7 Important Fees for Landlords to Know
August 27, 2019
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The Fees That All Landlords Should Know
When it comes to generating revenue from your properties, rent is King. But there are a whole lot of other charges that make up the Cash Flow Court. Managing properties is all about generating revenue and mitigating expense, and a great way to do both is to find legal and reasonable fees to pass onto your tenants. This is, of course, not about penalization or squeezing your tenants for every dollar. In fact, many of these fees have been established from experience when landlords have been bitten by overgenerosity with a bad tenant in the past. Below are seven fees you should be aware of and consider if appropriate for your portfolio.
Managing properties is all about generating revenue and mitigating expense, and a great way to do both is to find legal and reasonable fees to pass onto your tenants.
1) Application Fees
Screening your tenants is an excellent way to ensure you always have quality renters. You may choose to charge prospective tenants a small application fee simply for applying to one of your units. Some states do not allow application fees to be charged at all. If they do permit application fees, they generally require that they are not excessive and that the fee go directly toward covering tenant-screening costs. Look up your local laws to find out what the limits and rules are. You should also be aware that applying an application fee may turn off some of your best prospective renters who may be annoyed on the spot that they have to pay just to apply without the guarantee of getting a space.
2) Broker Fees
Broker fees are more typical in big cities like New York where the competition for living spaces can be tough. As a result, some landlords won’t consider a prospective renter unless they work through a broker. If you are getting set up in a city where this is a common practice, you should be aware of how that relationship works. If you are required to work with brokers or choose to do so of your own accord, you’ll need to arrange payment structures that include the broker’s fees. These fees vary but are often something akin to 15% of a year’s rent or the cost of one month’s rent. Consider this part of the move-in process and collect it before handing over the keys.
3) Move-In Fees
Like security deposits, move-in fees are collected at or before the tenant moves in. However, unlike security deposits, move-in fees are non-refundable. Transitioning tenants comes with a host of expenses that landlords have to cover—updating the building directory to include the new tenants, giving the unit a fresh coat of paint, making new keys for the new tenants, minor repairs on the walls and floors, and so on. You can charge tenants a one-time move-in or administrative fee when they first arrive to help you recover the cost of those services.
Whether to charge a move-in fee is up to you, but it is something you must articulate clearly in the lease agreement. Your local state or municipality laws likely dictate whether you can charge a move-in fee and what that amount can be. For example, move-in fees are often 33–50% of one month’s rent and cannot exceed 50% of the cost of one month’s rent. No matter what you charge, make sure you can justify that amount with real, itemized costs.
If you are just getting started as a landlord, you may be deliberating how to manage utility bills for your units. If you decide to keep utilities in your name (or your business name), you will likely add a charge to the cost of the rent each month to cover those expenses. Regardless of how you approach utilities, you’ll want to articulate all the ins and outs of managing utilities in your lease agreement.
5) Pet Fees or Pet Rent
Like most Americans, we love pets, and we strongly encourage landlords to keep their properties pet-friendly whenever possible. Pet moms and dads are often excellent and responsible renters, and their furry friends are great members of the community. But if you do decide to rent to tenants with pets, we also advise that you charge a pet deposit. Even well-behaved pets can cause damage to your units, and you’ll want a fund you can pull from.
Entirely separate from a pet deposit is a pet fee (a one-time payment at the time of move-in) or pet rent (a smaller amount paid alongside each rental check). Deposits are meant to be a safety blanket in case of damages. Pet fees / pet rent are an admission that the pet will do damage to the property in the form of increased wear and tear, and that’s okay. It can be particularly useful in carpeted units that will inevitably be affected by dirty paws and anxious gnawing.
A word of caution: As per fair housing laws, it is illegal to charge any pet fee to a tenant with a disability who owns a service or emotional support animal. While you can’t charge fees up front for these tenants, they are still responsible for any damages their animals cause to your property, and you may deduct funds from the security deposit to cover that damage.
Amenities are bonus facilities, services, and conveniences in a living space like a community pool, laundry, gym, media room, tennis courts, and so on. These items can be a huge draw for prospective tenants and add a sense of luxury to your units. However, some of these amenities can be expensive to maintain. As a result, many landlords choose to charge a bit extra for them.
Do you want everyone to have to pay for these amenities, regardless of whether they use them? If that’s the case, you should incorporate the cost of providing these amenities into the rent and articulate clearly what any extra charges cover in the lease agreement. Adding fees that are separate from the rent for things like amenities can be legally dicey if you exceed state-dictated limits for add-on charges, enforce charges that are not allowed, or require your tenants to pay these fees as a condition of living in the unit, regardless of whether they use the amenities.
7) Parking Fees
Parking is a hot commodity, especially in areas where space is scarce. If your rental unit includes access to parking, it’s extremely common to charge your tenants for that. Most often, landlords will charge a rate just below the going rate of local garages and surface lots. If the parking is attached to the building or, better yet, covered and attached, you should feel more confident in charging a bit extra. Tenants often leap at a property that offers convenient parking.
Charge Fees or Increase Rent?
Rather than charge for each of these fees item by item, some landlords simply increase their rent by an equivalent amount. Ultimately, deciding whether to increase rent or list out a bunch of additional fees is a question of marketing. Psychologically, a lower rent with fees attached will likely feel like lower rent and it will, of course, attract more inquiries. However, some tenants or prospective tenants will grate when faced with the laundry list of extra expenses they’re expected to pay. Strike a balance based on the number of fees you’re considering charging for and the types of services you’re offering. As always, be sure to consult your local laws – or better, a local lawyer – before taking any action, and clearly list all fees in your lease agreement.