Property Mgr. percentage of repairs?

Question

Hey All -

I'm looking for some advice regarding property management. In a recent search for a property manager, she added a line that she gets 15% of the repairs she handles. There is an inherited tenant who is particularly "asky" - so there are weekly requests right now (thus the search for a pro property mgr).

I feel as though this 15% add on incentivizes a higher repair cost.  Any thoughts on this? Is this standard in markets like L.A.?

Any ideas about how to ensure that the manager is paid fairly but not incentivized to get higher bids?  Should I request 3 bids on each job?

Drew Sygit · Answer

All, every owner seems to forget that TIME IS MONEY and expect PMC's to work for free.

Yes, PMC's collect a monthly management fee. It covers handling all tenant phone calls, chasing tenants for rents, water bills and other payments, driving by the property regularly to make sure it's being kept in good condition and on and on.

Maintenance is a separate category that takes even more time, so almost every PMC charges. Many claim they don't charge extra, but in truth, their markup is included in the difference between what they charge an owner and what it really costs internally. Here's the different ways PMC's usually charge:

1) PMC has their W-2 ServiceTech handle: they pay the person $x per hour, they charge an owner $x-plus per hour. If they are charging an owner the same hourly amount the are paying their ServiceTech - they are foolish and losing money! That's because in addition to the $x per hour they're paying their worker, they also have to pay federal, state, local, SSI and medicare payroll costs. Unless that worker is on a straight salary, they really don't what those exact amounts will consistently be, so they should be rounding up worst-case. Most likely their PM agreement states how much they charge an owner hourly, which will be more than their actual cost.

2) PMC has their own Maintenance Company: they send an owner invoices for in-house workers and any contractors they hire. Owner never sees what they paid, which hides their markup. If the PMC isn't charging a markup, then why do they need their own maintenance company and why don't they send the actual invoices to the owner?

3) Kickbacks: PMC tells owner they don't charge a markup and send the contractor invoice to the owner. What the owner doesn't know is that the PMC gets a monthly kickback payment of 5-20% from the contractor.

4) Hybrid: so far, we're the only PMC we know of that states our maintenance markup in our PM agreement and gives owners all actual invoices. Here's how we charge:

a) Maintenance: anything under $300 we don't charge markup as it's usaully just an email or phone call to one of our ServiceTechs and in a nod to those owners who think maintenance should be done with no markup, we feel small issues like this should be covered by the monthly management fee.

b) Repairs: we charge a 10% markup on labor and materials for projects over $300, but less than $3000.

c) Renovations: because projects this size typcially means we have to schedule, monitor and followup with multiple contractors to make sure proper permits are pulled and work done before next stage started (like making sure plumbing, electrical and/or HVAC done right before drywall reinstalled) we charge a 20% markup. Compare that to an average General Contractor charging 30%+.

If an owner really thinks a PMC shouldn't charge for maintenance, or believes it when a PMC tells them they don't charge a markup, well read the above cure for ignorance, but we haven't found a cure yet for stupidity.

Zachary Ray · Answer

I would avoid companies that charge those fees. Property Management is about protecting the asset not pocketing on repairs that essentially could be made up. Not good ethics.

Chad Hale · Answer

We add no markups to maintenance expenses.  This can seem like a conflict of interest and I prefer to align the owner and property management as much as possible for a common goal.

Peter Tverdov · Answer

We don't do it (yet) but a lot of companies do. This is not uncommon OP.

Vaibhav Puranik · Answer

Hi @Drey Stockert, I own a property in LA. My property manager JRealty charges me 10% of the repairs cost in addition to the % of rent. I interviewed another property manager before this and they also charged 10% for repairs. Thus, I would say it's common to charge % for repairs in LA area. 15% looks high to me, but it really depends upon what % of the rent they take. If that % is lower, then it might work out.

I think in case of big ticket repair items, it's best that you do your homework and get at least one competing bid yourself. It's more work, but I can't really see any substitute for it.

If you are having weekly asks for repairs, there might be some deferred maintenance. Or the tenant could be bad, in that case, you will need to figure out how to get rid of the tenant.

Theresa Harris · Answer

@Drey Stockert  The PM is paid to take care of this through their monthly fees.  Most months they simply collect the rents, some times they deal with repairs.  If there is a 'needy' tenant, they need to explain to them how things work.

Drew Sygit · Answer

@Drey Stockert what is the threshold of the repair amount that we requires your approval before they can continue? This is how you control the costs.

Russell Brazil · Answer

Its common. Id say about 50% of PM companies do this. I usually see 8-12%, but if its a cheap rent, I could see it going higher.

Stephen Kehoe · Answer

Not sure about LA but 15% is the upper end here out east. Most of the bigger companies markup repairs. I have seen some rental agreements where they don't even tell you the %.

Property Mgr. percentage of repairs?

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