The Naked Truth about Rental Management Fees

Richard Horne 06/12/2018

Are you in the market for a property manager to take over your rental property? One of the main challenges is going to be finding out what they actually charge you. Of course, some due diligence on your part will give you a good idea of what each company offers by way of a fee structure.

Many people simply base their selection of PM company on what they charge as a management fee. This can be a percentage of your rent, or it can be a fixed dollar price. Be careful that you do your research fully before jumping in.

Don’t Be Blinded

Try not to get dazzled by that juicy low, low management fee though. It might not be the deal you think it is. Make sure you find out which apples you’re comparing it with.

Another thing to bear in mind is that a low fee could indicate a lower level of service. If you want the job done properly you should be looking for the best service level, not the cheapest.

The things to look out for are the hidden charges that many companies bury in the basement paragraphs of their Management Agreement. Not every cost to you will be openly displayed on websites or in marketing materials either.

Some costs may not even be listed on your monthly statement but tucked away hiding behind another service. Let’s take a look at some of things management companies might charge you as a rental owner.

Property Management Fees

Management Fee – Pretty much every property management company charges some form of Management Fee. This is generally anywhere between 6% and 12%. Be aware though that many of the low fees companies aim to make up their income shortfall with other fees.

Tenanting Fee – Now that the Letting Fee is no longer charged to tenants, many companies have switched to charging a tenanting fee to rental owners. This hasn’t been well received by rental owners with great glee, and the rate at the moment seems to be settling around $550

Advertising – Can be as little as $99 and over $250. It’s pretty standard to have to pay for advertising when your rental becomes vacant, so make sure you find out how many different channels they use to promote your rental.

Photography – Can be from $77 right up to $175. What you don’t want is an advert with the first picture being a toilet bowl with the seat up, or photos of one corner of an empty room that make the place look like the inside of a cardboard box.

Property Condition Report – Often referred to as an Opening Inspection and can cost anywhere from $30 to $75

Routine Inspections – Usually four per year, and charges can vary from $20 right up to $75 per inspection. It would be a good idea for you to check with your Insurance Company regarding their policy requirements for rental property inspections – you might get a nasty surprise!

Bond Inspection Fee – to vacate a tenant and get the property ready for letting, could be from $30 to $150

Database Check Fee – To background check a tenant application, from $11 to $55

Tribunal Attendance Fee – To prepare for and attend Tenancy Tribunal, anything from $55 to $165 per hour

Insurance Claim Processing Fee – To process and support a landlord insurance claim, $55 to $165 per hour. You may not know this but insurance companies generally do not work with Property Managers or agents on claims – they will only deal directly with the policy holder.

Annual Statement Fee – I’ve never really worked out what this could be for, but you could see a charge of $10 to $50 per statement

Disbursement Fee – For arranging payments to creditors (rates, water charges), $2.50 per disbursement or payment

Special Payment Fee – When landlords request to receive their rents outside the normal payment cycle on a special arrangement, anything up to $25

Maintenance Fee – Usually charged as a percentage of a maintenance invoice, anywhere from 5% to 11% of the total invoiced amount. Also watch out for companies with an “in-house” repairman who they may charge out to owners at a higher rate than they pay their repairman. Now that really is ‘money for jam’.

Rental Appraisal Fee – Most companies will do you an appraisal for free because they appreciate the opportunity to take on management of the property. Some do charge though, and that can be from $50 to $100.

Administration Fee – An almost unnoticed monthly nominal charge for not very much at all. It used to cover things like forwarding mail and postage, but who uses stamps these days? Can be as much as $10.

Annual Fee – Same as the fee above, but annually just to mix things up a bit. Can range from $10 to $50.

Maintenance Bond – fairly uncommon, but a maintenance bond is sometimes held by a PM company to offset any maintenance invoices. This would generally be equal to the allowed amount for maintenance in their Management Agreement, generally $500 or more. That’s $500 of your money sitting in their account doing nothing for you.

Travel Costs or Mileage – Some companies may charge you a vehicle cost per kilometre and this can be around the NZ Government’s 79 cents per kilometer or much higher.

Charge if you sell your rental – Amazingly, some companies will ping you a substantial fee if you sell your rental property off their rent roll. This fee can be as high as $500.

Furniture Inventory Charges – If your rental property is fully furnished, some companies will charge a separate fee for creating a full chattels list and inventory of everything in the property. This is an extremely time consuming process and is the reason why many companies simply don’t touch furnished properties for management.

Rent Increase Fee – Another mysterious one, this. If your rent is going up, so surely is your property manager’s income, so why would you expect to pay for a rent increase?

“Outside Normal Hours” call-out Charge – It has been known of companies to charge some form of call-out fee to owners if they have to attend to something outside normal business hours.

It’s Not All Bad News!

Many of these fees are uncommon, and most companies in New Zealand tend to follow market practices with their fee structures. There are some companies that may quietly charge for things that you were previously unaware of.

My best advice is to read the small print like your Dad always told you to do and ask the questions too. It’s really your job to find the best fit for your rental property and a little due diligence will go a long way.

What You Should Do

  • Beware the discounters. It might not be the killer deal you were expecting…
  • Look for an open and transparent fee structure
  • Don’t forget to flush out any “hidden” hidden charges
  • Read the small print – all of it!
  • Add it all up and then take another look at that low Management Fee rate
  • Ask them if they have a separate auditable Trust Account for holding rents
  • Ask if they make interest on the balance of their Trust Account
  • Make sure you’re comparing apples with apples, because there are a lot of different fruits out there

Let’s also not forget that the list above is just the fees that could be charged to you as a rental owner. I haven’t mentioned any potential fees possibly being charged to your tenants.