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Commercial Property Management Fees in Commercial Real Estate

Commercial Property Management Fees: The Basics

Unless you plan to manage a commercial property yourself, hiring a commercial property management company is a must for any serious commercial real estate investor. However, just like any service, property management costs money. Typically, a commercial property management fee will be between 4-12% of the rent for a commercial property, though this can vary greatly upon several factors, including the location, size and condition of the property, the amount, type, and quality of tenants, the specific services that the company is expected to perform, and the average property management rates for that area.

The Scope of Property Management Services Offered Directly Affects Fees

The services that a property management company requires can vary greatly from firm to firm; however, typical services include:

  • Ensuring that the property stays rented

  • Evicting non-paying or disruptive tenants

  • Maintaining the property (may involve hiring an external contractors)

In other cases, property management firms may have an even more active financial role in a property, and, they could be responsible for paying insurance and other fees.

Property Management Fee Structures and Additional Costs

While most property management companies are paid based on a percentage of rent, which incentivizes them to keep the property rented, other companies are paid a flat rate. This could be beneficial to property investors in an environment of increasing rents, especially if they aren’t concerned about the property’s occupancy rate.

In addition, most property management companies also charge other fees, including a lease-up fee, which compensates the company for finding a tenant, and lease renewal fee, which is charged when a tenant renews their lease, and compensates the company for the time and paperwork involved in the lease renewal process. Property management companies will also charge for property maintenance, whether this is done in-house or by an outside contractor. It’s also common for companies to charge a maintenance mark-up fee, which is often an additional 10% of the maintenance costs for the property. This will also usually include 10% the costs of any repair work, such as plumbing, electrical, or HVAC work.

Finally, advertising can be a serious cost consideration when it comes to property management— and fee structures can vary significantly based on the individual company in question. Some management firms include advertising costs in their flat fee or percentage rate, some may split it with the owner, and others may directly charge all advertising and marketing costs to the property owner. Either way, owners should be careful to understand exactly how they will be charged before hiring a property management company.

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