Charging a flat percentage of rental income makes NO sense

[Stephen Schroeder]

Flat-rate billing based on rent makes zero sense for most property management companies.
You charge up to 15% of rent regardless of how much work a property requires? That might be simple and easy, but it doesn't seem smart and it's definitely not fair.

You’ve got one client renting $3,000/month units with stable tenants and another at $700/unit constantly turning over, submitting work orders, and dragging down your team’s time. Why should the harder client pay less than the easier ones. In some cases, your worst clients are probably costing you money.

I’m curious how others are handling this.

• Are you sticking with flat-rate and just eating the cost of problem clients?

• Have you found ways to implement hybrid models (low base + billable hours)?

• What are the biggest headaches in moving toward a more precise billing model?

• How do you explain it to owners in a way that makes sense?

Let’s hear it — especially if you disagree. I think this is one of the most important (and overlooked) levers in making a PM business profitable

[Drew Sygit]

@Stephen Schroeder The Flat Fee model was really created for handling Class A rentals. 

With Class A rentals a PMC rarely has nonpayment issues, so rarely evictions and many tenants take care of their own minor maintenance issues. 

When you see a PMC offering guarantees to cover eviction costs and such, you can bet most of their portfolio is Class A rentals. 

Class B rentals are a little trickier, but can still support a Flat Fee model is a PMC uses virtual assistants to cut their costs, so they can remain profitable.

The REAL trouble starts when PMCs try to apply the Flat Fee model to Class C and below rentals. The properties & tenants require way too much attention to allow a PMC to be profitable solely on flat fees. 

It's interesting that one of the biggest franchise PMCs in the country (who just bought/merged a big competitor) significanlty raised their flat fee rates last year.

Wonder why they did that?