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How much does property management cost: know what to expect
It’s one of those kind of available/kind of not available figures that you’re probably burning to figure out while you plan for your next rental investment property. “How much do property managers charge?”. To confuse things, most rental management companies have completely different pricing structures which can make things difficult when figuring out what your ROI is going to be.
It’s super important to know in advance what to expect so that there are no hidden surprises and you can figure out what your cash flow is going to look like.
How much we charge is always one of the first things we’re asked and to be frank, we believe that you shouldn’t have to ask. Let the people know!
The purpose of this article is to clarify what it costs to have a property manager and the different types of fee structures available.
How a property management company charges you
When you engage a property manager, they will collect your rent on your behalf, deduct their fees (which are usually a percentage of the total rent collected) and any money spent on maintenance on your behalf and disburse (pay) you the remaining balance.
At Unbound Property Management, our standard, all-inclusive fee for our Free as a Bird package is 10% + GST. So let’s say we collect $480/week in rent on your behalf and you have no other maintenance bills that week then our fee for that week would be $480*0.1% + GST = $48 + GST. This amount is recurring for the duration of the tenancy so as long as the place is tenanted, a fee is collected. What does this fee cover you might be asking? See here for more information on what it actually includes.
The handy thing about this type of structure is that it incentivises a property manager to find tenants for your rental quickly. If it’s not rented, they’re not paid! It’s also good for easy forecasting of predictable cash flow.
Inclusive or non-inclusive management
Many companies will offer a few packages to better suit your situation and requirements. Some packages may be slightly lighter on services than others and charge a slightly lower fee to reflect this. At Unbound Property Management, for example, we also offer a 9% + GST package that has extra fees for things like property marketing and tenant selection. You may want to consider a plan like this as an option if your property already has tenants in place.
A situation that occurs frequently is a surprise inspection fee (which is usually around $40 and happens four times per year). Be careful when engaging a rental property management company to have a close look at their fee structure so that you don’t get caught out. Here’s an example of our pricing table to give you an idea of different structures:
- Tenanting & re-tenanting*
(*Includes photos, property marketing, tenant
checks & selection, entry & exit inspections) - Routine inspections
- Organising maintenance
- Rent collection
- 24/7 after-hours service
- Online portal access
- Tenancy tribunal representation
- Tenanting & re-tenanting*
(*Includes photos, property marketing, tenant
checks & selection, entry & exit inspections)
- Routine inspections
- Organising maintenance
- Rent collection
- 24/7 after-hours service
- Online portal access
- Tenancy Tribunal representation
To GST or not to GST
So all services in New Zealand incur a 15% tax and property management is no exception to this. What you need to know is whether or not your property management percentage is GST inclusive or exclusive because this can make a big difference! For example, our 10% package is 10% + GST so that actually makes it 11.5%. So a $48 per week fee is actually $55.20. Don’t be fooled by companies that don’t state whether their fees are inclusive or exclusive because you might get caught out.
If you operate your rental properties under the umbrella of a business as many investors do, you’ll be able to claim back this 15% GST. The tax is completely deductible. It’s just up to you to figure out whether or not the costs and time associated with having a separate legal entity are worth your trouble.
How property management companies compare to one another
You’re probably going to want to shop around for a good rate when you’re choosing a property management company, right? You want good service, value for money and a high return on your investment! So how much do different property management companies charge relative to one another? Let’s talk about it.
If you operate your rental properties under the umbrella of a business as many investors do, you’ll be able to claim back this 15% GST. The tax is completely deductible. It’s just up to you to figure out whether or not the costs and time associated with having a separate legal entity are worth your trouble.
Property Management fees can vary a lot depending on the company but also the region or city where the business is operating. In the Manawatu, fees range from 6 to13 percent approximately.
Some companies can command a higher percentage because they have a strong foothold in the market. However, this can also mean that they are looking after many rental properties which makes it hard to give each one the service that it needs.
Now let’s talk about the low end. It may sound great on your excel profit and loss statement but is it enough revenue for the property management company to cover the range of services that you’ve engaged them to do for you?
We recommend choosing a property management company with a mid-range fee structure so that you’re getting good bang for your buck whilst also making sure that you properly support the services that you’re asking for.
Other types of management
If you’re looking for a more hands-on approach with your rental, some property management companies will provide services such as tenant finding, property marketing tenancy agreements and help with Healthy Homes Standards. They can charge a one-off fee for these services and then let you manage the rest. This can be good if you have the time and energy to look after your rental yourself but just need a hand vetting tenants, for example.
Wrapping it up
Now you should have a good idea of what property management costs and which different options are available. It’s important to know in advance what to expect so that there are no hidden surprises and you can figure out what your cash flow is going to look like.
All the best with your journey to property wealth!
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