How Should You Pay Your Property Manager?

If you've recently acquired one or more rental properties -- or are moving and plan to rent your house out rather than sell it -- you may be considering hiring a property manager to attend to your rental property. Property managers not only help collect rents and arrange for repair and maintenance of the property, but can solicit and screen tenants, prepare lease agreements, and even help you through the eviction process. However, these services come at a price. How should you determine how much your property manager should be paid? Read on to learn more about the most common pay arrangements, as well as which type of arrangement works best for you and your property.

What are the more common payment arrangements for property managers?

Most property managers are paid as a percentage of rent. For example, if your home rents for $1,000, and your property manager has a 10 percent fee, he or she will be paid $100 per month. Other property managers may be paid either a flat annual fee or the amount of the first month's rent and security deposit. If you employ a property management company, rather than an individual property manager, it's unlikely you'll have much room to negotiate this fee structure. However, if you're more interested in an individual manager, knowing the advantages and disadvantages of the various payment methods can give you more information on which to base your final decision.

  • Percentage of rent

This structure can provide benefits both for the owner and the manager. Because the property manager often negotiates rents and solicits tenants, it is in the manager's best interest to set rents as high as the local market will permit, as well as to ensure that the selected tenants are trustworthy and likely to pay their rent on time.

One disadvantage to this method is that many property managers will insist on a minimum occupancy provision in their contract -- this means that you'll owe their fee for a certain number of months per year, regardless of whether or not the property is occupied. In a tough market, this can cost you out of pocket while your building or home remains empty.

  • Flat fee

Paying a flat annual fee is the simplest way to handle property manager payment -- simply pay once per year and then forget about it. However, your property manager won't have the same incentive to solicit tenants and price high rents as a property manager

  • First month's rent and/or security deposit

This method is most common in buildings with high turnover -- for example, college apartments or rental housing. By allowing the property manager to keep the first month's rent and security deposit (generally equivalent to another month of rent) you'll ensure that your property manager does a thorough screening of all tenants. If the property ends up damaged, you can reclaim the security deposit.

To find out more about property management companies, contact a location like MGR Property Management Inc, or another local business.