Property Management Fees

[Ryan Parnow]

I am in discussions with a new property manager and have the opportunity to negotiate a fee structure.  I am currently paying a flat 6.5% fee, but haven't been happy with the results.  I was recently approached by a smaller property management company that seems to be pretty flexible in their fee structure.  That got me asking the question of how can I better align the property managers fees with my interests?

My goal for my properties are to maximize the return on my investment by finding quality long term tenants at close to market rent, minimizing turn around time during vacancies, and doing repairs and preventative maintenance in a cost effective manner.   

How could an owner best set the fee structure so that a property manager that performs well in these areas is better compensated and possibly paid less when they dont?

Has anyone considered bonuses or penalties based on tenant surveys?  Set the pay structure for filling vacancies based on the time it takes to get a new lease?  Set a higher fee for lease renewals? No leasing fee if the previous tenant leaves before the lease is up?  

I am not trying to go cheap on the property manager.  I understand the impact that they can have on my investment and want to make sure that they are paid well when they perform well.  

Any ideas?

[Katrina M.]

Hi @Ryan Parnow

I happened to come across your post right after listening to Bigger Pockets Podcast No 132, where Brie Schmidt shared how she incentivized her property manager to keep low vacancy through a well-planned system of quarterly bonuses. It is really smart.  If you go to the podcast transcript page and search the word "bonus" you will find the paragraph.