Flat-Rate Property Management in Northern Virginia: The Pros & Cons

July 12th, 2017 by
Flat-Rate Property Management in Northern Virginia: The Pros & Cons

Most owners have wondered at one point or another whether flat-rate property management in Northern Virginia is worth it, and we are here to tell you, like anything else, there are pros & cons.

So you’re going to be out of town for the next few years, and you’ve decided that instead of selling your Northern Virginia home, you’d like to put it on the market for rent. You’ve already decided that professional property management is a strategic cost in which you’re willing to invest (for reasons including peace-of-mind, tenant screening, marketing, maintenance, etc.); and you’re on the lookout for a property management firm.

As you browse online you may notice that while the majority of area property management firms charge a percentage of the rent each month for their services, there are some which offer homeowners their services for a flat-rate monthly fee.

Flat-rate model: The property management company will charge the same fee each month, regardless of how much the property rents for. This fee might be as low as $65/month and as high as a few hundred dollars/month.

Percentage-based model: Under this model, the property management company will retain a certain percentage of each monthly rent payment. For more details and an example of how this would be calculated for a typical Alexandria-based home, check out our recent blog post here. Northern Virginia property management rates usually fall between 8 and 10 percent of monthly rent. (And to learn more about what goes into a good rental market analysis, check out our blog post on the topic here.)

Each model has its advantages and disadvantages. Thus, after making the decision to hire a property management company, one of the most common questions homeowners face is “Which of these firms is going to give me the highest level of service at the lowest cost?”

Similarities between the models:

 

Before getting into the pros and cons, it’s important to discuss one key similarity: as a homeowner, both models are easy to budget and incorporate into the monthly rent. In our recent blog post about an Alexandria, VA, property, we detail how this can be done for a percent-based model.

Obviously, one caveat to this claim is that it does not account for unexpected fees, which can pop up for services some property management companies consider “extra.” This is the second similarity between the two models: the property management company may charge extra fees for costs they may incur (e.g., maintenance and repairs, court appearances, processing insurance claims, etc.). However, extra fees are much more likely to be charged in a flat-rate model. (Note: WJD Management’s property management program has no hidden surcharges or fees of any kind.)

The key takeaway? Keep in mind that even if you choose a flat-rate model, you still may experience fluctuations in the funds you receive each month because of add-on fees deducted from your rental proceeds.

Flat-Rate Property Management Models: The Advantages:

 

No. 1: Flat-rate Property management companies will offer similar services for all types of properties, regardless of how much they rent for.

This makes researching the company’s reputation easy, as all customers are likely to have experienced the same basic level of service. As you “shop around” for different property management companies, it will be easy to get a sense of whether or not “hidden” fees often appear, which will be important for your budgeting process.

Of course, it’s just as easy to find the same information about a property management company that uses a percentage-based model. Good customer service is essential in the competitive property management business, and no company that treats its customers poorly will survive — regardless of the business model.

WJD Management has been offering Northern Virginia property management services for more than 30 years,. Our percentage-based model allows us to deliver a high level of customer service across the board and to ensure that each home we manage—no matter how large or small–gets the care and attention it needs.

No. 2: If you have a large home, a flat-rate fee will likely be cheaper than that of a percentage-based model.

It only makes sense that a flat-rate model will be less expensive for a larger home. By charging the same price to all landlords, a flat-rate property management company will necessarily need to charge higher prices for small homes; whereas, it will be able to charge lower prices for large homes.

If your home rents for $3,975/month (like Jan in our recent Alexandria, VA, example), an 8 percent property management fee with WJD Management would be $318/month. This is obviously more expensive than $99/month (which is not an uncommon flat-rate fee in our area).  However, Jan’s home will also receive a level of service commensurate with its nearly million-dollar value, from premium tenant screening services to giving the 24/7 emergency response.

No. 3: If your home is new — and therefore likely low-maintenance — you could risk the flat-fee model if you don’t expect the need for maintenance, which could induce add-on fees.

As pointed out above, flat-rate property management companies are more likely to charge extra fees for general maintenance issues that might be covered under a percentage-based model.  While owning a new home won’t safeguard you from incurring repair or replacement expenses under either model of management, you’ll probably find a flat-rate management company a lot more likely to “nickel and dime” you for maintenance services a percentage-based firm would treat as standard under the management contract.

You could take the risk and choose a property management company that charges a low monthly rate if you feel confident you won’t be “dinged” by any of those extras. Just realize that services like collecting late payments and documenting expenses are services that could be required irrespective of a home’s age. A property manager does a lot more than just maintenance, so it’s probably wise to cover your bases by paying a little extra for more inclusive services.

No. 4: If you do not plan to rent your home, this model makes the most sense.

While we question the wisdom of simply letting a property sit idle when it could be a potential source of income, if you simply need some “eyes on the property” while you are gone, a percent-based model will not work any differently than a flat-rate model. Without a monthly rent check, you’ll end up paying the same amount each month. At that point, you may as well go with a flat-rate model.

Flat-Rate Property Management Models: The Disadvantages:

No. 1: There is less incentive for property manager to get the highest amount of rent possible.

If a property management company can never make more than $99/month, there is little incentive to pursue a high-paying — and more important, a consistently-paying — tenant. Percent-based models exist in the real estate industry, legal industry, investment industry and many other areas for a reason — the customer’s success directly correlates with the company’s success.

Therefore, we mean it when we say our goal is to find you the best possible value for your property.

No. 2: Flat-rate models often come with add-on fees.

We’ve alluded to this risk several times throughout this blog post, but it bears repeating: If a flat-rate model is dramatically cheaper than a percent-based model, you are almost certain to be subject to add-on fees. These fees can include maintenance, legal, collection and other types of fees.

Do yourself a favor and recognize that you always get what you pay for. It’s much easier to budget when you know you’ll be paying a higher monthly bill — in exchange for more expansive services — than it is to deal each month with fees coming unexpectedly.

No. 3: A flat-rate model does not allow the property management company to take the nuances of each property into account.

This last point is a little more subtle, but it’s similar to the point about incentives. There’s a danger in pursuing a flat-rate model in that the property management company is tempted to treat each property the same. After all, excepting the add-ons, they’re getting exactly the same revenue each month from every property in their inventory, right?

As we’ve learned from managing 400+ properties in the Northern Virginia area, each property is unique, and it should be treated that way. A single-family home has different maintenance needs from a hi-rise condominium. Each type of property attracts a different type of tenant, and thus, services must by definition be handled differently. By charging an amount specific to each property, the management company is less likely to fall into the trap of using a “one-size-fits-all” approach.

Conclusion:

A flat-rate model may sound appealing on the surface, but it comes with downsides, very often including add-on fees. Don’t be fooled by a low monthly price; you always get what you pay for.

Also, like we said above, it’s not much harder to budget for a percent-based model. If you need help, we can easily assist you in planning for your potential income. Just ask us.

Also, no matter the model, remember that it’s crucial to meet with your potential property management company before moving forward. Hiring the wrong property manager could turn your rental into a bottomless pit of expenses.

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