Property Manager Payment Structure?

[Saif Jalali]

Hi everyone! 

By way of introduction, I am a new real-estate investor and wanted some thoughts on a property manager. I have done one refurb project before and worked alongside someone who acted as a hybrid contractor/property manager. That is to say, he would bid on some aspects of the job to do himself, and also coordinate with other contractors to get things done. He is someone I trust and have known for a number of years. The project closed recently and I am doing some reflection on how to make this relationship more efficient and effective for both of us. The main issue we ran into was the conflict of interest between his role as a contractor and as a property manager. On one hand, as a contractor, it was in his interest to do as many jobs as possible to make as much money as he could. This is, of course, in contrast to my interest in saving as much money as possible (we managed to successfully navigate this, but it certainly was difficult at points).

To that end, I want to use him as a full time property manager (as opposed to a hybrid contractor/manager) so that our interests in the project are aligned. By doing so, both of us have the same desire to get the project done as quickly and cost effectively as possible (as opposed to, in his capacity as contractor, wanting to do as much work to make as much money as possible). 

With this in mind, I would like to know what kind of remuneration structure you have agreed with your project managers? To my mind, the two variables are: (a) time and (b) budget. My thinking is that, if he completes the project on time and on budget, then he would receive a commission as a proportion of our profit (my thinking was 10% of profit). This would be in addition to a fixed fee of $1500 or so regardless of the outcome. In addition, there would be some sort of penalty for the project getting delayed etc. These are numbers I have just come up with, so if they seem too low/high, please do let me know!

To summarise, I would be really interested to hear what your agreements with your project managers are, including:

1. How you pay them (e.g. commission, fixed fee etc)

2. How much you pay them (e.g. what commission, how much fixed fee etc.)

3. Any particular methods you have seen that particularly work (or do not work) 

4. Anything else you think might be relevant here!

This is my first post on BP and would like to thank everyone in advance! I really am here to learn and would certainly appreciate all points of view.

Kind regards

Saif