Determining Property Management Cost

All real estate investors must contend with the problem of property management, regardless of how involved with their properties they want to be. 

You must either hire help from a property management company or employee, or you’ll have to manage your properties yourself. There are costs associated with both options, whether it shows in your wallet or your free time. 

So, what does property management really cost? What does it take to maintain your rental business long-term, and how can you reduce costs, of all kinds, along the way? Read on to learn the answers to these questions and others about property management in 2023. 

What Does Managing a Property Involve? 

Managing a property involves organizing and overseeing the day-to-day operations of a rental business. Good property management requires a substantial amount of time, expertise, and experience, but the individual tasks a property manager might do are not necessarily difficult in and of themselves. The challenge lies in running a smooth and consistent operation that balances the property owner’s best interests. 

Here are a few tasks someone managing a property might do: 

• Collecting rent and issuing late fees 
• Sorting through rental applications 
• Screening applicants (reviewing credit, criminal, and eviction histories; calling up references; verifying income; etc.) 
• Marketing properties by regularly posting and updating rental listings 
• Drafting up leases 
• Keeping track of renewals and vacancies 
• Maintaining properties and hiring contractors 
• Coordinating repairs 
• Budgeting, accounting, and taxes 
• Keeping up with new or revised landlord-tenant laws in the state 

What is the Average Cost of Property Management? 

So, what does property management typically cost? 

It depends on what type of management we’re talking about. Property owners have three main options for management: They can either contract the work to a property management company, hire a property manager as an employee, or use software to manage the property themselves. Let’s look at what each of these options will cost you. 

Property Management Companies 

According to Apartments.com, the average cost of property management from a company is about 8-12% of your monthly gross rent. If we take the current average U.S. rent as $1,702 for an apartment around 900 square feet, that means a landlord with one average-sized and -priced unit would spend roughly $1,634 to $2,450 on basic property management per year. 

That seems…okay, right? But that’s not all. Many property management companies also charge an initial setup fee, which could be up to $500. Other companies charge tenant placement fees, which increase based on each tenant the property manager gets to sign a lease. This fee tends to range between half a month’s rent to one month’s rent. Then you’ll have additional fees for maintenance and repairs at the property manager’s discretion, which could range anywhere from nothing to several hundred a month. 

Now the total cost is looking more like this for your average-size and -priced unit: 

And that’s just for one average unit. If you own multiple properties (typically ten or more), your fixed-rate fee will likely decrease toward more like 4-7%, but the overall cost of property management is still likely to increase. And if your units are priced higher than average, you’ll pay more still.  

In general, the more units your property manager will be managing, the higher those units are priced, and the more work those properties need, the more you’ll pay. A small, cheap, relatively low-maintenance unit might only cost a few thousand a year to manage, but multiple high-value properties with high turnover and maintenance needs may be close to $10,000 a year. 

Independent Property or Resident Manager 

It’s hard to predict how much you’ll spend on an independent property manager or resident manager, as their price point would likely be something you would discuss in a private interview. An independent property or “resident” manager isn’t associated with any particular property management company, nor are they guaranteed to have the same experience or access to resources. You may even choose to hire one of your own tenants to work for you as the resident manager for the community, in which case it’s very unlikely that person has previous experience. Therefore, it’s safe to say that this option would cost less than hiring a manager from a property management company. 

However, that choice doesn’t come without risks or downsides. As a full-time employee, your independent property or resident manager needs a salary, benefits, paid time off, etc. Those are all on your dime. Plus, even if you pay them less per hour or month than you would a company, you may not be getting as many services or quality of service that you would with a company. Your employee doesn’t have the backing of a large company, nor the same resources to draw on or expertise to use in difficult situations. They may make some mistakes or fail to manage your properties in the most efficient way, ultimately costing you more in the long run. 

Property Management Software 

Software is a popular alternative to property management companies due to its potential to save owners money on those costly management fees. Thankfully, there are dozens of affordable (and if you sign up with Innago, 100% free) property management software platforms to help you do just that. 

Softwarepundit estimates that most small businesses pay between $10 and $250 per month (or $120 to $3,000 annually) for property management software. That’s substantially cheaper than our $5,144 estimate above for a property management company— and we’re talking about all that business’s units, not just one. 

Here’s what pricing looks like for the top property management software platforms out there in 2023: 

Beyond money, using software to manage your properties can also save you time and improve overall efficiency. Rent payments and late fees can be systematically automated, leases can be signed online, and tasks can be delegated to different members of your team. 

Is the Average Property Management Cost Per Month Affordable for Small Investors? 

New or smaller investors can’t always afford to pay out of pocket for an expensive property manager. Nonetheless, you don’t want to compromise on expertise and take a risk by managing your properties yourself if you don’t have any experience. Different investors prefer to be involved in their investments to different degrees, and it’s okay to not want to take on an extra job on top of your typical W2 job or other responsibilities. 

The affordability of a property management company ultimately depends on several factors, including your property’s location, number of tenants, occupancy/vacancy rates, etc. Your property management cost per month could be as little as $136.16-$204.24, which is affordable for many small investors. But keep in mind that this cost could also increase over time or as you gain more units. To determine which management option is affordable for you, it’s best to reach out to a management company and ask for a quote. 

How to Reduce Management Fees for Rental Properties 

Considering that management fees for rental properties can reach extraordinary heights, many owners want to know how to reduce them. Here are some ideas: 

1. Negotiate a lower rate with your property management company. You may be able to decrease costs by being willing to take on some of your property manager’s tasks. For instance, you could try to get a lower rate by handling maintenance. 

2. Focus on tenant retention. Fewer vacancies and less frequent turnover mean you’ll spend less on tenant placement fees. 

3. Spend time on preventative maintenance. This will prevent major issues from growing and result in fewer repairs over time. 

4. Introduce property management software if you don’t already use it. Most property managers these days have software they use. But if yours is old-school (or if you want to try self-managing), start researching some software options to increase automation, limit manager tasks, and reduce costs.  

Conclusion 

Managing a property involves a variety of types of expertise. From maintenance, leasing, and marketing to legal, accounting, and taxes, there’s no way you can be an expert at it all. It’s important to choose the kind of help that works best for you, your properties, and your tenants—whether that be a property management company or a versatile software solution like Innago. If you’re leaning toward the latter, be sure to get in touch with us, and we’ll be happy to explain how our software can help you save.