The management fee varies, but usually ranges from 0.20% to 2.00%, depending on factors such as management style and size of the investment. Investment firms that are more passive with their investments tend to charge a lower commission compared to those that manage their investments more actively. Management fees can range from just 0.10% to more than 2% of the AUM. This disparity in fees charged is generally attributed to the investment method used by the fund manager.
The more actively a fund is managed, the greater the management fees that will be charged. For example, an aggressive stock fund that delivers its portfolio several times a year in search of profit opportunities costs much more to manage than a more passively managed fund, such as an index fund that, more or less, is listed in a basket of stocks without major transactions. As stated in the section on lease rates, your property management company may charge an advertising fee. For active fund managers to outperform the market by just 1%, they would have to achieve a return of more than 2% just to cover the average management fee of 1.19% percent.
If your property management company charges you in advance for some of these services, be careful. One of the key factors that influence the cost of a property manager is the size of the rental property. In the event that your property manager has not used the reserve fund fee and you no longer maintain it as the property manager, you should be entitled to the money you had in your possession. Some companies charge a higher monthly management fee, but it can be more inclusive, so don't get carried away with a higher initial fee until you understand what's included.
If a property is vacant, management companies generally charge a fixed rate or a fee equivalent to the expected monthly rent once the property is leased to a new tenant. Others may ask you to pay for each inspection, in exchange for a lower monthly property management fee. Collecting rent is difficult, but because the property manager has an incentive to collect it, you know that you will do everything possible to ensure that the unit is occupied and pays on time. However, if the property manager receives the commission for a tenant's late payment, he is actually rewarded for not doing his job.
The contract you sign with the property manager will specify how this fee is calculated and what services are included in the fee. Many management companies will charge a small fee (or sometimes no lease renewal fee) as long as renewing the lease doesn't require much negotiation with the tenant. Actively managed funds tend to generate higher management fees than those that are managed more passively; however, actively managed funds do not necessarily perform better than passively managed funds and, in some cases, perform worse returns. One way or another, the amount of the property management fee is based on the amount of work the property management company must do to keep your property in good condition and maximize revenue and rental value.