Investing in real estate can be a good way of diversifying your income for the long run. When you plan to outsource the management of your property to a property management company, you expect to receive as much return for your investment as possible. To understand more about the kind of budget you should have when sourcing for a good property management company, Park Place Toronto Property Management has provided a detailed list of things to consider while estimating your budget.
When deciding on the budget, you should first decide on the tasks that you would delegate to them. These tasks may include:
- Rent collection
- Handling maintenance
- Marketing the property
- Bringing in new tenants
- Ending leases
- Evicting tenants
Tenant Placement Fees
When considering outsourcing your property management, make sure you factor in the tenant placement fees. These are all the fees that the property manager will incur to attract and bring in tenants. In the age of online marketing, your budget should include all the online marketing costs that will attract potential tenants.
Your budget should also include the costs of background checks, move-in arrangements, and the lease processing costs that the property manager will be liable for before the tenant signs the lease.
In some cases, property managers will charge you for creating your account into their property portfolio. This would be like an initial non-refundable fee.
The management fee is the cost the property manager charges you for managing your property. This can be affected by several factors that include;
- The size of your property – A bigger property with more amenities and room numbers will cost you more to manage than a smaller property with fewer rooms or amenities.
- Location of the property – A property in the suburbs will be charged differently compared to a property downtown.
- Condition of the property – Your management fees will vary depending on how old and how maintained your property is.
- The number of services offered – If you decide to fully outsource your property management, you will be charged differently compared to if you hold some management tasks of your property.
Property managers will specify the means of payment they would expect in the contract, which would either be a flat fee or a percentage of the monthly rent. A percentage fee of 10% will be charged if the property is renting to less than $1000 while below 8% for properties going for over $2500 in most cases.
This is the cost of all the maintenance done to your property during the duration of the tenants. This charge can be equal to one month’s rent that is kept in an account ready for service whenever maintenance is needed. If your property’s rent is $1000, you could incur the same amount for maintenance in a period of the tenant’s lease.
Lease Renewal Fees
This is the cost involved in renewing a lease agreement for an existing tenant after their contract expires. Depending on the property manager, this may be overlooked, but some may require you to compare the market rental cost and the costs of redrafting a new lease. Usually, the cost is $200, but it can be a percentage of the monthly rent as well.
Early Termination Fee
This is the charge you are expected to pay for terminating your agreement before maturity. It is important to make sure this is explicitly indicated in the contract before signing, as it could lead to court cases in case you refuse to pay.
Vacant Unit Charges
In some cases, some property managers will charge you for all costs incurred for maintaining a vacant property. These costs may include; renovations, advertising costs, among other expenses. In an ideal setting, this should be factored in if they are multiple properties that are currently vacant.
We all have seen tenants who default on paying rent and continue to occupy the property. When this task is outsourced, property managers will require you to cover all the costs involved in evicting the tenant, including the legal fees, in case the matter goes to court.
While it might seem as if property managers are just bombarding you with expenses left right center, it is important to remember that the task of managing a property is a hassle. Ensuring that the tenants are comfortable and all the local regulations of the area your property is in are being followed is a heavy burden they have to bear. Realistically, your property expenses and the fees for your property manager should not reach nearly half your rent income.