Lower Management Monthly Fee with a Higher Tenant Acquisition Fee or Vice Versa?

By Progressive Property Management - Thursday, February 16, 2017
If you are shopping for property management services, you may run into the problem of deciding between two companies who price a little differently. At Progressive, we charge a flat monthly fee as low as 4% and no more than 10% depending on the type of property and the amount of the monthly rent. Our monthly minimum fee is $85 and that is what drives this percentage (so if the monthly rent were $1,000, our fee would be 9%, but if the monthly rent were $2,000, our fee might drop to 5%). We then charge 35% of the first month’s rent as our tenant acquisition fee. For this fee we market the unit (MLS, Craigslist, our website), offer a commission to another agent, screen tenants, execute a contract and conduct the move-in. Let’s use an example: Single family home with a monthly rent of $2,400. Monthly management fee of 5% or $120. Tenant acquisition fee of $800. If the tenant were to stay 1,2 or years and the rent were not increased, the effective monthly management fee (base management fee plus the tenant acquisition fee amortized over that period) would be:
  • 1 year, $28,800 rent, $2,280 effective management fee or 9%
  • 2 years, $57,600 rent, $3,720 management fee or 5%
  • 3 years, $86,400 rent, $5,160 management fee or 9%
You might find another company who charges a flat 7% with no tenant acquisition fee. Here is the same analysis:
  • 1 year, $28,800 rent, $2,016 management fee or 7%
  • 2 years, $57,600 rent, $4,032 management fee or 7%
  • 3 years, $86,400 rent, $6,048 management fee or 7%
Tenants stay an average of 3 years for a single-family home, 2 ½ years for a condo or townhome, and 2 years for a rental in a multi-unit property. We prefer our owners pay for services provided, and since the work to secure a new tenant is over and above monthly property management, we charge our tenant acquisition fee one time. If a tenant stays or more than 1 year, our owner benefit financially over paying a higher base management fee (in this case 7% versus 5%). It is important you calculate the total cost of property management, no matter which business model you pick.

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Progressive Property Management
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