Fees for third-party commercial property management services are usually structured in three ways:
- Percentage of Gross Rental Income: Management fees for rental or investment properties are most often computed this way. For example, if the total annual rental income of a property is $1 million, the management fee is $40,000 per year if the fee is four percent.
- Cost-Plus Structure: Management fees for headquarter buildings are often computed this way. If a property manager is on-site and is only responsible for that property, then 100% of her salary is paid by the client (i.e., the “cost” component). Additionally, the property management company receives an additional amount for administration, overhead, and profit (i.e., the “plus” component).
- Fixed Fee Structure: A fixed fee is appropriate for a condominium property that is too small to warrant a full-time, on-site property manager. That condominium property most likely requires a portfolio property manager who manages multiple properties, and spends only part of the time working for that property.
For an in-depth look at property management fees and typical fee amounts for each property type, see “Dissecting Property Management Fees” in the Knowledge Center under Hot Topics.
Understanding fee structures is one important factor when considering a third-party commercial property management company. Knowing what services are included with the management fee is equally important. For a review of services typically included with the management fee, see “What’s Included in the Management Fee?” in the Knowledge Center under Hot Topics.