Need help with fees for managing my brother-in-law's property

[Jon Fizette]

Hello, Bigger Pockets community! I live in Kansas City and have several rental properties that I manage myself. My brother-in-law is active duty in the Army and has lived in Kansas City for several years. In June of this year he will be assigned a new post, likely overseas, where he will serve out the remainder of his 20 years of service. He would like to keep his house in Kansas City, rent the house out while he's posted overseas, then plans to move back into the house once he's retired.

He has asked me if I would be interested in managing his property for him while he's gone since I have experience managing my own properties. I am planning on managing his property but we are trying to figure out the fee structure. Since they are family and we are very close with them I don't necessarily want to charge a monthly fee or percentage, but I also want to be able to charge a fair amount for my time. I would be managing their property for 8-9 years until he's retired and returns to Kansas City. I have checked the property management laws for the state of Kansas and they do not require a real estate broker license or a property management license for residential properties.

My question for the BP community is this: what is a fair amount to charge to manage the property for my family members? I've considered charging a flat fee per year, but knowing we will be managing this property for 8-9 years I am aware it will require a good amount of my time so I want to charge a fair amount. I would love your feedback! Thanks so much.

[Caleb Brown]

I get it's family but I would do it like a typical PM company. Charge the normal percentage(8-10%) and have it structured with fees like a PM company would. He wants the property managed well so there's no issues and you need to be paid accordingly. You can do a little discount but you are not going to be rich off managing his 1 property by charging him 8-10%

[Alec Barnes]

Hello Jon,

I would recommend charging what around what property management companies are charging in the area. You will be managing this property just as a property management company would, so you should structure the fee in a similar manor. Maybe 7%-10% depending on how you are planning to manage his property. I would go closer to 10% if you will be conducting 2-4 inspections a year, full marketing, handling all maintenance, handling insurance compliance, and all of the other things that come with managing a property. Hope this helps!

[Axel Meierhoefer]

Quote from @Jon Fizette:

Hello, Bigger Pockets community! I live in Kansas City and have several rental properties that I manage myself. My brother-in-law is active duty in the Army and has lived in Kansas City for several years. In June of this year he will be assigned a new post, likely overseas, where he will serve out the remainder of his 20 years of service. He would like to keep his house in Kansas City, rent the house out while he's posted overseas, then plans to move back into the house once he's retired.

He has asked me if I would be interested in managing his property for him while he's gone since I have experience managing my own properties. I am planning on managing his property but we are trying to figure out the fee structure. Since they are family and we are very close with them I don't necessarily want to charge a monthly fee or percentage, but I also want to be able to charge a fair amount for my time. I would be managing their property for 8-9 years until he's retired and returns to Kansas City. I have checked the property management laws for the state of Kansas and they do not require a real estate broker license or a property management license for residential properties.

My question for the BP community is this: what is a fair amount to charge to manage the property for my family members? I've considered charging a flat fee per year, but knowing we will be managing this property for 8-9 years I am aware it will require a good amount of my time so I want to charge a fair amount. I would love your feedback! Thanks so much.

 I agree with what @Caleb Brown and @Alec Barnes have suggested. I actually recommend 8%, which is at the lower end of most larger companies when managing only one or a few properties for a client.

I am retired Air force and if this is the first rental property for your brother, I would point out to him that he has 2 things to consider, maybe 2.5

1. He probably used a VA loan to buy the house, so there is very little money of his stuck in the house (other than the current equity). Even if he purchased it with regulars FHA financing it is probably at a very low rate compared to current rates for investors, which are about 8% interest. This means he will have unusually high cash flow if you find him a dependable tenant at market rate. I have actually always like military tenants as they always pay (want to avoid that you have to go to the base and talk to their boss or garnish their wages).

2. As an investor, which you and your brother with this property are, you want to look at fair compensation on the one hand and source of funding on the other. So if you are willing to spend 2 hours/month on your brother's house and you and he agree that your time is worth $85/hour, it would cost $170/month to hire you for that job. If the rent is $1700/month and 10% is used for PM work, it would be fair compensation. I know that most of us don't calculate $85/hr for our fee when we self-manage or for family, but the value of your time and skills is probably at that level. The flip side of that coin is that your brother is not paying you. The awesome tenant you find for the house is paying for the PM, the maintenance reserve, the CAPEX reserve and the vacancy reserve and you will then send your brother what's left of the rent as the owner distribution. Bottom line, the tenants will pay off your brother's house and he will have a second income stream. That's a much healthier way to look at it than trying to give your brother a deal when both of you really have a business relationship when it comes to that house.

2.5 you are his brother. I am sure he knows that you will do everything and then some to treat him and his house well. Other property managers will do a good job but they will never be as caring as you are for your brother. That should actually gave you 20% of the rent for PM, but because you such a nice and caring uy you do it for 8-10% and still provide better service than anybody he can hire.

I strongly recommend you create a property management agreement for the house and I would also suggest your brother puts the house into a land trust and creates an LLC that he puts yuin charge to manage. When he comes back he can rent his house from the LLC, although I am pretty sure he will rather buy a new house with his last VA loan eligibility. That's a much better deal.

If all this is confusing, feel free to DM me and we can have a call.

[Jon Fizette]

@Caleb Brown and @Alec Barnes I appreciate your feedback. This helps me consider my next steps!

[Jon Fizette]

@Axel Meierhoefer I appreciate your detailed response. Your second point is really interesting and something I hadn't considered. One of the many reasons I love the BP community; so many great ideas! All things considered I'm leaning towards the 8-10% fee because of the great feedback I've received so far.

Thank you all!

[Milton Chamberlain]

Everyone else echoes my opinion…the day to day mgmt should just be 8%

The biggest issue for me (if was giving family a discount) would be figuring out ‘placing tenants’ fee. Keep in mind placing tenants can be VERY time consuming, so if he is not going to be verifying employment, ordering backround check and receiving application fees himself, I would think charging him by the hour would be fair (I mostly see 1 month rent fee for placing tenants)

maybe if he is willing to do all that work himself, and you just have to show, you could show for free since he’s family? Or just charge a small showing fee to cover your gas and a bit of your time, just like when you help out fellow agents and show for them when they are unavailable.

[Russell Brazil]

Does Kansas require a property manager to have a license? If so, then you guys might just cause yourselves more problems.

[Axel Meierhoefer]

Quote from @Jon Fizette:

@Axel Meierhoefer I appreciate your detailed response. Your second point is really interesting and something I hadn't considered. One of the many reasons I love the BP community; so many great ideas! All things considered I'm leaning towards the 8-10% fee because of the great feedback I've received so far.

Thank you all!

 You are very welcome. That's why I love it too

[Jon Fizette]

@Milton Chamberlain we haven't gotten as far as determining who will be placing the tenants. I'll keep you feedback in mind as we discuss that topic. I appreciate your feedback.

[Jon Fizette]

@Russell Brazil as noted in my post, the state of Kansas does not require a property manager to have a license if it's for residential properties. I appreciate your response.