Last spring break, we booked a rental property, and headed south to Florida with our kids and some friends, looking forward to a relaxing week of sun and fun.
Because trips, especially trips with children, rarely go exactly as planned, one of our first adventures was a locked bathroom door. The property manager had to be called, and she took the time to drive over to unlock the door.
One of the benefits of renting a house is being able to cook in the kitchen versus eating out each meal, and so we happily stocked the fridge for the week, including a bag of frozen chicken that was placed in the refrigerator. What we didn’t realize is that there was a hole in that bag of chicken, because several hours of defrosting later, we found it leaking all over the fridge. Rather than heading to the beach, we took the time to rinse off all our food that had been dripped on, and scrubbed out the interior of the fridge. But the next day, we woke to the smell of rotting meat. Again, we pulled all the food out of the refrigerator, and cleaned with even more vigor, including the exterior and underneath the fridge. This helped for a while, but within a few days, the putrid odor was back. At this point, we were nearing the end of the trip and didn’t know what else we could do to help. Once we left, the smell became the owner’s problem.
This scenario serves as a reminder why investing in commercial real estate is a viable — and perhaps less time and energy-consuming option. While vacation properties have allure, they also come with a good dose of reality: different guests who stay short-term, have no real investment in the good of the property, and get to drive away with no worries at the end of their stay.
When considering your investments, it is wise to consider how much hassle you’re willing to deal with directly. Are you willing to make handyman calls in the middle of the night? Do you want to foot the cost of an attentive and efficient property manager? If your rental has weekly turnover, what will you do when your hired house cleaner comes down with the flu and you are hundreds of miles away with a four-hour window to get the property cleaned before the next guests arrive? Who will deal with your leaking, stinking chicken?
Let’s take a look at property management options with a company such as VRBO or Airbnb.
- Fixed-rate fees: This is when a management company charges a flat rate for a specified set of services. This fee does not vary depending on the number of nights the rental is booked in a month. For instance, you could be charged $400 a month as the average Airbnb property management fee for handling cleaning and booking. A positive about this fee structure is that it’s possible to make a good profit during the high season. However, these companies are also likely to charge you extra property management fees on top of the fixed monthly payment for additional services such as maintenance, marketing, and check-in. If you opt for this kind of fee structure, it’s wise to read the contract carefully and negotiate the inclusion of any additional services included in the monthly payment.
- Commissions: In this model, the company will take a percentage of your monthly earnings. Charges will depend on the rental property’s location, as well as the services being offered. Generally, the Airbnb property management fees could be anywhere between 25-50% of the rent collected. Once again, negotiation with the property management company is necessary in order to have as many services as possible included in this fee structure.
By comparison, commercial property management fees average 3- 5% gross income. Many tenants have property management fees included in their leases, so there is no expense to the property owner.
In addition, in the case of investing in commercial real estate, you are likely dealing with a different type of clientele. These are business owners who care passionately about their property because they are trying to run a successful business out of the space. They want the trash to be picked up, the flowers to be watered, the locks to work properly. They are more likely to tell you about a roof leak or a spill on the carpet because they have signed a long-term lease and want, just as much as you, the property to be safe, clean, and professional-looking.
One of the goals of Element Property Solutions is to make owning real estate hassle-free. Our business takes care of the details and management, so you are able to reap the benefits of a high-quality investment, without receiving phone calls in the middle of the night about frozen pipes or a power outage. You can diversify your investments and rest easy knowing you won’t wake up in the morning and need to deal with the lingering, putrid odor of a leaky bag of chicken.
Source: https://www.mashvisor.com/blog/airbnb-property-management-fees-worth-it/
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