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?