How do you compensate your onsite managers?

Question

Greetings BP,

Curious how others compensate their onsite managers.  Free rent?  Rent Credit?  Salary? Hourly pay?

One of my buildings is only 24 units so it is not quite a full time job yet there are still weekly tasks to take care of such as maintenance, collections, etc..

Trying to gather some ideas.

Jason

Brian Adams · Answer

@Jason Mak, our onsite managers make an hourly wage plus we have a bonus program when certain economic occupancy goals are achieved - basically how much money the manager has collected.

I know others have suggested to self manage. I buy 100 to 400 unit deals and in my opinion I think that is wrong strategy. You need to leverage the skill set of a competent property management company to scale your business.

Account Closed · Answer

Not offering tax advice but from a value point of view you should never offer free rent in exchange for services. In addition to the case below, you run the risk that the "employee" may at some point feel that their service are worth more than the free rent and that ususally leads to more problems.  I believe that no matter how small the property, doing things on a professional level is the best policy and leads to less headaches.

The case for value is this:

Showing a unit as either no income or partial income reduces your value both from an appraisal and lending point of view. Additionally, free rent is taxable to your employee and impacts your tax treatment as well.

The correct way to do this is to set a pay scale, pay them that, and then charge them the whole rent. I know that this may seam silly if the end result is the same but when you are pursuing value it make a big difference in the way occupancy looks and gross revenue. Expenses will always be adjusted by each prospective investor and so while  a potential buyer may not care, appraisers and lenders do not always make the adjustment and so your value is impacted.

Obviously the more units you have the less the impact but with 20 units - giving up one unit is a 5% vacancy added to your property. The appraiser or lender will then add your market vacancy and now it not looking as good. Having higher expenses is a function of the operator and as you can tell from the posts above, everyone has a different level of expense.

We always  seek to drive rents, we know what our expenses  will be but each additional dollar in rent is a documented income when assessing a property. Lastly, should the unforeseen event that you need to terminate this person, having the housing and pay tied together will only complicate potential legal issues.

J Scott Hamilton · Answer

Here is the Nolo link explaining how to provide tax free housing to your onsite property manager under IRC 119 as part of their employee compensation.

Jason Mak · Answer

Wanted to bump this thread and get some more feedback and dialogue going.  I'm still looking to see how other folks compensate their onsite management teams.  I thought I would share my arrangements first and hoping some other seasoned pros will share theirs.

• 178 Unit Apartment - Full time onsite manager and maintenance manager.  Each is paid a monthly salary and free rental unit.  
• 24 unit Apartment - Full time onsite manager who also does maintenance.  He is compensated with free rent.  This is a bit of a problem because he is always searching for "paying jobs"
• 88 unit Apartment -  Full time onsite manager and maintenance manager.  Each is paid a monthly salary and free rental unit.   One assistant manager who does a lot of admin work who gets free rent.  This is affordable since the rent value and base salaries are low for this property.
• 65 unit apartment - Full time onsite manager who is compensated free rent and salary.  Full time maintenance and housekeepers who are on salary. 
• Office Bldg - 3rd party management company
• One part time bookkeeper who manages books across all properties and is paid salary.

Usually maintenance is done onsite but larger jobs such as unit painting and anything renovation/construction related is done by a 3rd party or paid separately on top of existing salaries.

So I'm curious how you all compensate your managers.  What works?  What doesn't?

Jason Mak · Answer

@Brian Adams   thanks for your input.  i agree, i own a property management company but need onsite managers to delegate and oversee the day to day

Jason Mak · Answer

@curtis

@Curtis Bidwell  thanks for sharing that the combined payment to your onsite manager is around 5%

Jason Mak · Answer

@Christian Brodin @Curtis Bidwell

Thanks for you input.  In California, any apartments under 17 units require onsite management.  I self manage all my properties so I don't use a property management company.  However, my other properties are larger and therefore need a full time team.  24 units seems to be in that zone where there is not enough work for a full time guy, yet by law and necessity, need someone there.

Joel Owens · Answer

Buy small, you have a job. If you are okay with having a job keep it local due to time constraints.

You want to have upside with your manager if you have one with aligned interests. If they just get a set fee they have nothing extra to motivate them.

Brian Adams · Answer

@Jason Mak, our onsites make

How do you compensate your onsite managers?

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