STR Hidden Management Fees

[Sara Kasper]

I'm in negotiations with a STR management company. The bit of their contract that has me concerned is that, per their contract, they can charge any fee at any amount and retain the money while also being in control of the rent pricing. I want them to have control of the rent pricing, so they can adjust it to make sense for the market and to optimize occupancy, but I'm concerned about the unlimited control over fees, which could be a conflict of interest. Example: If they upcharge the fees or base the fee as a % of the booking or an extra $100 per cleaning, it's revenue being collected in addition to agree upon 25% of revenue generated by the bookings. And/or if the overall price of the booking is no longer competitive because of the fees, they'll lower the rate instead of their profit on the fees. I'm fine if they need to upcharge a bit, but I'm concerned that they aren't sharing exactly what fees they are going to charge or how much, or if it is really at cost to them. They say they're just covering their costs with the fees they charge to customers, but they don't seem to want to share their pricing models or even a list of what fees they will charge. We've been trying to work on a solution, but the solutions they come up with keep the vagueness of the fees in place.

I can't tell what degree I need to be concerned about this, and would like your opinions as investors and business owners. 

[Pretty Khare]

Quote from @Sara Kasper:

I'm in negotiations with a STR management company. The bit of their contract that has me concerned is that, per their contract, they can charge any fee at any amount and retain the money while also being in control of the rent pricing. I want them to have control of the rent pricing, so they can adjust it to make sense for the market and to optimize occupancy, but I'm concerned about the unlimited control over fees, which could be a conflict of interest. Example: If they upcharge the fees or base the fee as a % of the booking or an extra $100 per cleaning, it's revenue being collected in addition to agree upon 25% of revenue generated by the bookings. And/or if the overall price of the booking is no longer competitive because of the fees, they'll lower the rate instead of their profit on the fees. I'm fine if they need to upcharge a bit, but I'm concerned that they aren't sharing exactly what fees they are going to charge or how much, or if it is really at cost to them. They say they're just covering their costs with the fees they charge to customers, but they don't seem to want to share their pricing models or even a list of what fees they will charge. We've been trying to work on a solution, but the solutions they come up with keep the vagueness of the fees in place.

I can't tell what degree I need to be concerned about this, and would like your opinions as investors and business owners. 

Looks like you are giving up too much power to the property manager and your cash flow will heavily depend on their ability manage your property well. I do not use property managers for STR , so can't speak to what is standard contractual language on costs. For LTR this is not a common language you find in property management contracts.

However have you considered managing the STR yourself. With advances in technology, it really doesn’t take much time (maybe 30 mins to an hour each week) to manage a STR. This will help you retain most of the profits from your STR. Checkout Robuilt on YouTube for tips to self-manage. You can also try getting the biggerpockets book Short Term Rental Long Term Wealth to learn to manage yourself. I think it is definitely worth spending some time to research whether self management is feasible for you as you can save 20-40% of gross revenue that these property managers usually charge.