Starting a Property Management Company: Pricing Structure

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If you are thinking about starting your own property management company, or looking to improve processes and organization, you will need effective property management fee structures in place so you can continue running your business that’s fair to you and your clients.

Having a pricing structure for your property management company will not only help you understand the cost of running your business, but it will also help you plan ahead and make sure that each rental property is handled professionally and with consistency.

Our special guest today is a property management coach – literally. She’s Kathleen Richards, “The Property Management Coach” and she provides guidance to other property management company owners on topics like this to help them to be successful with their business.

She is also the broker/owner of an award-winning property management company in Santa Cruz, California – Portola Property Management (Update: Since this article was published, Kathleen has sold Portola Property Management). We felt that someone with her pedigree would be perfect to talk about setting an effective pricing structure for property management companies.

The Different Pricing Structures for Property Management Companies

If you’re a new company starting out, and you’re growing your business organically, (versus buying a property management company that might already have a pricing structure in place) look around and see what your competitors are doing. Figure out how you can differentiate yourself. Here are some of the common pricing structures that property management companies use:

Flat-Fee Pricing Structure

Sometimes property management companies charge a flat-fee, and for new property managers that may be a great way to go. You can build your business quickly that way; just make sure you don’t over-commit to all the things that will fall under that set price, otherwise you’ll be doing a lot of work for free. A fixed property management fee is easy for a property owner to understand when hiring a property manager.

Percentage of the Monthly Rent

Another common type of property management fee is to charge a percentage of the monthly rent of the rental property. To help decide what will be a good range, research what other local property management companies charge, and maybe charge a percentage at the low end or below that. That way you’ll get people’s attention and be more competitive.

Hybrid

Then there are hybrids where you charge a percentage as a monthly management fee, and then you have other value-added services with set prices. That way, you only charge extra when the rental property owner needs that service. Examples of add on services may include tenant placement fee, early termination fee, and/or a lease renewal fee. It all depends on how much your property management company charges for the initial fee, and the exact services rental property owners in your location want.

If You’re Buying an Existing Property Management Company

If you’re buying a property management company with an existing price structure, but the prices are lower than you’d like to charge, you have to make changes strategically.

Maybe you maintain those prices at first, so the existing clients can see how great you are. Then, you educate them about what you do differently, and roll out new services or start increasing prices gradually.

Changing Property Management Fees: Kathleen’s Story

When Kathleen bought Portola Property Management 15 years ago, the pricing model was a single price with everything included. After a year, she communicated clearly what the property management fee really covered, and what it didn’t, and started charging separate fees for uncovered value-added services. That allowed different revenue streams to develop.

Then, after a time, she offered a Classic/Deluxe/Premium pricing model. The effectiveness of these models depends on your market. In a metropolitan area like in Silicon Valley, it’s great, because people are more likely to go for Premium. They are busy and they don’t want to deal with property management.

However, for residential property managers in a smaller market, people may be more price-conscious. Kathleen found that clients kept choosing the Basic price structure. As different services get requested, they would just pay for them as needed. However, it wasn’t very economical for her to have three different monthly fee options when everyone chose the same option.

Property Management Pricing Structure in Smaller Markets

Kathleen revamped her pricing setup fee structure once again to increase the property management fees. She raised her standard price to what used to be the premium level, and included some of the services most people had been paying for as a value-add.

This new fee structure has made things simpler on her end. For example, there was an option for rental property owners to receive a preventative maintenance check on all their properties. Kathleen had allowed owners to opt-in or out, but that caused her a lot of logistical problems. So she decided that everyone would have that service in the new, consolidated pricing structure. It’s included as a “freebie” and helps validate her higher management fee. However, there are still less requested services that owners pay for on a per service basis.

Strategies to Encourage Upsells from Property Management Clients

Kathleen’s strategy at Portola Property Management works if you are able to educate clients about your different property management services. Portola sends out quarterly newsletters about their new services. Your clients will gladly pay for new property management services, if you build up their trust in you by educating them about different issues that your property management company can help them solve. Also, great property managers “keep their antennas up” for any new services where there might be a demand.

New Service Example for Property Managers

One example that Kathleen and Portola identified has to do with pets. Santa Cruz has many pet owners, but a lot of property owners didn’t want to allow pets in their buildings. Kathleen felt that this created an opportunity, because there was a high demand for pet-friendly rentals with very few properties available. It would allow her to reduce vacancy time and increase the amount of rent she can get for a property.

So they developed a pet program that has been a huge success: before a tenant is approved to have a pet in the rental property, Portola meets the pet to make sure the pet’s breed and size are what the tenant claims it is, and makes sure the pet has a good temperament.

Then, extra money is collected towards the security deposit and two pet inspections are done per year, paid for by the tenants. When owners know Portola is inspecting the rental property twice a year and the owner doesn’t have to pay for it, they are more willing to rent to tenants with pets.

Kathleen knows her residents love it too, because they are showing what a great job they are doing in taking care of the rental property. She can charge a higher rent for the property being open to pets, and Portola represents higher end properties where affluent pet owners want to live. They don’t want to be forced to live in a dump where owners don’t care about fixing things.

Think outside the box. Before saying you don’t do something, think about whether it may be worthwhile for you to offer it to all of your owners.

Concluding Thoughts on Property Management Fees

Property management fees can be tricky to manage, especially when there are clients with different preferences and needs. In the end, a well-rounded fee structure that is tailored to the needs of the market is essential for success.

Kathleen’s story shows us how to create the right fee structure and how to communicate it effectively to clients. By educating clients on the different services available and offering additional services to add value, property managers can upsell and increase their fees over time.

It is also important to think outside of the box and create services that will meet the needs of the market. Doing so can help property managers to maximize their profits.

Whether you choose a flat fee, a percentage of the monthly rent, or a hybrid strategy, we hope that you now have a better understanding of the different options for property management companies.

Where to Find Out More

If you liked our blog today, there is a good chance that you’ll like our other episodes on The Property Management Show. Be sure to rate and subscribe via iTunes, and if you’d like to get in touch with Kathleen, you can find her at ThePropertyManagementCoach.com.

Thank you for joining us, and if you need help with sales or marketing for property management companies, please contact us at Fourandhalf – Digital Marketing for Property Managers.

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