Alternative Fee Arrangement for Property Management

[Kevin Smith]

Hello, 

I was wondering if anyone here has experience with alternative fee arrangements for property managers, specifically for a small portfolio of single family home rentals. 

Traditionally, PM's will charge a management fee as a portion of rent plus commissions on various functions such as placing a new tenant, etc. I find these arrangements to have a conflict of interest where the property manager can earn additional profit at the investor's expense, such as frequent turnover. 

I would prefer the management's compensation to be aligned with the performance of the property for the investor. I believe this can be achieved by having the success of the property, measured by line items the management has influence over, determine the management's fee. 

I was thinking the manager could take a percentage cut, say 20%, of the following: 

Rent Collected - (Repairs/make ready costs due to tenant + HOA penalties +eviction/collection fees)

This would incentivize the property manager to place a quality tenant who doesn't break a lease early, and who takes good care of the home. This would minimize the time the manager would have to spend on the property, and minimize unnecessary costs to the investor. 

An example contract would last one year, and the investor could make a mid year payment at 6 months based on current projected performance, and then settle up at year end. 

Thank you for your time. Any thoughts?