How property managers get paid

When shopping around for a property manager, it's a good idea to understand how they are going to be paid from you hiring them. As you interview various property managers, it's important to remember that fees vary widely.
Property managers are paid for tenant placement, ongoing management or both. If you don't mind the month to month responsibilities of managing your properties, but don't have the time, energy, or know-how to fill vacancies, you can hire a management company to just do tenant placement for you. Fees for this vary - typically, they are the full first month's rent, but they can be as low as 1/2 to 2/3 of this amount. This relatively large payment typically covers the marketing, advertising, and showing of the property, as well as the prescreening of tenants and handling of tenant applications.
If you hire the property management company to manage your property on an on-going basis, they may charge you nothing for tenant placement, only an ongoing monthly fee (typically 8-10% of rent collected). Others will charge you the full amount, or will give you a slightly discounted rate.
Most property managers also collect a fee for lease renewal. This may be a percentage of the monthly rent, or it could be a flat fee of one-hundred to several hundred dollars. A good property manager will reevaluate your property and current market rents and may initiate a rental increase at this time. They should also inspect the property and obviously have a new lease signed and on file.
Another way that property managers are paid, which doesn't directly come out of your pocket, is from late fees. You may be able to negotiate that these fees be paid to you with their standard percentage deducted, but many property managers will keep the entire amount of these fees. Very stiff late fees are good motivation for your tenants to pay on-time, every month, and should help you to get paid quickly (if the tenant intends to pay and does not require an eviction to be initiated).
In my opinion, a good property management company's fees should be very transparent. There shouldn't be any additional charges besides what I have already outlined, but that doesn't mean that some companies won't charge certain administrative fees. Be sure to ask about any other fees when you hire a property manager to avoid having all of your cash flow eaten up by surprise.
Also, remember, just because a company charges 8% a month and no tenant placement fee, it doesn't necessarily mean that they will be your best choice. Whatever the fees, make sure that you can be confident that your property manager is well organized, will deliver prompt service to you and your tenants, will follow through with inspecting the property, renewing leases, posting three day notices, using the most cost effective maintenance companies for repairs, etc. You want to be confident that your property manager will keep you up-to-date on the status of your property and won't cost you money by being lax with late-paying tenants. So, provided their fees aren't totally unreasonable, or significantly higher than everyone else's, I recommend going with the manager who you believe will do the best job, because having an efficient, well organized manager could save you a lot of money in the long run.
Remember, these are generalizations, the property managers in your area may charge different fees for slightly different services. Always ask about any extra fees that may come up and never forget that all of these things are negotiable!