STR Management Fees for 50/50 Owner

[Rick Price]

My business partner and I bought a property in April 2021 that has 6 duplex's / 12 units. We have converted 4 units to ABB this far with the first unit online in October 2021 and the 5th to be online by September 1. The remaining 7 units are LTR with potential to be STR if tenants move out.

Since this was my first real estate venture and they had a couple years experience with a few of their LTR properties, we agreed that him and his wife would handle management and payments for such.  At the time we had no STR’s but planned to do so.  Management fees were to be around 7-8% for LTR’s. Too be fair, since we have been bleeding cash to convert LTR’s to STR’s they have taken little to no payment for management fees.  In the past few months we have started paying a 3rd party individual with no experience a flat fee for LTR management.

Since I have almost no experience with property management, my contribution in addition to approximately $2500/month cash deposits has mostly been in unit finish out and labor.  One unit was completely down to studs and has require significant resources and cash infusion.  Other contribution includes time and labor for  minor/moderate electrical, minor plumbing, shelving/fixtures/lighting/fans, and kitchen and bath cabinet installation for the upcoming September 1 unit.  In addition, my fiancé and I contributed time and labor for complete design, delivery, furnishing, and set up of 2 units and complete set up of 1.  The other 2 ABB’s had contributions from all parties but 75% efforts for furnishing and set up came from my business partners wife.

Recently my partner has decided it is time to begin collecting management fees for all 5 Airbnb run STR's. There has been no prior discussion as to how much these fees would be. He has suggested 25% management fees and claims that this is the "going rate." It seems like 10 - 30% is a more realistic range and the upper end is clearly the 5 star service. I should also add this is their first STR management venture with initiation in October 2021.

I have zero issue paying them for management fees. However, there doesn't seem to be a model for how much a 50% owner should collect for STR management. I certainly have my opinion on what it should be but I'm more interested to see if it's in-line with what the community thinks. I would also like to know what level of "service" I should expect from a manager who is also a 50% owner.

Disclosure:   This topic is not a conflict between the two of us but just in the discussion phase.  He and I both take the Bigger Pockets community and their advice seriously and will use it to come to conclusions.  He wants the best deal and I want the best deal.  It is most certain he will see this. Other owner has also been very clear that he does not want to do handyman or skilled labor activities unless absolutely necessary and mostly sticks to that.  I do not want to either but we do not have the cash flow to outsource and automate all aspects.  However, in an effort to slow the cash bleeding and get the all ABB’s up and running I have injected myself into projects that I could handle to save money.  Once this 5th ABB is up and running next month we hope to be sitting back to fill the reserves again.

[Sergey A. Petrov]

This is a great example of why these things need to be setup with a proper partnership agreement from the very beginning... Regardless of that, the approach I always recommend is pretty simple. The ownership of the property and whatever service may be provided to those properties are to be treated completely separate. Your ownership has no impact on what you may or may not do on the property. If you are "handy" and go do inspections, replace light bulbs, fix loose boards, or whatever else on the property the property should be paying you the going rate as if someone else were doing it. If your partner is managing it, the property should be paying your partner the going rate. The "property paying" someone comes from the rents that come in before either of the partners looks at that money as "hey, we are doing great, a portion of that my money". It is your personal money (a portion of it) only after the property has paid all of its bills.

Just pretend someone else owns the property. Then take a step back and decide if it is in the property's best interests to hire you to replace light bulbs or your partner to manage or if the property would be better off hiring someone else. Mixing and matching nearly results in some resentment among the partners at some point and I feel like you are the early beginning stages of that. 

For STR management, 20% is pretty much the floor. 25% is fair. 30% is good. I've seen higher. The other side of the equation is who pays for supplies? Does the manager cover the toilet paper, shampoo, laundry soap, chips, snacks, coffee, whatever else might be provided for guests or is that in addition to the management fee? Both approaches are common but the management fee percentage varies.