2024 Guide to Out-of-State Rentals Property Management

July 30th, 2024

When investing in rental properties out-of-state, a reliable property management company is essential. They serve as the on-the-ground team, handling everything from rent collection to work orders and filling vacancies. Essentially, they manage the property on the investor’s behalf.

To ensure a successful partnership, it is crucial that their interests align with those of the investor. Their compensation should reflect this alignment, making money when the investor makes money. Therefore, understanding the fees is a critical part of selecting a property management company.

Standard Property Management Fees

Here are some typical fees that property management companies charge:

 

**1.  10% of Gross Collected Rents
Most property management companies charge 10% of gross collected rents for single-family homes. However, investors with a larger portfolio (e.g., five to ten homes) may be able to negotiate a lower rate, potentially down to 8% or 7%. While some companies offer lower rates upfront, it’s important to investigate why. They might be new and trying to build their portfolio.

 

**2. Filling Fee
When filling vacancies, property management companies usually charge a fee equivalent to the first month’s rent. For example, if the rent is $1000, the company takes the first month’s rent as their fee. Afterward, they typically receive a monthly management fee (e.g., $100 if the rent is $1000). Ideally, tenants should be placed on one- or two-year leases to minimize vacancy rates.

 

**3. Lease Renewal Fee
This fee is typically a flat rate and should not exceed a few hundred dollars or half a month’s rent. For an $1000 rent, the renewal fee should be no more than $500. Additionally, the management company should suggest a modest rent increase at each renewal in line with inflation and the comps in the community. Even a $35 increase per lease can significantly boost monthly cashflow, especially for investors with multiple properties.

Leveraging Your Property Management Team for Upgrades

A significant advantage of having a property management team is their ability to facilitate property upgrades. Being on the ground, they often have established relationships with local contractors and professionals, ensuring that any necessary renovations or improvements are handled efficiently and cost-effectively. For example, property managers may offer annual inspections, annual gutter cleaning, lawn care solutions, and furnace filter replacement programs. These services help maintain the property’s condition, prevent major issues, and enhance its overall appeal to tenants. Utilizing your property management team’s network for these upgrades can maximize rental income and long-term investment returns.

Choosing the Right Company Size

The size of the property management company also matters. Companies managing fewer than a thousand properties tend to offer more personalized service. Larger companies, managing 2,000 to 3,000 properties, may not provide the same level of attention, and landlords can become just numbers on a spreadsheet.

Personal experience has shown that smaller companies manage properties more effectively, providing direct interaction with property managers and better handling of work orders and other issues.

Getting Started

All the properties on MartelTurnkey with a tenant in place, also have a local property management company engaged.  You will be introduced to them during the sales cycle.

 

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