The nine clauses, in one table
The nine clauses, what they often say, and what to ask for| Clause | What it often says | What to ask for instead |
|---|
| Spending limit | Manager may spend without asking, no figure given | A number, around $300, plus a defined emergency exception |
| Repair markup | Silent, or permits a margin on the bills | Any markup shown as its own line, two quotes above $2,000 |
| Term and notice | Twelve months, rolls over, 60 day notice window | 30 days either side, any time, no exit fee |
| Leasing fee | Half to one month's rent on each new tenant | A guarantee period if the tenant leaves early |
| Renewal fee | $100 to $500 for the same piece of work | Ask whether it applies to a month to month roll |
| Security deposit | Held by the manager, location not stated | Amount, account, and transfer on exit, in writing |
| Leasing authority | Manager may sign a lease for you | Fine, but attach your written screening standard |
| Indemnity | You cover the manager's costs | Carve out their negligence, and ask about their insurance |
| Sale of the property | A cut if you sell, or a listing right | Make it a choice, and check if it binds a buyer |
1. Why does the agreement matter more than the fee?
Because the fee is just one number, but the agreement is every other number, and they can be far more important.
Take a manager at 8% on a house renting at $1,800 a month. The fee is $1,728 a year.
Now look at all the other fees around it: a leasing fee when a tenant leaves, a renewal fee when one stays, a markup on maintenance, a charge while the property sits empty, and the right to spend up to some amount without asking. Those together are often larger than the headline rate, which is the point I make with three real fee schedules in what US property management actually costs.
You negotiate the rate because it is the number you were quoted. The agreement is where your cash flow reality lives.
There is a second reason, and it is specific to investors like us who own from abroad.
Distance removes your ability to see what is happening, so what you are left with is what the contract entitles you to be told. The reporting clause is your eyes and ears. I wrote about this in more detail in what good remote management looks like.
2. What should the spending limit actually say?
A real number, stated clearly in the document, with your name on any final decision above it.
The clause often reads that the manager may incur expenses up to some amount without prior approval, and in an emergency without any limit. Both of these blanket statements need attention.
For a first single family rental I ask for a limit around $300. Not because $300 is magic, but because it is low enough that a pattern of needless work has to come past me before it happens.
If a manager tells you $300 is impractical, ask what they suggest and why. They might be right, but that conversation will tell you a great deal.
The emergency carve out is fair and should stay. A burst pipe at 2am should not wait for an email to Brazil. What I ask for is a definition, often limited to anything affecting safety, security or further damage, and a requirement to notify me within 24 hours.
What you are preventing is not one big invoice. It is a run of $400 jobs nobody had to justify. I cannot tell you how many other investors I have spoken with over the years who have said their property manager nickel and dimed them to death. I have written about this in more detail in how managers make money on repairs.
3. Does the agreement let them mark up repairs?
Different managers have different models. Some use in-house contractors. Others have preferred service providers and charge a flat fee. Others mark up the invoice. None of these are inherently bad, but you should look for the wording in your agreement. It will be there or, it will be conspicuously absent.
Look for any permission to add a margin to third party bills, to charge a coordination or supervision fee, or to use an affiliated maintenance company. Again, all three are legal, and none of them is automatically wrong. What matters is that you know which model you are in before the bills start rolling in.
Put a figure on it. A 10% markup on a $9,000 turnover is $900, on work the manager was arranging anyway, and turnovers of exactly that size are what I measured in what a turnover actually costs. The same 10% across a normal year of maintenance and capital spending, using the schedules in maintenance, repairs and capital, is smaller but still not insignificant.
Two things to ask for. That any markup is disclosed on the statement as its own line, and that jobs above an agreed figure, say $2,000, need two written quotes. Neither request is unfair and both change behavior.
I experienced probably the worst version of this with some houses I owned in Pennsylvania. The manager said they used in-house contractors. What they were in fact doing, as I found out later, was sub-contracting the work, and marking up the subcontractors' invoices by a significant margin. They were also charging the subcontractors some kind of membership fee to be on the preferred suppliers list. The manager was double dipping. I was getting terrible value. And in many cases, terrible quality of work which then required further cash to put right.
4. How long are you tied in, and how do you get out?
Four clauses, and they work together.
The initial term, often twelve months. The renewal, which is often automatic unless you give notice in a window. The notice period, often 30 days. And any early termination fee.
A contract that rolls over, with a narrow notice window, can catch you out. If the agreement rolls for a year unless you give notice 60 days before the anniversary, then missing that date by a week costs you a year.
Just like your scheduled annual and seasonal maintenance, diarize everything. Your manager manages the property and tenants, but you are responsible for managing that relationship.
Ask for 30 days notice, either side, at any time, with no termination fee. Plenty of managers will agree, and a manager who insists on locking you in for a year has told you something about their confidence in the service. If you are already inside an agreement you want to leave, the order to do it in is in how to fire a US property manager.
The three I would not sign without. A spending limit with a number in it. A 30-day exit either side. And a clause saying your records, meaning the lease, the deposit ledger, the tenant's details and the maintenance history, are yours and will be provided within 14 days of termination.
5. Who gets paid when a tenant renews or leaves?
This is where the incentives live. I talk a lot about real estate being a people business. That applies here as much as anywhere. Often, people tend to follow incentives to their own best interests.
For example, a leasing fee is charged when a new tenant is placed, often half to a full month's rent. A renewal fee is charged when an existing tenant signs again, and in the three schedules I have published in other blog posts it ranged from $100 to $500 for the same piece of work.
