What’s Really Included in Your Management Fees?

Posted by on Apr 26, 2016 in Blog - Commercial Investment Properties | 0 comments

What’s Really Included in Your Management Fees?

What’s Really Included in Your Management Fees? It’s Important to Check It Out

Foreign investors or those who simply don’t have the time or resources to be a constant presence on their commercial properties are very wise to hire property management companies. It’s a great use of overhead that keeps your tenants happy, the building and grounds well kept, and the necessary paperwork up to date with government offices. That is, these tasks and more are accounted for when hiring a well-versed property management team, but not all are created equal. Before entering a contract with any management company, make sure you know just exactly what is included in their fees.

Who is Doing the Work?

A commercial property may need a number of services performed due to the high traffic such as window repair, plumbing fixes, security system installation, overhead garage door repair, etc. As an investor it’s wise for you to know if the commercial property management company is going to do the work themselves or if they contract out the repairs and how your fees change accordingly.

Are There Conflicts of Interest?

If a property management company hires out the work, are you certain there aren’t going to be any conflict of interests? What this means is that property management groups are sometimes ‘secretly’ in partnerships with local contractors or own the outside companies themselves, effectively double-dipping when it comes to repairs. You may want to see copies of multiple bids before signing off on repairs that could be price gouged.

Are They Full Scale?

The two aspects of property management are leasing and maintaining. The leasing aspect is finding tenants and making sure the necessary fees, taxes, permits, and other paperwork are current and accounted for. The maintenance of the building involves the repair and upkeep so that the tenant is happy. You may be contracted into a management company thinking on your end they are going to serve both when in fact additional fees may be racked up when repairs or paperwork needs done.

What Are Other Management Companies in the Area Charging?

Two red flags come up when getting quotes from property management companies. A bid that is too low may be a sign of a firm that is either undercutting their competitors or wanting to get their foot in the door in order to get contracting work for their construction, plumbing, or electrical sub-companies. Management companies priced far outside of the realm of their local competitors simply aren’t providing fair market value for their services. It will cost more for a full-scale property manager – but not unreasonable as to deflate a profit margin.

Are There Percentages or “Hard Charges?”

Another thing to consider when hiring a property management firm is just how they are charging you. For example, most companies charge a maintenance fee that is a percentage of the total rent but may also require:

  • Vacancy fees – sort of a ‘base salary’ so that they don’t lose money in the event of no tenants.
  • Rent due compared to rent collected – charged to you when the tenant is supposed to pay, not when they do pay.
  • Set up fee – taken out of the tenants first month rent for the time required to set up the account, get water, acquire electricity, etc.
  • Leasing fee – another first month rent fee compensating for recruiting tenants, doing background checks, and simply filling the space. This is why it’s important to know if the firm is full-scale to determine if the leasing is part of the maintenance package.

There are many honest and reliable commercial property management companies out there but it’s important to perform due diligence to make sure you don’t get locked into a contract with one that is only going to deplete your profit margin without you knowing it.

 

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