Why Should Property Managers Get a Percentage?

[Jason Rector]

I currently own and manage 7 single family properties. I've thought about getting a property manager in the future, but I really don't understand why they require a percentage as opposed to a fee for the work done. The obvious answer is because that's the way it's always been done and the PMs make more money that way. That only answers the question why DO they get a percentage rather than why they SHOULD.

I have two major problems with this payment structure. 

The first is that I see the value in a PM just as I do a plumber. If my property has a plumbing issue, I will call my plumber and he will fix it. I will then pay him for his services based on the effort of the job. I do not pay my plumber a percentage of gross rent collected. Why shouldn't I be able to pay a PM based on the work done on the property rather than based on a percentage of what I am able to charge rent?

For my next issue with this structure, consider two properties, both of which are in similar, good condition and are 1500 sqft 3 bed 2 baths, but are in different locations. One property is $1000/month while the other is $1600/month. I was able to acquire a property in a great location which allows me to charge a higher rent. The higher rent will also tend to get me a better tenant. What warrants the PM to the additional $60/month for my better location and better tenant? They will likely have to do less work!

I've not come here to rant, but rather inquire to the nature of this pay structure to and to find out if anyone has been able to set up a fee based pay structure as to percentage based. Based on my two scenarios above, why do you think PMs should get a percentage of the gross rent collected?

[Joe Villeneuve]

Here's what my PM does for me:

1 - Fills vacancies
2 - Handles the advertising
3 - Does the interviewing including background checks, credit checks, rental histories, income verification, NSF check research, etc...
4 - Does the inspections
5 - Does the walkthru before and after
6 - Guarantees the first 6 months of a tenant they placed, or they refill the property at their cost
7 - Handles all problems, including maintenance...with no markup charges
8 - Handles all incoming calls and emails, so the tenant has no idea who we are
9 - Contacts, and extends lease at no extra charge to us
10 - Knows market, so gets us the highest possible rents
11 - 35 years of experience as a full time PM service
12 - Will garnish wages if needed
13 - Handles entire eviction process (keeping us up to date), from beginning of letters of notice to court....to eviction.  Our cost = $75 one time attorney fee.
14 - Handles everything online with immediate up to date access.
15 - Auto deposits into account of choice
16 - Sets up auto collection of rent online.
17 - Provides our tenants with online access to their account so they can make payments, see repair status, make complaints or reports, etc...
18 - Pays for any overages on maintenance not covered by cash reserve, and allows us to reimburse with cash flow
19 - Handles an Annual property inspection for us at no extra charge.
20 - Gives us a volume discount

...like I said, I won't analyze a property without them, and won't leave home without them.