Look at the two side by side in your own agreement. If placing a new tenant pays several times more than keeping the existing one, the document is quietly pointing your manager at turnover, which is the single largest running cost you have. That is not an accusation against anybody. It is math, and it is worth naming out loud before you sign.
Two questions worth asking.
Does a renewal fee apply if the tenant simply continues month to month?
And is the leasing fee due if the tenant leaves inside a few months, or is there a guarantee period?
A manager who offers a placement guarantee is putting their fee behind their screening, which is the strongest signal in the whole process.
Look at it this way. If you view the lease renewal fee more like a tenant-retention fee, you would probably be prepared to pay a higher fee if you felt like the manager was doing everything in their power to retain a good tenant.
6. What does it say about the security deposit?
The deposit is the tenant's money. The agreement should say where it sits and who is accountable for it.
State rules vary and some are strict, requiring a separate account, in state, with written notice to the tenant about where it is held. Your agreement should not conflict with any of that, and if it is silent, ask.
What you want in writing is the exact amount, the account it sits in, and that it transfers to you or to a new manager on termination. It matters at exactly one moment, when a tenant moves out and there is a deduction to justify, and that is a bad moment to discover nobody can evidence the figure.
7. Can they place a tenant you would have refused?
Almost every agreement gives the manager authority to sign a lease on your behalf. That is normal, and you do not want to be trawling through multiple applicants from another time zone anyway.
What the agreement often does not carry is the standard they will apply. So attach one. Mine is an income multiple of three, a credit score floor of 620, no recent evictions, and no felony criminal record, applied to every applicant the same way, which I set out in full in how I screen a tenant. A written standard is also the thing that protects you legally, because consistency and a solid paper trail is the defense against a fair housing complaint, not selectiveness.
If your property is in the voucher program, ask who attends the inspection and what happens if it fails, because a failed inspection stops the housing payment until the repair is done. That process is in the Section 8 inspection problem, and what running voucher properties from Europe taught me is in Section 8 for overseas investors.
I did not always work this way. I used to rent to almost anyone, and it cost me a great deal of money, which is part of the account in when your manager is the biggest risk.
8. What is the indemnity clause doing?
Read the whole thing and one clause is written with more care than the rest, and it is this one.
An indemnity says that if something goes wrong, you cover the manager's costs. Some version of that is fair, because they are acting on your behalf and should not carry the risk of your property. What is not fair is an indemnity that covers their own negligence.
You are not going to redraft it. What you can do is ask two questions.
Does it exclude their negligence and their wilful misconduct, and do they carry errors and omissions insurance. If the answers are no and no, that is worth an hour of a local attorney's time before you sign, and it is the one place on this page where I would spend the money.
Two things you can check yourself in the same sitting. Most states license property managers, and the license is searchable through the directory of state licensing agencies. If they belong to a trade body such as NARPM, there is a published code of ethics behind the contract and a route for complaints. Neither replaces the clause. Both tell you who you are signing with.
Also, have your property manager named as additional insured on your property insurance policy. Most good managers will request that anyway.
9. What happens if you sell?
Two clauses, both easy to miss.
Some agreements claim a commission if you sell the property to the tenant they placed, or to anybody, during the term. Some claim the right to be the listing agent. Neither is wild, but both should be your considered choice rather than a surprise.
Also check whether the agreement survives a sale, because a buyer may not want your manager, and a duty that transfers with the property reduces what the property is worth. If a sale is anywhere in your plan, the cost side of it is in what closing costs actually are, and the tax side for a non-resident is in capital gains tax when a foreign owner sells.
10. What should you ask to add?
Five things. I have never had all five agreed, and I have never had none.
Reports: a line by line monthly statement with bills attached, by a stated date. Not a net figure.
Inspections: inside the house, twice a year, with dated photos.
Records: yours, returned within 14 days of termination.
Repairs: two written quotes above an agreed figure, and any markup shown as its own line.
Communication: a response time in business days, so that silence becomes a breach rather than a mood.
Ask for all five in one message, politely, before you sign. Then put the whole cost of the arrangement into your own numbers rather than the projection you were shown, and see what is actually left once the fee stack, turnover and capital are all in there.
Ronald, one of my clients in Ottawa, went through this before his first Kansas City purchase and is now buying his second, and you can read his case study. Getting the paperwork right the first time is why the second one is straightforward.
If the manager arrived attached to the property, as they often do on a turnkey deal, the contract deserves the same scrutiny as the numbers you were shown, which are covered in the turnkey due diligence checklist. And the wider set of people you sign agreements with as a remote owner is in how I built an out-of-state portfolio.
The bottom line
Read the contract once, slowly, before you are set on the manager.
Almost nobody does, and it is the cheapest hour in the whole process. You are not looking for traps, because most of these documents are ordinary. You are looking for the three numbers that decide how this relationship behaves when you are asleep in another time zone: what they can spend, what they earn when a tenant leaves, and how quickly you can go.
Everything else can be fixed later. Those three cannot, and asking for them at signing costs you nothing but the asking.
If you have not chosen the manager yet, do that part first, and do it well, using how to vet a US property manager. And if you are still deciding whether to hire at all, the honest comparison is in self-managing from abroad against hiring somebody.
If you would rather work with managers whose agreements already carry most of this, that is part of our remote management service. The clause checklist itself is in the foreign investor starter kit.
This article is general information, not legal, tax or investment advice, and it is not a substitute for a lawyer in your jurisdiction. Cashflow Rentals is not a real estate broker, lender or investment adviser. Contract terms, deposit rules and landlord law vary by state, so please take advice from a qualified professional before signing anything.
