Leasing Fee or no leasing Fee

Leasing Fee or no leasing Fee

Recently I was at a networking event talking to another property manager. They were describing their pricing as being more favourable in the market place than other companies due to the fact they don’t charge a leasing fee. A leasing fee is the cost most companies charge to locate a new tenant. Most companies including us, Cartref Properties, charge a fee equal to 50% of the first full month of rent. 

For a property rented at $1500 this would be $750, A property rented at $2000 would equal $1000. What this manager explained is they charge slightly higher fees monthly but no leasing fee. This brings up the question of what is the more economical option. The answer is it depends.  

It depends on one factor, how long will the tenant stay at the property. The averagage length of tenancy for our clients is 24 months. This means most tenants stay more than one year at a property. We will use the 12 and 24 months as the base for comparisons in this scenario. 

We have seen other companies also advertising a higher monthly rate and no leasing fee, this individual we were talking to said their fee was 12% of the rent we have also seen 10%. Cartref Properties management fee is 8%. 

If we take the two monthly fees of 8% and 12% compare the annual cost plus the one time leasing fee we see varying results. 

For a property rented at $1500 with a management fee of 8% this equates to $120 per month for annual cost $1440. The leasing fee of 50% would be $750. The total fees paid would be $2190. The management fee of 12% equals $180 per month for an annual total of $2160. 

This means in the first 12 months the 12% pays $30 in less in total fees. The leasing fee is only charged once and so at the end of the second year 8% annual cost reduces to $1440 from $2190 and the 12% fees remains at $2160. This means after the second year the 12% fee would cost a total of $4320 and the 8% fees would cost a total of $3630. That means after two years the 12% rate would pay an additional $690 during those two years. It also means for every year after the 12% rate equals an additional cost of $690 each additional year.   

What would this mean for a property rented at $2500 with a management fee of 8% this equates to $200 per month for annual cost $2400. The leasing fee of 50% would be $1250. The total fees paid would be $3650. The management fee of 12% equals $300 per month for an annual total of $3600. 

This means in the first 12 months the 12% pays $40 less in total fees. The leasing fee is only charged once and so at the end of the second year 8% annual cost reduces to $2400 from $3650 and the 12% fees remains at $3600. This means after the second year the 12% fee would cost a total of $7200 and the 8% fees would cost a total of $6050. That means after two years the 12% rate would pay an additional $1150 during those two years. It also means for every year after the 12% rate equals an additional cost of $1200 each additional year. 

In most cases you do not know when the tenant is going to vacate the property, unless it is a fixed term where the landlord is moving back into the property at the end of the fixed term. 

If you are renting your property for one year only, the higher fee and no leasing fee may be the better option. If you are unsure when the tenant will vacate and you plan on renting your property for multiple years, the one time leasing fee is the better option. Most tenants will stay in one place longer than one year as they don’t like to move each year.

When looking for a property manager it is important to consider all potential costs of the management contract when selecting a rental property manager. Another fee we have seen is some companies automatically sign a new tenancy agreement each year charging a fee. We charge a fee for a new agreement, although we advise clients it is not necessary to have a new tenancy agreement each year.  

Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com