What Are The Typical Fees Charged by Apartment Property Managers? – Ask The Expert
“Ask The Expert” is back, where experienced real estate and apartment professionals answer your specific questions about real estate investing strategies.
If you have a question you would like to ask a real estate expert, let us know in the comments section below.
Make sure you check out our other “Ask The Expert” blog posts here, which cover fixed rate vs. interest-only loans, interest-only vs. paying down the principal, and when to stop underwriting a deal.
This week’s question is about the fees paid to a property manager for managing your value-add renovations and ongoing management of your asset.
The vast majority of multifamily investors either hire a third-party company to manage the day-to-day operations of their apartment deals or they have an in-house property management arm in their company. The exception would be investors who pursue smaller multifamily deals (under 50 units), in which case they may decide to be owner-operators (i.e., own and manage the deal themselves).
For this particular post, we are going to focus on large multifamily investors (200+ unit projects) who hire third-party property management companies to manage their deals.
That said, the questions we asked the expert are: (1) Do property management companies charge extra fees to oversee the capital improvements and, if so, what are the typical fees, and (2) what is the typical fee for managing 200+ unit apartment deals?
(1) Construction Management Fees
Yes. If you are implementing capital improvements after acquisitions, property management companies will typically manage the entire process. In return for their efforts, they will charge a construction management fee.
Construction management fees are typically on a sliding scale. As the project costs increase, the construction management fees decrease. For example, a fee structure could be:
Total Construction Cost Less Than $25,000: 0%
Total Construction Cost Between $25,000 and $100,000: 5%
Total Construction Cost Between $100,000 and $250,000: 4%
Total Construction Cost Greater Than $250,000: 3%
The fees will be a percentage of the total construction costs. For this fee structure example, if your total capital expenditure costs are $150,000, your property management company will charge $6,000 to manage the projects.
(2) Property Management Fees
For 200+ apartments, the typical property management fee is 3% of the total collected income.
Before hiring a property management company, you’ll want to determine whether they will manage your capital expenditure projects and, if so, what are the costs. If you plan on performing any level of renovations on your deals, I would strongly advise that you hire a property management company who provides the construction management services. The construction cost ranges and fees will vary from manager-to-manager and market-to-market, so make sure you know the costs upfront so that you can account for them when underwriting deals.
Same goes for the ongoing property management fee. 3% is typical, but they may charge a higher (or even lower) fee. Not only do you want to know what the fee is but also what is included in that fee. Some property management companies will charge 3% with all services included whereas others might charge additional fees for new leases, turnover, etc.
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