Property Management Fee Question

[Michael Sjogren]

Hey everyone, 

I am analyzing a deal right now for a 26 unit apartment complex. I know on larger properties (50+ units) it is common to have an onsite property manager and the fees are between 4-6% plus payroll costs for the onsite manager. For a smaller complex like this, should I budget for payroll expense as well? The current owner self-manages the property so I cannot gauge a true management cost. Typically I would factor in $900/door for payroll cost plus a management fee.  Any thoughts on management fee % and payroll expense would be greatly appreciated. 

Mike

[Christian Brodin]

Michael,

For a smaller property like this you might want to factor in an 8% management fee + leasing/renewal commissions. This should allow you to have a professional local company manage the property for you. I do not foresee that they would need to hire someone extra on top of this.

The management company should include it in their portfolio of properties. Some management companies will charge you extra for computer fees, management software set up, copies, etc etc. ... the list goes on and on. (read the contract carefully)

If you do not want to use a management company you can "hire" one of the residents to function as an onsite supervisor for you and pay them through a credit to their rent. If you do this you need to consult a lawyer or an accountant to understand how this can be done without assuming too much risk/tax, and if you are allowed to do this at all in your state. You would probably also need to be involved with purchasing, vendors etc. 

From the numbers I have seen salary costs are much more likely to be $1000 to $1500 per unit. If you hire someone you need to be clear about local and federal employment laws, alternatively you can hire them as contractors. If so you need a very well worded agreement that they sign. Again make sure you speak to your lawyer about this. 

Finally, whether or not your hire a person or a management company you need to be clear about your expectations. You don't want to go past 3 months of operations if the results are not as you expect. (make sure you are clear on leasing, budgeting, purchase approval limits etc.

This was a long winded answer, but I hope this answered your question.

Christian