Common to pay travel exp + mgt fees?

Question

I have several other properties and pay the property manager a fee on total revenue as well as for any supervising they do for work done on the property.  I just bought a new property in Florida with a different management firm and see a charge on the first report for travel expenses.  This is for people at the management company to travel to the property and just check to see how it looks and talk to tenants.

The agreement I signed only shows paying based on gross rents for performing management services.  I also am supposed to pay for construction work done and of course for leasing.

Is it common to have travel added or am I justified in complaining?  My other properties have all been in another state with a different firm, so I just wanted to double check on industry norms.

Jeff B. · Answer

IMO, PM is not a time & materials type of business, but is straight commission based.

I would research other PMs in the area, this time getting a full list of billing items, and then it you find one you like better:

• give the current PM notice you will not pay for travel time and expenses as that's part of their job
• if they balk at it it, serve notice of termination.

Max Powers · Answer

Thank you everyone.  The property management firm does also do leasing, financial reporting and accounting, but they contract out for all other jobs.  My management agreement doesn't state anything about travel reimbursement and I checked another company that bid for the job and they also didn't mention anything about it in their agreement.

Another thing I noticed is they're charging their management fee on gross rent plus sales tax, whereas the firm that handles my other property charges based on gross rent I actually collect.  Which is more common?

Joel Owens · Answer

A lot of owners want the cake and eat it too.

They want below market rates for full service PM work. Then when the PM has to charge to cover additional costs because margins are so low they complain about the additional fees.

I am not in the PM business even on the commercial side and never want to be. It is a thankless job of people wanting the PM to do more for less.

Of course there are bad PM companies and managers out there just like bad investors.

If you are getting a standard going market fee for the area then generally those services are lumped in. If you are paying below market rates then it can be typical to do ala carte pricing.

I would think the focus should be on how well the PM is doing their job. You could also set bonuses for hitting certain metrics with the investment.

Often times I see investors not include and expense item for PM and try to self manage and then find out they do not want to do that.  They did not price that in with purchasing so now overpaid for the property and have to try and find a quality PM for a really cheap price.

Quality service costs money with PM's. If the asset is in a rougher type area then the PM will have to make multiple trips to collect rents and deal with issues so their fees tend to be much higher.

Dawn Brenengen · Answer

@Max Powers I would call around to other local companies and see what kinds of fees they charge.  Trip fees may be common practice in the area (they are not in mine).

Mike Giudici · Answer

This depends on the services you are receiving. If you want a "Property Manager" who strictly collects rent, answers phones, and calls contractors - then your strait commission model is fine.

A property management firm that offers additional services (in house engineering/maintenance, construction, leasing, accounting, financial reporting services, etc.) in addition to the basic property management functions mentioned above will more than likely have a fee structure that includes additional fees that are above and beyond the base "management fee".

To the OP - Are you surprised to see the fee in general, or do you feel it's an unreasonable/unjustifiable fee period?

Peter MacKercher · Answer

It will really come down to how management companies monetize different things according to what they find works for them and their clients, so you'll see different things. Trip charges are common, however.

Look at it this way: If you drive a personal vehicle to a property for a work-related reason, you're incurring an expense (gas, vehicle maintenance) to perform that task. Not only are you putting wear and tear on the vehicle, you're also taking time to get there to do whatever task is at hand, like removing the leasing sign. Someone has to pay for time cost and use of a personal vehicle (assuming it is one).

Those charges probably fall under the "performing management duties" section of your agreement. They might be willing to negotiate some of them, but generally management is a volume-based business, so I'd suspect their existing charges come after consulting their accountant and are near what they've established as being necessary to be profitable. I'd encourage you to talk with them about the charges to have them explained to you in more detail if you're curious -- they should be able to give you a why if they're treating you fairly.

Max Powers · Answer

They also charged for things like removing the old leasing sign, when the agreement states you pay based on the base rent of new leases or renewals.  I've never been charged for things like changing out signs.

Common to pay travel exp + mgt fees?

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