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Posted over 3 years ago

Is the property management industry due for disruption?

We all know that technology and new ideas are disrupting industries left and right. 

Public transportation think Uber

Department stores think Amazon

Entertainment think Netflix

Auto industry think Tesla

Home sales think Zillow

I can't help but think that property management is next. The classic model of 10% of rents plus some sort of vacancy/new tenant/marketing fee is outdated, provides thin margins, and doesn't align the PM (who in most states has a fiduciary duty) and the landlord. 

Let's look at the average investor, he or she has 2 rentals that bring in a total of $2,000 a month. The PM makes $200 from this client, roughly $50 a week. I can't even get a plumber to show up at my house for under $150! So how much effort do you expect that PM is putting into that property. So now there's a vacancy, maybe this PM charges $250 to put a new tenant in the unit this is justified because of the cost to show and advertise the unit. In my experience, the PM gets no more or less based on the time the unit sits vacant.

As a landlord, I want 2 things, market rents, and low vacancies. But driving rents by $25/month is a hassle and only makes the PM $2.50 more a month, aka it's not worth it to them. And they're not penalized for a long vacancy so why rush to put a tenant in place. 

And I'm not saying all PMs are horrible (as a day job I work for a PM company). 
I am saying as an industry it feels like the landlord's interests are not aligned with the PM.


Just spitballing here, what if the PM guaranteed monthly cash flow... hear me out. This is more of a flat rate model. The property manager knows the market so well that they can analyze your property and sign a contract that states that you will receive a monthly cash flow of $150 after PITI expenses. Come hell or high water the PM pays that $150 into your account every month. BUT that means if the vacancies are low, repairs are efficient and rents are pushed each year, the PM gets to keep anything over $150. On the flip side when you have a vacancy for all of October and November the PM eats that expense and still pays $150 each month. 

In this disrupted model, the PM's butt is on the line if expenses run high, if vacancies are out of control and rents are below market. However, if they run an efficient business they can drive rents, minimize expenses and vacancies, and in turn increase profit margins. The landlord loses out on some upside potential but knows that his or her asset is in good hands.

Naturally, the contract would have to be reviewed every few years to adjust for market changes, inflation, etc. 

Is this a viable model? I have no idea but it's a thought and like mom always says, it's the thought that counts. 



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