Landlords - How would you write the perfect PM contract?

Question

I started to mention this on another thread that's going, but thought maybe a new thread would be better.

I thought about managing again, and then my sanity came back lol.  But, I thought about how I would structure a PM contract that I would have also been happy with, if I was the owner.  What I thought of doing, was a straight monthly flat fee with a bonus written into the contract at the end of the year, for zero vacancies.

I thought a fee to find a great tenant would be appropriate.  But, after that, a flat fee to manage a property, regardless of the amount of rent.  My time would be worth the same amount, regardless of what a tenant is paying in rent.  And if there was a vacancy within 12 months, then I would not be paid another fee to find another tenant, and I would not get my bonus.

I'd have options on how to handle maintenance and who I should call, and if the owner wants to be contacted on every decision.

At any rate, I never worked it all out.  But, if you could write your own PM contract, what would it include?

Account Closed · Answer

But, I was hoping to hear from landlords who don't like using PMs.  I guess it's easier to self-manage than figure out a better PM contract LOL.

Account Closed · Answer

Very well said.

Account Closed · Answer

Hi Steve,  I'm definitely NOT going to start a PM business lol.  I'm so happy to not be on call 24/7 anymore.  It was a passing madness when I was thinking about it.

My purpose for starting this thread is because of the other thread where landlords are saying why they don't hire PMs.  Basically, they don't like the contract.  So, hence the question: what would they like in the contract?  How would they write one they felt good about?  How much would they be willing to pay for guarantees or bonuses, etc.?

I guess I'm wondering if there is a way for the PM business to create a new model that would be attractive to the landlords who have sworn off PMCs.

Steve Rozenberg · Answer

Sue K. Ok I understand, sorry I did not see the intial thread before my soap box lesson. I have normally found that the PM company and contract is more in need after the owner gets wrapped up in a lawsuit or realizes that picking a tenant on their "Gut" feeling and now standing in front of a mediation board or federal violation suit is when they realize the value of a PM. I never knew all the laws and tricks by tenants as an investor until I owned a PM company.

They may not like the agreement and that is fine, but at some point we are there to protect the owner (sometimes from their own ignorance of the law) and to run their properties like a profitable business.  I tell owners that just because you have the money to buy a property does not give you the education to run the property business. Two completely different things and the contract is there to keep them out of trouble and keep the tenant paying and happy.

I think its one of those things that you cant please everyone all the time. I would like to think all PM companies have good intentions but lack the structure or knowledge to see it thru.

Steve Rozenberg · Answer

I think there a few things you need to take into account. First and foremost you have to remember that you are running a business. That business in order to survive must have policies and procedures written down and documented. You base your business model on your business plan not the contract. My point is that you mentioned some things that first you have to make sure you are complying with the local, state and federal laws, second you have to create a business model that is scalable and leverageable. You had mentioned having options to call or not call an owner on maintenance and certain fees. That may work and be perfectly possible for several or a few dozen properties. Depending on how large you would like to take your company that may not work for 300 or 500 doors. Also remember that as your company grows you will start to leverage your time via employees or assistants. They need to be able to do things and make decisions that will not get you into legal trouble, will not cause you to lose money and will not have you lose your client.

Many things we thought we would do from a small company was simply not scalable as a larger company and we never thought about aquisition cost per lead or P & L statements. So when we felt we would give this boutique style of service at a few hundred doors is not financially feasible at 500.

Going back to your question of the perfect PM contract, I think first you need to envision the perfect PM company when its finished and how that will look. Then determine the agreement based on that.

You will never make every client like your policies and procedures, and the nice thing is that there are many different companies they can choose from. Last thing you want to do is have different policies for different clients and then get in trouble because you forgot this person had a special provision in the agreement you didnt know about. I say that because we fell into that and it is never good.

Just my opinion, hope this helps