California’s growing employment market, low tax preposition, and high rental demand make it an ideal state to grow a rental business. According to Mashvisor, California homeowners have an average monthly rental income of $3,248 which is significantly higher than the national average. This attracts out-of-state and local investors to invest in multiple properties within the state.
It’s no secret that managing rental properties is a full-time job, and because it’s time-consuming, there’s an entire industry built around it – property management. As of 2022, 37,630 property managers are working for different companies within the state.
The question is, how much does property management cost in California? Is hiring a property manager worth it, or should you keep the extra cash and do the management yourself?
In this article, we’ll provide some insights on how much property management costs in California and other costs that property managers commonly charge on top of management fees. By the end of this article, you will be able to determine whether hiring a property manager is worth it for you or not.
What homeowners need to know before hiring a property manager
No two property management companies are the same. Some companies may offer a cheaper management fee but have more upfront and added costs. On the other hand, some companies have more expensive management fees but also offer more inclusions and guarantees.
Thus, when comparing property management companies, it’s not enough to look at the monthly fee in making a decision. Rental property owners must completely understand the deal they’re getting in order to select the right property management company to handle their investments.
Before hiring a property manager, one thing you have to consider is the initial cost of setting up your account and leasing your property.
Initial setup fee
Some property managers charge a one-time initial setup fee. This fee is intended for setting up your account and other paperwork and processes necessary for them to manage your property.
Typically, setup fees cost around $300 and no more than $500 in California.
Most property management companies charge a different fee for placing renters on your property. The usual tenant placement fee is equivalent to 50% or 100% of one month’s rent.
Do note that property management companies that charge higher management fees may have lower or non-existent tenant placement fees. Companies that charge less usually charge more for placing tenants.
Some companies also charge a fixed rate, typically around $1000, for placing renters on your property.
A tenant placement service usually includes:
- Marketing and listing your property on several listings and social media platforms
- Running ads for your property
- Property showing
- Property onboarding
- Tenant screening
- Creating a detailed leasing contract
Once a renter is in place, property managers will charge a monthly fee for managing your property.
Property management fees in California
The property management fee in California varies depending on the company, payment structure, doors to be managed, and services offered.
The two payment structures are:
- Flat rate – This type of payment structure is a fixed amount regardless of your rent price. Typically, this ranges from $80 – $150 per home depending on the type, size, and location of the property.
- Percentage of rent – This type of payment structure charges a percentage based on your monthly rent. Property management companies usually charge between 6-12% of one month’s rent depending on the services offered and the location of the property.
These fees typically include property maintenance, attending to the renter’s concerns, enforcing the leasing agreement, and collecting rent.
Here are Poplar Homes’ management fees in the different regions of California:
|Region||Mgt fee (% of the monthly rent)|
|San Fransisco Bay Area||8%|
At first glance, flat rates might seem more affordable for expensive properties. For example, if you rent your property for $2500 a month and find a property manager that charges a flat rate of $100 for a single-family home, it’s easy to think that you’re saving $50 a month as opposed to hiring a property manager that charges 6% of one month’s rent.
However, you also need to consider the quality of service and inclusions you pay for those fees. Not to mention, the property manager’s motivation to maximize your earnings and the added fees for other services rendered.
To demonstrate, let’s use the same example as above in a different scenario.
If the company that charges a flat rate of $100 also charges an initial setup fee of $300, a tenant placement fee equal to a month’s rent, and a 10% markup on repairs, you would spend $4,000 in a year for property management on top of the 10% markup on any repair costs.
On the other hand, if you hire a property manager that charges 6% of a month’s rent ($150 a month for a $2,500 rental), no initial setup fee, and a tenant placement fee equal to half a month’s rent, then you will spend only $3,050 on property management by the end of the year.
Do not get discouraged by a more expensive monthly fee until you fully understand the inclusions and exclusions of such fees. As mentioned, do your due diligence and learn as much as you can about the deal you’re getting.
Other costs of hiring a property manager
Evicting a tenant in California is a long and troublesome process. As such, property management companies usually charge a $200 to $500 fee for evicting a renter on top of other eviction-related legal costs.
According to TransUnion, the true cost of eviction can range from $3,500 to a whopping $10,000. This is why selecting the right renter through intensive tenant screening from the get-go is vital in ensuring your rental business remains profitable in the long run.
Some property management companies, however, offer eviction coverage as a way to guarantee the quality of their tenant screening services and shield you from the cost of eviction.
At Poplar Homes, for example, we offer up to $15,000 for eviction-related legal expenses. Plus, we partner with legal experts to handle all the eviction processes for you.
This is not a very common fee, however, it’s important to be aware of in case you find a property manager that charges it.
When a property is vacant, it doesn’t stop the growth of grass in the backyard or the collection of dust on the furniture. Hence, the vacancy fee is a reduced fee intended to keep the property in a rent-ready condition during the course of the vacancy.
Repair and maintenance markup
Most property managers hire a third-party maintenance service to handle repairs and maintenance. They may charge a markup fee, usually around 2-10% of the total cost of the repair for overseeing the services.
For example, if the cost of changing a broken window invoiced by a third party is $300, then property management companies may charge $30 amounting to a total of $330. Some property management companies, however, like Poplar Homes, do not charge any markup fees.
Discover the value of your time using Poplar’s ROI calculator
To determine whether or not hiring a property management company is worth it, it helps to figure out how much time and money you can save using tech-enabled property management services. To make it easy, Poplar Homes’ ROI calculator shows you an estimated value of your time per hour based on your annual income and the number of hours you spend each week self-managing your property. It’s an easy way to see how much return you can get if you invest in property management instead of doing it on your own.
Summary of possible property management costs in California
As discussed, hiring a property manager involves various costs on top of your monthly management fee.
To make it easier for you, we’ve put together a table of the possible fees for hiring a property manager in California:
|Fees||Industry average in California|
|Initial setup fee||$300 – $500|
|Tenant placement fee||50 – 100% of a month’s rent or $1,000|
|Eviction fee||$200 – $500|
|Monthly management fee||$80 – $150 or 6 – 12% of a month’s rent|
|Mark up on repairs||2 -10% of maintenance cost|
Please note that the fees listed here are the usual fees we see across several property management companies within the state. This isn’t a guarantee that all companies charge a rate that is within these ranges.
Furthermore, not all companies charge all the fees listed in this table. Poplar Homes, for example, only charges a tenant placement and management fee.
The cost of property management in California varies per location, size of the property, type of property, and payment structure. Although a flat rate might look like the more affordable option, you need to take into account the other fees, the inclusions of those fees, as well as the quality of service each property management company provides.
California’s high rental demand attracts rental property investors. Thus, many decide to invest in multiple properties which evidently require more time to manage. When it comes down to it, discovering whether or not hiring a property manager is economical in your situation will be based on the monetary value of your time saved.