Hiring a property manager to look after your investment properties can be a great choice. They’ll assume the responsibility for finding tenants, as well as collecting and repairing your properties. Multifamily property management fees can be high, but hiring a manager is often worth it—especially for real estate investors with a large volume of units.
Here’s what you need to know about the cost of hiring a manager before deciding if it’s the right approach for your units.
How Much Does Multifamily Property Management Cost?
Multifamily property management generally costs between 4% to 12% of the monthly rent amount. That said, some multifamily property managers charge as little as 3% or as much as 15%. This is generally more expensive than single-family property management because of the extra time and resources it takes to manage multiple units and common areas like hallways, parking lots, and on-site amenities.
Many multifamily property managers use a hybrid fee structure that includes both a flat fee and a percentage of monthly rent. Because of this structure, managers who charge hybrid fees are more expensive than those that only charge a percentage of monthly rent.
How To Calculate Management Fees
Property managers charge multiple fees, with some charged upfront and others charged annually. Likewise, a manager may impose additional costs for things like overseeing or leasing vacant property. When evaluating the overall cost of a manager for your multifamily property, consider all of these potential costs—not just the monthly management fee.
These are some common fees charged by multifamily property managers:
- Rent income
- One-time application fee
- Pet fees for tenants with animals
- A portion of the association fee
- A portion of other income earned by the property
Standard Multifamily Property Management Fees
These are some of the most common types of property management fees encountered by owners of multifamily real estate:
Initial Setup Fee
Many property management companies charge an initial setup fee of around $500 per unit to open an account and cover the initial costs of marketing each rental unit. This fee also covers various administrative tasks, including opening a bank account for your properties, inspecting your property, notifying current tenants of new management, and assisting with local licensing requirements. Notably, setup fees vary by property, and not all management companies charge them.
Monthly Management Fees
Virtually all property managers charge a monthly property management fee. Your contract will outline the monthly management fees and the services it includes. Property managers typically follow one of three major fee structures.
- Flat fee. A flat fee payment structure involves charging a specific dollar amount every month. Flat fees for multifamily properties vary based on several factors, including the number of units, number of common areas, and maintenance requirements.
- Percentage of rent. Many property managers collect a percentage of the property’s monthly rent instead of a flat fee. This percentage usually ranges from 4% to 7% for properties with ten or more units, but may be between 8% and 12% for fewer than ten units.
- Hybrid. Property managers sometimes opt for a hybrid fee structure that involves both a flat fee and a percentage-based fee. In this case, the owner typically pays a flat fee plus a lower percentage of the monthly rent amount.
Property management contracts also indicate how the property manager calculates fees. A “rent due” clause means the manager calculates a percentage-based fee using the property’s actual rent amount—even if the tenants don’t pay. Alternatively, “rent collected” language means the manager only receives a portion of the rent actually paid by the tenants.
Monthly maintenance fees cover costs for maintenance activities like the cleaning of common areas, garbage removal, snow and leaf removal, and repairs. Owners typically provide a separate reserve fund the property manager can draw from to cover these costs.
That said, landlords can handle payments for repairs and maintenance in one of several ways. Some owners authorize the property manager to use the maintenance account at their discretion, while others require their property manager to notify them when repair costs exceed a set dollar amount.
Additional Multifamily Property Management Fees
Many property managers also charge additional multifamily property management fees. Most of these fees are for activities like finding and evicting tenants and managing early contract termination.
Tenant Placement Fee
A tenant placement fee may be charged to cover the costs of finding tenants for your property. This may be a flat fee or a percentage of the property’s rent, with managers commonly charging between half to a full month’s rent upfront.
Property managers use this fee for advertising the property, screening tenants, and preparing a lease agreement. Some property management firms refund this fee if the tenant is evicted or breaks their lease early.
If you sign with a property management company when your property is vacant, you also may pay a vacancy fee worth up to one month of rent. Similar to a setup fee, the property management firm uses this money to cover holding costs for units that are not yet producing income.
Landlords sometimes have to evict tenants if they fail to pay rent or otherwise violate their tenancy agreement. In this case, the property management company handles the eviction process for the owner in exchange for a fee. This fee usually ranges from $200 to $500 per eviction, plus additional legal charges.
Depending on your state, the eviction process could involve a long legal process. For example, the state of Vermont requires landlords to provide a 14-day notice to tenants before terminating them for nonpayment of rent.
Early Termination Fee
Property management firms often charge an early termination fee to owners who end their contract before the full term. Where applicable, contracts state the size of this fee, but it’s common for it to be equal to management fees for one month. Likewise, the property manager may charge additional fees to property owners who violate their contract in other ways.
What Influences Multifamily Property Management Fees
Multifamily property management fees vary by the management company and the property being managed. Most often, though, fees are based on the level of services included in the scope of work. These are some factors that commonly influence multifamily property management fees:
Property Manager Responsibilities
Property managers are responsible for assuming the daily management of their client’s properties and resolving tenant issues on the landlord’s behalf. In general, a property manager’s responsibilities include finding and evicting tenants, collecting rent, and overseeing repairs.
However, if the management company provides additional services, like yard maintenance, front-desk staffing, or snow removal, fees are generally higher than for more basic services. Most property managers also charge a percentage of repair costs as compensation for their services related to property maintenance.
The size of a multifamily property is a major factor in overall management costs. Naturally, larger properties require more maintenance and more extensive management than single-family rentals. Because of this, the cost of hiring a multifamily property management company is typically higher than for a small residential property.
Property managers usually manage several different types of properties, including single-family and multi-family residential properties—and each type of real estate has different needs. As such, managers may calculate fees based on the type of property. For instance, if you have a vacant multifamily property, your property manager may charge more if they are required to remove squatters from the property or deal with other problems related to unoccupied units.
All multifamily properties require renovation and maintenance over time. Generally, though, newer properties require fewer repairs and updates than older ones. For that reason, newer properties typically have lower maintenance costs than older ones.
Is a Property Manager Worth It?
Multifamily property owners generally prefer hiring managers because this type of rental property is difficult to manage individually. However, whether a property manager is worth it ultimately depends on your property and your goals.
For example, if you don’t have time to handle maintenance requests or don’t want to search for, screen, and collect rent from tenants yourself, a property manager is well worth the fee. Conversely, if you don’t mind committing your own time and energy to management activities, you may prefer to save on fees each month.
To decide whether a property manager is worth it, weigh the costs and benefits. First, calculate the likely property management costs. Then, subtract this amount from your expected rental income. Based on that information, evaluate whether the management fees are worth the time you’ll save.