Admin & Maintenance Salaries/Benefits in Addition to Mgmt Fee

[Kush Patel]

Hi All,

I'm working on a 60 unit deal and was reviewing the financials and noticed the previous owners were paying $21K for a property management company to manage the property (they manage ~500-600 units in the area), as well as $13K for admin salaries/benefits and $14K for maintenance salaries/benefits, in addition to using one of the units ($600/mo in rent) as an office despite only being on-site twice per week. This seems pretty wasteful to me but seeing as how this is my first multifamily deal, I was wondering if I'm correct in this line of thinking? To level set these numbers, annual gross potential rent for the apartment is ~$500k.

When I pressed the owners as to what the admin and maintenance salaries/benefits are for, they claimed they chose to pay benefits (such as healthcare) to these individuals because they are from out of town and rarely visit the property. They wanted to be sure the property was cared for and so they spent extra in compensation. 

I always thought if you hire a property management company, they have their own employees and the owner of the building would not be paying benefits/any additional salary to their admin and/or maintenance personnel? And all you (as the owner) would be on the hook for is the 3-5% management fee? Anyone have any color on this?

Thanks!

[Nick B.]

@Kush Patel,

You are correct that a typical property management company fee is 3-5% of gross rent. However, that fee does not cover any salaries/benefits of the property management and maintenance personnel. You pay for those separately even though they are employees of the management company. You need at least 1 person for each 50 units and that should cost you $900-1100 per unit per year in salary and benefits. That number includes employer's portion of SS and Medicare.

Hope that helps
Nick