If you’re a property manager looking for ways to protect your bottom line without turning away potential tenants, Risk Mitigation Fees might be the game-changer you’ve been searching for. These fees help offset the risks of approving tenants with borderline qualifications while allowing you to maintain steady occupancy.
We’ve touched on this in our Fee Maxing course, but due to popular demand, we’re going even deeper—complete with real-world examples, fee structures, and implementation strategies. And for those who want even more insider strategies, templates, and expert guidance, this topic is now covered in PMAssist Insider! Get access here: bit.ly/pmainsider.
What Are Risk Mitigation Fees?
Risk Mitigation Fees are an additional charge applied to tenants who fall outside of standard qualification criteria, typically due to lower credit scores, limited rental history, or higher debt-to-income ratios. Instead of outright denying these applicants, property managers can offset the increased risk with an appropriate fee—a win-win solution for both the business and the tenant.
These fees act as a financial cushion, helping cover potential late payments, property damage, or increased administrative efforts associated with riskier tenants.
Why Should You Implement Risk Mitigation Fees?
Every applicant isn’t perfect, but turning away tenants for minor credit or financial issues can lead to higher vacancy rates. Instead of rejecting tenants who might be reliable but don’t meet the strictest criteria, Risk Mitigation Fees provide a middle ground.
Benefits of implementing Risk Mitigation Fees:
✅ Increases revenue – Generates additional income to offset potential risks.
✅ Fills vacancies faster – Allows for flexibility in tenant approvals.
✅ Protects against financial losses – Helps cover potential damages or late payments.
✅ Improves fairness & transparency – Creates an objective way to approve borderline applicants.
How to Determine When to Charge a Risk Mitigation Fee
The key to successful implementation is clear, objective criteria. Your fee should be based on factors such as:
- Credit score thresholds (e.g., applicants with a score between 600-650 may be subject to a fee).
- Debt-to-income ratios (higher ratios might indicate a higher financial risk).
- Limited rental history (first-time renters or those without verifiable past landlords).
- Past evictions or late payments (though compliance with fair housing laws is essential).
Setting clear guidelines ensures consistency, protects against discrimination claims, and provides transparency to applicants.
Tiered Model vs. Flat Fee Model
There are two main ways to structure Risk Mitigation Fees:
1. Tiered Model (Most Common)
- Fees adjust based on the level of risk (e.g., $50 for a 650 credit score, $100 for 620, etc.).
- Offers flexibility and matches the fee to the risk level.
- More complex but fairer to tenants who are closer to qualifying.
2. Flat Fee Model (Simpler Approach)
- A fixed amount charged to all tenants who don’t meet standard criteria.
- Easier to implement but may feel less tailored to individual circumstances.
Both approaches work, and many PMs choose one based on their local market conditions and risk tolerance.
How to Set the Right Fee Amount
Choosing an appropriate fee requires balancing profitability and fairness. Here’s what to consider:
✔ Market research: What are other property managers charging?
✔ Risk assessment: How much financial exposure are you covering?
✔ Competitor analysis: What fees are standard in your area?
✔ Fair Housing compliance: Ensure fees are applied consistently and objectively to avoid legal issues.
Up-Front vs. Monthly Fees (or Both!)
Deciding when and how to collect the fee is another strategic decision.
🔹 Up-Front Fee: Collected as a one-time charge before move-in. Helps with immediate cash flow and ensures protection from day one.
🔹 Monthly Fee: Spread out over the lease term. More palatable for tenants who may struggle with large up-front costs.
🔹 Hybrid Model: A combination of both—e.g., a small up-front charge plus a slightly increased monthly rent. This softens the impact on the tenant while ensuring steady revenue.
FREE Contract Language
Not sure how to incorporate Risk Mitigation Fees into your lease agreements? We’ve got you covered. PMAssist Insider members get access to ready-to-use contract language that’s legally sound and easy to implement.
Get the contract language and step-by-step guidance here: bit.ly/pmainsider.
Final Thoughts: Why Every PM Should Consider Risk Mitigation Fees
Risk Mitigation Fees provide a smart, legal, and profitable way to approve tenants who might otherwise be rejected, all while protecting your investment. Whether you use a tiered or flat fee model, collecting the fee up-front or monthly, the key is clear policies, transparency, and compliance.
Want to take this to the next level?
🚀 PMAssist Insider members get access to detailed implementation strategies, market comparisons, and contract templates to make adding this fee seamless. Join now.
Are you currently using Risk Mitigation Fees in your business? If so, what’s worked best for you? Drop a comment below!
