REI WEALTH MONTHLY Issue 31 - Page 86

NEW PROPERTY MANAGEMENT BUSINESS MODEL GARY GEIST Today's investors are interested in Although in the initial stages of development, this concept would have changing the property manager's two primary components defined as: compensation package to a profit driven model. What this means is • Percentage Fee - This would be a 5% fee paid to the property that the property manager could manager on all money collected during the month. This would receive a bonus each month based apply to rents, back rents, pet deposits, late fees, and other fees on a percentage of the monthly paid by the tenants. profit for the property. This would immediately change his • Profit Based Fee - This fee would based on how well the perspective on the property, what property manager performed his duties each month. This would materials are purchased, and how be a great motivator for the property manager causing him to work maintenance is performed. harder each month for a more profitable operation. This fee structure would be negotiated between the investor and the For instance, if a water heater goes property manager and but would be in the 8% - 10% range of the out, instead of replacing the water monthly profit. heater for $500 because there is money in the account, a competent technician would be sent to service the burner assembly and relight the water heater. A $65 service call instead of the $500 replacement charge. Or if a furnace goes out in the middle of the winter, instead of buying a furnace from the first vendor called, he obtains several quotes and save 50% on the job. Summary Both of these are real examples of what we have had with property managers. If you select a property manager whose underlying goal is simply to collect the management and leasing fees, pay the salaries of his maintenance staff, and obtain the over-ride charges on material costs and hired subcontractors, then you need to look for another property manager. If you don't, your maintenance cost will sky rocket and the solution to most problems will be to throw money at the problem. Their philosophy is its much easier to replace the whole thing as opposed to diagnosing the real problem to find the cost effective solution.