WHY YOU CAN’T AFFORD TO DISMISS IT
Congratulations! You’ve taken the plunge and invested in a rental property. Maybe you took the plunge a while back, perhaps you own a few… whatever your circumstances if you have decided to engage the services of a professional property manager you need to know how much to pay them!
There are two ways that property management companies charge for their services:
1. Percentage-based fees
2. Fixed-fee paymentst
Read on if you are interested in understanding the hidden pit-falls with percentage-based payments; the most common way property owners are charged for services – and why it’s acknowledged that fixed price property management is a superior option.
A ‘lil bit of history
Property management portfolios have traditionally been run out of real estate companies. Real estate agents sell properties to investors like you and then offer property management services as an add-on to real estate services. It is only in relatively recent times that dedicated property management companies have blossomed.
Real estate commissions were always a percentage of the sale price and therefore property management services were offered as a percentage too. The rationale was as complicated and as simple as that.
Traditional, percentage-based charging for property management services will reflect the value of your asset. It reflects what your investment is worth to the market.
Percentage-based payments range from 7% – 10% of weekly rent.
Does it reflect the cost of providing those services to you, and your tenants? If you believe it does, this would mean that your high-end 4 bedroom asset in Roseneath costs more to manage than your less expensive 2 bedroom asset in Johnsonville.
Yet the exact same services are offered to each property. This rationale is hard to understand.
Furthermore, it also suggests that when your rent increases in Roseneath, or Johnsonville, the costs of managing your investment property somehow also increase – because the management fees earned by your property manager also increase. How can this be justified? Unless business costs have risen by the same amount, it simply does not make sense.
The hidden truth behind percentage-based fees
What any property manager will tell you is that a small portion of their rental portfolio gives them a higher amount of work. There will be more rent arrears to chase, more challenging tenant behaviour and probably more maintenance work required at the property. Often, such issues are found in properties at the lower end of the market, where rents are not so high.
When you pay your property manager a percentage fee, the management fees from high end properties subsidise the work undertaken for lower end properties. This hardly seems fair.
With fixed price property management services every client pays the same fee. High-end properties are not charged more and don’t subsidise the fees paid by less expensive properties.
The double-dip of management fee increases
To add to the fun, percentage-based property managers increase their management fees on two fronts:
1. As your rent goes up, their management fee collected will increase
2. They increase the percentage they charge.
10 years ago, when Trust Property Management, Wellington’s first fixed-fee property management company was launched, property managers were charging between 6% – 8% of rental rates. Today, rents have increased substantially and now management rates have also increased to between 8% – 10% of rental rates. A double win for the property manager.
Not best value for clients.
It is interesting to note that in the same period real estate commission rates (the % charged on house sales), have generally reduced, as house prices have increased.
Plus extras – got ya!
But wait, there’s still more. Monthly admin and stationery charges, property inspection fees, digital photography fees, margins added to invoices, to name a few. Some would say, extra fees charged for the expected property management services you are already paying for.
This seems unfair, and difficult to justify. The question remains, what does your monthly fee pay for?
What’s the answer?
There is an alternative. Trust Property Management offers high quality fixed-price property management services. One set monthly fee is all you will pay. At Trust we even pay for your TradeMe advertising!
We are often asked – how do you set your fee and how can you afford to run your business at that price? It’s simple. Our management fee reflects the cost of running our business – not the value of your investment. That’s your business!
A fixed management fee is best value for money for higher quality housing stock. This means our boutique property management company attracts properties at the higher end of the market. We spend less time chasing rent arrears and more time increasing your rental return.
You might be wondering if there is a catch? There isn’t! Our fixed monthly price is all that you will pay. The only extra you pay is for third party invoices, for example gardening or plumbing services, and we do not charge any margin on these invoices.
Fixed-price property management services are the only way to go because they are fair, credible and will allow you an increased return on your investment.
Sounds great, count me in!
Give the team a call today. A quick call with Jared or Mitchell will convince you that accessing our 20+ years’ experience is a no brainer and is the best way to protect your asset.
Call us now for a no cost, no commitment chat, and to book your free rental appraisal.