Discussion: Incentivizing property mgmt contracts - what works?

Question

Does anyone care to share some ideas on incentivizing my contract with a property manager. I am admittedly fairly uneducated in dealing with PM's but from what I've picked up, it almost seems like they get paid more/better on tenant turnover than not. Seems like a definite conflict of interest from where I stand. I am still in the brainstorming process personally. I'm thinking along the lines of a trial period where after a certain period of time I'd offer some kind of quarterly bonuses based on lack of turnover/rents paid on time ect ect. Something to create "buy in". Would love to hear what's working for you.

I would especially like to hear from PM's themselves...

(1) Who are the types of owners you love to work for?

(2) Who are the ones you dread picking up the phone for?

(3) What are the obvious things that owners miss that you wish they could understand?

(4) Anything else....

thanks!

I would especially like to hear from PM's themselves...

(1) Who are the types of owners you love to work for?

(2) Who are the ones you dread picking up the phone for?

(3) What are the obvious things that owners miss that you wish they could understand?

(4) Anything else....

thanks!

Filipe Pereira · Answer

Hi @Jeremy Miller, I must say, this is a great question! As a property manager serving the Connecticut / Massachusetts border and the greater Hartford area, I can speak to a few of these. Last month, as a matter of fact, I encouraged an investor to take on a 2 year lease with a tenant we found him. At first, he was uneasy about this - all of his prior leases were for only 1 year, so he didn't understand why we would suggest this. I explained to him that it will not only lock in his rent income on that unit (which is currently rented at the top of the market) for the duration of the lease, but that it will also save on his PM costs, as that's an extra 12 months that he will be certain we won't be charging him a tenant placement fee. He later came around, and thanked us for doing that. This is how we build trust and confidence with our investors! To address your questions: 1- I love working with organized owners/investors. If you aren't organized on your end, there isn't much I can do on my end to make your situation better, or more profitable. It's a 2 way relationship, especially during startup. 2- I dread picking up the phone for folks who are micro managers. You hired us to do a job, and probably picked us because we were most qualified, or at least made you feel confident in our skills. Trust us! Let that leash loose after a month or two. :)3- Startup stuff can be a massive struggle and owners can sometimes drop the ball on it, especially if they are about to move. Yes, we DO need to be added to the insurance. Yes, we DO need an account with reserves in it. It's not just another "line item"...it's a business at stake.

I don't think incentivizing your landlord to keep a tenant is much better than no incentivizing at all. If you incentivize them for holding on to tenants, you might find yourself in a situation where you are holding on to a tenant that probably shouldn't be there anymore, for whatever reason.

I'd much rather see a year end bonus (if you insist) for good work throughout the year. This is something that is given as a "thank you", rather than a transactional "you did this, so you get that".

Hope that helps!

Laticia Braxton · Answer

That would be a great scenario in my opinion!  It's your investment so that totally eliminates me as a PM having to be concerned that things won't be fixed properly :-)

I can't see any PM having an issue with that and for all intents and purposes, you are the "maintenance guy" and him only to the tenants.  This will most likely give you several opportunities to "hear" about how your PM is performing - tenants love to talk.

The PM may not like that if they are slacking.  However, it's good for you because it will keep the PM on their toes, knowing the tenants could bad mouth them to you while you are putting new batteries in the smoke detector LOL!

Laticia Braxton · Answer

I couldn't agree more with @Filipe Pereira!  I can also speak to your questions having a ton of PM experience myself, with commercial and residential management.  A year-end bonus is going to be your best bet regarding any type of incentives for your PM.  Make it known in the beginning that you intend to reward them for a great job done during the year.

With regard to your questions about dealing with owners, it's quite simple:

1.  Be a great owner to work with by being professional yourself - it's sad to have to say, but I've dealt with owners who needed to be reminded of how to speak professionally to me. There are times when we have to deliver news that may not be the greatest (tenant damage to property, major repairs needed at a property, etc.) and dropping the f-bomb every other word never helps the situation. We are all adults and at times we allege upset but being unprofessional to your PM is never necessary.

2. Be available - a great PM will only contact you in the case of an emergency, unless you have set up other requirements, so make yourself available to your PM whenever they contact you. If the PM is unavailable to you, it probably wouldn't sit too well with you as an owner since you are paying for a service.  Likewise, in order for the PM to properly provide that service, you as an owner should be available to him/her.

3. Have the funds to professionally maintain & repair your property - I could go into great detail here but the one thing that stands out is being the type of owner/landlord that allows the PM to make necessary repairs when needed.  I could give you story after story of when I notified an owner of repairs that were needed to maintain the integrity of the property and was told there was no money to make such repairs. It is very frustrating as a PM when you do your job by informing the owner of what needs to be done, only to be constantly told you can't do it.  Not to mention, in many cases the tenant is already frustrated because they are dealing with the issue on a daily basis.  HAVE RESERVES BEFORE BECOMING A LANDLORD AND BUDGET FOR REPAIRS.

4. Set your expectations for your PM from the beginning & have regular check-ins with the PM on how they are doing and how they could serve you better.  Unless you are not a great owner to work with because of the things I have mentioned and maybe other things, no professional, hard-working PM wants to lose a management contract and possibly have their reputation tarnished. I am a big advocate for check-ins whereas we can both be proactive and discuss how we both win in the partnership.

I hope this helps and best of luck to you!

Jeremy M. · Answer

@Filipe Pereira  @Laticia Braxton  thanks for the feedback! You both make some great points! And so much is just simply exercising some good ole fashioned common sense.  :)   I especially like the comments about (1) not incentivizing a landlord to keep a tenant - didn't think of it from that angle. (2) setting realistic and proper expectations (and being adults)

Follow up question - would you like/dislike having the owner involved in property maintenance for things that do not require licensing?  It something I still enjoy and I have about 20 yrs experience in about all elements of the residential construction scene, new construction, rehab, have worked on houses of about any imaginable sort and size. I'm thinking of working out a deal with a PM where I do anything that falls into any predetermined categories of maintenance and they handle "tenant stuff"  and major issues.

Discussion: Incentivizing property mgmt contracts - what works?

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