Property Management incentives

[Brie Schmidt]

I have a PM who manages my out of state properties and overall is great.  Repairs are taken care of quickly and at a good price.  The communication with me is great and I am happy with that..... but recently we have had some issues with tenants and vacancy.  

Example is a tenant how lost their job in Aug.  They paid $400 of the $650 rent for Aug and my PM asked me if we could do a payment plan of bi-monthly payments for Aug/Sept with the tenant getting back to rent on the first starting in Oct.  We had just started working together so I wanted to give him so ownership of the situation so I said I will follow his recommendation of the payment plan.  Well the $400 Aug payment was all we got until they moved out Oct 1 and we just got it leased for Dec 1 after I insisted on putting an ad online because the newspaper and sign in front was not working.  So it sat another 2 months vacant. I put an ad on CL and got it rented the next day

He and I are having a discussion tonight because we are doubling our units next week and this is not going to work out like this.  He drives around monthly and picks up rent and has been managing most of these tenants for years and has a personal relationship with them, which I love.  But there is a fine line between friend and landlord and that is something he struggles with.  I can handle that discussion but the other part of the problem is our contract is written that he gets a % of rent collected each month and that lease renewals and filling vacancies are part of his fee.  

We had another vacancy for Nov 1 and he just bought a newspaper ad yesterday to rent it out.  I need to incentive him to keep our vacancies low.  I am thinking of doing a quarterly bonus system.  For example in Q1 he should collect $21,300 with no vacancies.  If I bonus him 1/2 a percent if there is no vacancy it would be $1065 and maybe a 1/4 a percent if it is less than 25% vacancies.

Thoughts? Ideas?  Anyone tried something else that worked well?

[Andrew Fingado]

I'd start paying him a leasing fee.  That's pretty standard and it gives the manager incentive to rent the property quickly.  As a property manager myself, I can tell you it is not very common to include leasing fees as part of a monthly % of gross rents, it's usually separate.  I suppose a few managers may include it if their monthly fee is higher than normal, to balance everything out.   What's the going rate for management fees out there for the type of properties he manages?  

I am not entirely convinced that the lack of a leasing fee is the problem, although it may be part of it.  The guy you are working with needs to be willing to transport into the 21st century.  I think it's all well and good that he drives around and collects rent and has a personal relationship with his tenants, but unless he combines some of his old school management techniques with new school technology I fear you will just lose more money in vacancies.  Newspaper ads? These days that doesn't cut it.

I wouldn't do the whole incentive thing with bonuses that you are thinking about, sounds too complicated.  I'd pay him a flat % for gross rents, and a leasing fee of one months rent (if you are in a high rent neighborhood drop it to half).  Simple as that. You could also tell him that while the property remains vacant without income you will withhold the management fee, or only pay half of what he's normally getting.  Lastly, pay him a flat 250 dollar fee when he gets the current tenants to renew a lease.  If after all this, he continues to take a long time placing a tenant in your property, I would find another manager.

Are these single family homes or is he managing an apartment house?