My per-door number on a co-living management contract is a lie

An owner with four by-room houses wants to move over to me, and my team mostly handles single family and small multi. 21 rooms total.

My standard is 9% of collected rent plus a leasing fee of 60% of one month per new lease. On a normal rental that works out fine because a house turns once every 20 months and I do one showing cycle.

On his portfolio the math falls apart. 21 rooms, average tenancy has been running about 8 months, so call it 30 new leases a year. My leasing fee at 60% of 875 is 525, times 30, is 15,750. The percentage side is 9% of roughly 220,000 collected, about 19,800. So 35,550 for the year, which sounds great until I count the labor.

My estimate of the labor: showings for 30 rooms at maybe 4 showings each, screening 30 applicants properly, 30 move-ins and 30 move-outs with room-level deposit accounting, plus common area coordination across four houses, plus being the person the six-person household calls. I think that's 25 to 30 hours a week. At my loaded cost that's most of a full time person, so 55,000 to 65,000.

So I'm underwater at my standard rates by a wide margin, and I don't want to quote him a number that makes me look like I'm gouging.

Options I'm weighing: a flat per-room per-month fee (I've seen 80 to 120 floated), keeping the percentage but raising it to 14 or 15 with a smaller leasing fee, or charging a separate turn fee per room that covers the clean and the re-list.

What I can't decide is whether to price the turn separately at all, since the turn frequency is the entire risk in this contract and I'd rather own it than pass it through.

Answer

2dmitri_v6CapitalPRO6

Price the thing that drives your cost, and your cost driver is turns, not collections. A percentage of rent is a fee on an occupancy outcome you only partly control. A per-room flat is a fee on capacity you have to staff whether the room is full or not.

I'd structure it as a flat per-room-per-month base plus a per-turn fee, and drop the percentage entirely. Base covers the standing work: rent collection, maintenance coordination, the phone. Turn fee covers showings, screening, move-in and move-out inspection, deposit accounting. That way if his average tenancy improves from 8 months to 12, your revenue falls in a way that matches your workload falling, and he has a reason to care about tenancy length, which right now he doesn't.

On your specific numbers, 100 per room per month across 21 rooms is 25,200. Add a turn fee at 350 and 30 turns is 10,500. That's 35,700, roughly where you are now, at a structure that doesn't punish you when he buys a fifth house full of empty rooms.

Whether to own the turn risk or pass it through depends on whether you can influence tenancy length. You can, some, through screening standards and renewal outreach. So take a piece of it: turn fee flat regardless of cause, and a written screening standard you control. If he wants to override your screening decision, that's a separate clause and it shifts the risk back to him.

Also put a rooms-under-management minimum in the agreement, and a termination notice long enough that he can't leave you with a hiring commitment and no contract.

3 replies

2nataliehsuSO1BPRO7

Naive question from someone still working out where I fit: does the owner know his 8 month average tenancy is the expensive part? If he's never seen it broken out per room, showing him that number might be the whole sales conversation. He's paying for it either way, in your fee or in his own vacancy.

1bmoreno23AB1B

As the person here with the least experience, the thing I'd want if I were the owner is a number I can budget. Per room per month I can multiply. A percentage plus a leasing fee that varies with something I can't predict makes my own pro forma useless. @warrant's version is easier to say yes to.