Personnel costs for onsite management and maintenance

[Ken P.]

For a hypothetical complex of 150 units, what are some ranges for personnel costs in the Midwest for the onsite office manager and maintenance person or people? That is, when I'm penciling in personnel costs in a spreadsheet when underwriting a potential apartment complex deal of that size, what are some reasonable numbers to use? I don't want to use the numbers that the seller has currently because we don't want to manage the complex as they have, as we don't want to get the same resident complaints about poor office hours and delayed maintenance. As far as we can tell they only have one person that does everything, with offsite help brought in when needed (when the customers are screaming!).  The complex can support higher personnel costs because rents are substantially below market, and besides raising rents on existing tenants the unit upgrades we have planned on turnovers will further improve the top line.

Also, what are some best practices for compensating the office manager so that their interests are aligned with our interests?  We want to pay a bonus for lease renewals that values renewals more highly than new leases, to minimize turnover expenses.  What has worked for you in this situation?  Does anyone have a compensation scheme for maintenance people that provides an incentive that maximizes tenant satisfaction?

My own experience is limited to self-managing 26 units, so I appreciate the input from investors with experience 'managing the manager'. 

[Abel Sng]

@Ken P. are you planning on using a property management company? At 150 units I would highly recommend it. If so, make sure you interview a few and ask MF brokers in your market who they would recommend. Each property management company will run their operations slightly different so once you've landed on one you should ALWAYS get their input so you can avoid surprises.

As for the Midwest, I don't have experience in that market, however in DFW and ATL I always underwrite for around 1200 a unit for payroll all in. That could go up or down but it gives you a good starting point. You are correct for not using the sellers numbers as there are many times we see P&L's that have payroll at around 700-800 a unit which means they are either self managing to a certain extent or there is not sufficient staff in which case you could see a higher repair and maintenance / contract services cost.