Property Management Fees and Operations

The most significant function in managing a property is being able to manage its operations. Some typical activities in managing a property tend to include:

• The collection of rent along with assessing penalties in the event of delinquency.
• Accounting services along with creating monthly financial statements, preparing annual tax statements and disbursing rental proceeds.
• Administration of the lease including lease enforcement, tenant qualification and collection of a security deposit.
• Performing some day to day repairs and maintenance activities including providing twenty four hour emergency services.
• Monitoring and managing vacancies which may include aggressively marketing vacant units (based on market rents) to potential tenants and coming up with effective promotional plans.

As a property owner you should try to be more concerned about the means by which management companies tend to structure their process including the collections system. Most of the management companies usually combine their collections from all the different properties that they manage into one single account. All the properties' expenses are taken care of from that single account. As a property owner you would not want to hire a management company which tends to function from a common account as this can lead to lot of confusion and financial mix ups. You should hire a management company that will create separate checking accounts for each property. The checking account is usually used in order to deposit all the rent collections. Once all the bills are paid, if there is any balance left, it will belong to the property and its owner(s). One other important point to consider is whether the owner would be able to have authority in order to sign all the checks and approve all the expenses.

Another very important aspect of management companies operations are their fee structure. The management fee should be clearly mentioned in the contract. Usually, management fee tends to be determined as a percentage of the effective gross income (after accounting for vacancy and credit loss). More generally, management fees can be situated between four to six percent for smaller properties and between two to four percent for bigger properties. Normally, residential properties have higher fees than commercial properties because they entail a relatively more substantial amount more work.

In addition to the above mentioned responsibilities, management companies also take care of supervision of construction work and capital improvements made to the property. The management company is responsible for reviewing plans and proposals, negotiating bids with various contractors and vendors and for supervising the construction and capital improvement process. Generally, the fee for this kind of work ranges between five to ten percent for jobs under $20,000, and from three to five percent for jobs above worth $20,000.

Property management companies also tend to make money by getting leasing commission. They are responsible for either renewing old leases or obtaining new leases. Usually, the lower fee is charged for lease renewals and a higher one for new leases. These lease commissions are usually shared with a tenant agent - an agent who is representing the tenant in finding the space.

Property owners are responsible for reimbursing some expenses to the property management company. These expenses tend to include but are not limited to mailing expense, bank service charges, travel expenses, etc.

Article Source: http://www.realestatepropertyarticles.com.

About the Author:
Ann Sommers is a contributing real estate editor at http://www.realestatepropertyarticles.com/. This article may be reproduced provided that its complete content, links and author byline are kept intact and unchanged. No additional links permitted. Hyperlinks and/or URLs must remain both human clickable and search engine spiderable.