6% of $680 per week ($40.80) x 52 weeks = $2121.60 V/S $30/weekly (plus GST) x 52 weeks = $1716
A flat fee model helps you save on your hard-earned dollars
A typical property management fee may be a first time payment of 1 – 4 weeks rent, followed by a continuous payment of 5 – 10% of the monthly rent, though this will differ depending on the location and property manager
In New South Wales, a property manager will initially charge a fee for the first month’s rent, with a steady fee of 5-10% of your monthly rent. In Sydney’s, high-value suburbs, the cost of these fees drops due to increased competition amongst property management firms. In regional towns, the opposite is true, with fewer agents and low cost of homes the price of property management fees tends to rise.
A property manager will charge an investment owner monthly fees, either charged as a percentage of their rental price or as a flat fee model. These fees include - management of your property, solving maintenance issues, finding your tenants, managing your bills and regulatory requirements and making sure your home gives your steady returns. While there is no exact numerical figure here, experts recommend that on average you could pay 4-6% of your investment property's annual return on management alone.
Disclaimer: The views, information, or opinions expressed in this blog post are for general information purposes only and should not be relied upon. We have not taken into account specific situations, facts or circumstances, and no part of this blog post constitutes personal financial, legal, or tax advice to you.