In many ways, your fixed expenses will determine what you have left over for variable expenses. These variable expenses will be deducted from the equation, potentially cutting into your profit margin. Since the market may not always be at a favorable rental fee price-point, you could face financial constraints at times. You can, however, manage the variable costs of your investment property by choosing to either oversee the property yourself or by hiring a company to do it for you.
- Management Costs Rental property management refers to the day-to-day operations such as collecting rent payments, responding to tenant complaints, and overseeing maintenance. If you intend to manage the property yourself, you won’t have any cash outlay to others. However, a property management service can cost a pretty penny. You will find that the costs for property management services in Brooklyn range pretty widely—anywhere from 4-10% of the monthly gross income for the property. Generally speaking, the fees for a single rental are higher than those for a multi-unit property. Some charge an all-inclusive flat rate but limit their services. More commonly, however, property management companies charge a base rate and then offer a range of optional a la carte services for an additional fee.
If your investment property has any rent-regulated units, it’s almost a no-brainer to hire a property management company to help you navigate the complicated legal requirements. Failure to comply could be costly!
- Vacancy Costs Every day that there’s a vacancy in one of your units is expensive since you are foregoing rental payments. But, a property management company may add to that financial pain. That’s because some companies charge a flat minimum fee of around $50 per month, even when the unit is vacant. It’s important to note, though, that many property management companies will also find, screen and vet new tenants. In these cases, that fee may be covering the cost of these services. That actually brings us to our next point.
Beware: Some management companies expect to receive their full management fee, even when the unit is vacant. Check your contract to determine whether this is the case for your PM service provider.
- Leasing Costs There are many ways to find tenants in Brooklyn, as people are moving here in droves! You can do the advertising yourself fairly inexpensively. You could post the rental on nationwide online public portals like Zillow free of charge. But, if you want to localize your advertising, the New York Times charges $99 for 14 days, with your ad appearing both online and in print. Of course, if that’s too much, there’s always Craigslist! But, you know what they say about time and money. Even though advertising can be quite cost-effective, you will be doing a lot of legwork showing the rental property and vetting potential tenants.A property management company can take care of all that for you—for a price. While some firms charge a flat fee for this service, most will charge between 25-100% of the first month’s rent. A 50% rate is fairly standard in addition to another $100-200 for advertising costs. If the company is finding good tenants, you shouldn’t expect to pay leasing fees more than once per year.
Make sure the leasing fee is structured so that the firm has incentive to bring in only qualified tenants!
- Eviction Costs Evicting a tenant can be a costly, stressful process, regardless of how it all unfolds. If you choose to pursue the eviction on your own, you will only be on the hook for the court fees. However, if you don’t have experience, it is easy to mess up the complicated legal process and this can lead to additional costs. Many property management companies will oversee any eviction preparations on your behalf. They may charge $25-50 per hour for piecemeal assistance such as serving notices, communicating with attorneys, or representing your interests during court appearances. But, it’s a better idea to retain their services for a flat fee, which is generally between $500-600. Remember, though, that you will typically need to pay the court fees and attorney’s fees, in addition to any charges associated with these eviction services.