How Property Management Fees Work for Commercial and Multifamily Properties
Commercial and multifamily property management fees will range between 4-12% of the property’s overall rent. However, in some situations, these numbers may go as low as 3% and as high as 15%. In other cases, especially when a building is very large, a company may charge one flat, monthly fee.
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Unless you’re a highly experienced real estate investor, or you already own a property management firm, you’ll likely need to hire a property management company to manage any commercial or multifamily properties that you own. While property management services aren’t cheap, a good property management company can reduce your expenses and increase your income, improving your property’s profitability in the long run. In general, commercial and multifamily property management fees will range between 4-12% of the property’s overall rent. However, in some situations, these numbers may go as low as 3% and as high as 15%. In other cases, especially when a building is very large, a company may charge one flat, monthly fee. A hybrid fee structure is also sometimes used, in which a company will charge a flat fee combined with a lower percentage of a property’s monthly rental income.
What Factors Impact Commercial and Multifamily Property Management Fees?
A variety of factors can impact the fees that a building owner will be charged for property management services. In general, these include the size of the property, its location, and the number and type of tenants that the property currently has. Fees will also typically depend on the average local property management rates, as well as the exact nature of the services that the company is expected to perform. Property management services often include:
Property leasing and marketing
Resident customer service and dispute resolution
Tenant billing and rent collection
Property maintenance, including taking care of utilities
Basic bookkeeping and accounting
Evicting non-paying tenants
In general, the more a property management firm is responsible for, the more they will be paid.
Additional Property Management Fees and Costs for Commercial and Multifamily Properties
While we already mentioned that most property management firms are paid on either a percentage-based or flat fee structure, there are still additional costs that property owners will generally need to pay. In general, these include marketing and advertising fees, as a property management firm may either directly do marketing themselves or hire one or more outside firms to market a property to new tenants. As one might expect, these fees will be more expensive for new properties that are starting from 0% occupancy, and much less for properties that are already mostly occupied. In addition to marketing costs, fees often also include lease-up fees for locating new tenants, as well as lease renewal fees, paid when a current tenant renews their lease.
Finally, maintenance fees are another important property management cost to watch out for. Management companies will often (but not always) charge a 5-15% markup on all maintenance costs for the property, particularly for property repairs.
No matter what, property owners should make sure to stay informed of all fees, and ask a lot of questions before hiring a property management firm. Otherwise, they could be taken off guard by unexpected expenses. While it may be tempting to try to do everything yourself, hiring a property management firm is usually a smart move — and is often required in order to get a commercial or multifamily loan (particularly for borrowers with limited multifamily ownership experience).
Related Questions
What are the typical fees associated with commercial and multifamily property management?
Commercial and multifamily property management fees typically range between 4-12% of the property’s overall rent. However, in some situations, these numbers may go as low as 3% and as high as 15%. In other cases, especially when a building is very large, a company may charge one flat, monthly fee. A hybrid fee structure is also sometimes used, in which a company will charge a flat fee combined with a lower percentage of a property’s monthly rental income.
In addition to the percentage-based or flat fee structure, property owners will generally need to pay additional costs such as marketing and advertising fees, lease-up fees for locating new tenants, lease renewal fees, and maintenance fees (which may include a 5-15% markup on all maintenance costs for the property).
No matter what, property owners should make sure to stay informed of all fees, and ask a lot of questions before hiring a property management firm. Otherwise, they could be taken off guard by unexpected expenses. While it may be tempting to try to do everything yourself, hiring a property management firm is usually a smart move — and is often required in order to get a commercial or multifamily loan (particularly for borrowers with limited multifamily ownership experience).
What are the benefits of hiring a professional property manager for commercial and multifamily properties?
The benefits of hiring a professional property manager for commercial and multifamily properties include:
- Property leasing and marketing
- Resident customer service and dispute resolution
- Tenant billing and rent collection
- Property maintenance, including taking care of utilities
- Basic bookkeeping and accounting
- Evicting non-paying tenants
A professional property manager can help ensure that your property is run by professional standards and that all of the necessary tasks are taken care of. This article provides more information on how property management fees work for commercial and multifamily properties.
What are the most important considerations when selecting a property manager for commercial and multifamily properties?
When selecting a property manager for commercial and multifamily properties, the most important considerations are:
- Attention to detail - www.multifamily.loans/apartment-finance-blog/top-4-qualities-to-look-for-in-a-property-management-company
- Strict enforcement of rules - www.multifamily.loans/apartment-finance-blog/top-4-qualities-to-look-for-in-a-property-management-company
- Ability to attract and maintain tenants - www.multifamily.loans/apartment-finance-blog/top-4-qualities-to-look-for-in-a-property-management-company
- Mitigation of liability risk - www.multifamily.loans/apartment-finance-blog/top-4-qualities-to-look-for-in-a-property-management-company
- Compliance with standards - www.multifamily.loans/apartment-finance-blog/top-4-qualities-to-look-for-in-a-property-management-company
How can property managers help maximize the value of commercial and multifamily properties?
Property managers can help maximize the value of commercial and multifamily properties by ensuring that tenants are happy and maximizing leasing income. This can be done by offering competitive rates and excellent customer service, as well as investing in quality-of-life upgrades like new amenities, replacing old appliances, updating unit interiors, or adding appliances like a washer and dryer to units. Property management is critically important to the bottom line of a property. Investing in upgrades can help increase its value.
What are the best strategies for negotiating property management fees for commercial and multifamily properties?
The best strategies for negotiating property management fees for commercial and multifamily properties include understanding the local market rate, researching the services that the property management company will provide, and understanding the size and type of tenants that the property has. Additionally, it may be beneficial to negotiate a hybrid fee structure, in which a company will charge a flat fee combined with a lower percentage of a property’s monthly rental income.
For more information, see How Property Management Fees Work for Commercial and Multifamily Properties.
What are the most common mistakes made when selecting a property manager for commercial and multifamily properties?
The most common mistakes made when selecting a property manager for commercial and multifamily properties are not doing enough research, not asking the right questions, and not understanding the scope of services offered.
When selecting a property manager, it is important to do your research and ask the right questions. You should ask about the property manager's experience, qualifications, and services offered. Additionally, you should ask about the property manager's fees, the length of the contract, and the terms of the agreement. It is also important to understand the scope of services offered, such as tenant screening, rent collection, maintenance, and more.
For more information, you can read this article about the top 4 qualities to look for in a property management company.