Why is There a 10% Management Fee?

If you own or are planning on owning rental property, one of the first fees that you will pay when your property is rented, is the Property Management fee - unless you manage it yourself, of course, which by the way, I don't advise you do, because that could easily detour you into being a landlord instead of an investor.
The Property Management fee is usually 8%-10%, and some charge the first month's rent as well.

If you're wondering where all this money goes, the following article by Vanessa Smith shows us a break down...

"Let’s put ten percent into perspective. If you charge a monthly rental fee of $900 that means that $90 of that is withheld as a management fee. If you are just starting to use a management company usually the entire first month’s rent will be kept. What is that money actually used for?
First Month’s Rent: If your tenant has a 13 month lease, the first month’s rent is withheld. Why? First of all, where did the tenant come from? Your management team should be finding the tenant for your home instead of letting it sit vacant, generating a 0% ROI. It is important that your management company is actively working toward an increased return on your investment. That means that there is a rental agent working for the management company. Their job is to make themselves available to show tenants your house. Since JGM (John Graham Management) screens applicants in-house, there is also a cost to run a credit report for every applicant. Only approved applicants are given home tours. 50% of the first month’s rent goes towards paying the agent’s commission. The remaining 50% covers transfer fees (a paperwork charge that allows the company to manage your home), inspection costs (your management team should be making sure your home is up to city standards), marketing (how do the tenants even find out about the homes if not for marketing), applicant tracking software, applicant screening processes, the salary of the property management consultants working on your house, and basic business costs (it’s hard to work in the dark). All of that is covered under $450. Is there really even a profit? Not at this point in the process.

10% Monthly Fee: Now that we understand why it is so important to withhold the first month’s rent, why do management companies have a 10% fee? This money is used to cover the rent collection process (it covers management services for collecting and processing the rents). It also covers the salary of the accountant who handles your investment, the property management team that deals with tenant questions daily, and maintenance on the home. Keep in mind we are still talking about our example of $90 per month. JGI does the rehab ourselves and we stand behind the quality of work we do. If there is a maintenance issue issue that requires a ‘quick fix’, our management team will typically cover that cost. That means that one of the in-house maintenance members will make themselves available at no cost to the investor to spend company money and fix your home. If there are larger maintenance issues then it is billed against the rent. If you have ever had an investment property rented out before, then you understand how many times a tenant can break things! Should you ever run into an issue with a tenant not paying rent on time, all late payment warnings and 7-day notices are covered under this fee.

Property management companies (at least ours) are not out to take all your money. We are tools to help generate the maximum return on your investment. We focus on supplying the best management service–allowing you to sit back and just collect a monthly check."