Two hats on one deal, and I don't know how to price either

Scope creep is my whole beat so let me tell you what happens on a 34 unit with rents 11% under market. The plan says twelve turns in year one. You'll find galvanized supply lines behind the third one and the budget changes shape. If you're the PM at 3% you'll be the person explaining that to the operator and to your aunt, and neither of them will enjoy it.

Also, who wrote the 11% under market number? You said comps you can verify, which is more than most people can say. But under-market rents on a distressed ownership situation usually come with deferred maintenance and tenants who've been there nine years at that rent. Both are slow to fix.

The part I'd worry about isn't your fee, it's that 900k of family money is being pointed at a single 3.4M asset because you happen to know the seller's situation. Land sale proceeds usually took someone twenty years to accumulate. What's the plan if the deal needs another 150k in month eighteen? Four households have to agree to a capital call, and they won't agree at the same speed.

@arbor said it. I want the version that works, and "four households vote on a capital call" isn't it.

Beacon, before you price your hat, find out whether the family is going into this as one entity with one decision maker or as four separate members. One entity with a designated manager who signs is the only version I'd touch. Otherwise the operator is negotiating with four people who talk to each other at Thanksgiving.

Two markets over is far enough to matter. Are you driving there or is the site manager somebody you've never worked with? I look at rural and low price point stuff and the difference between 40 minutes and two hours is the difference between managing a property and receiving reports about one.

Working through licensing right now and this is a real question for you: managing property you don't own, for a fee, for a third party entity generally requires a real estate or property management license, and the rules and exemptions vary by state, including whether owning an interest in the entity changes anything. Some states exempt an owner managing their own property, and a 6% member interest may or may not count. Check with the licensing body in the state the property sits in before you sign a PM contract, or you may have negotiated a fee you can't legally collect.

34 units with nine year tenants at under-market rent means you're going to be raising rents on people who've never had a rent increase. That's not a spreadsheet exercise. Some of them will leave, some will fight, and the turn costs land in year one. Whose assumption is the renewal rate?

What is Beacon actually bringing that the operator can't get elsewhere? Because that's the answer to the fee question.

Sounds like it's two things. The deal, which the operator couldn't have found, and 900k he'd otherwise have to raise. Those are the two hardest things in this business and Beacon is doing both. A 3% management contract is not payment for that. People get a co-general-partner slice of the promote for bringing either one.

Beacon, ask him plainly what a sourcing and capital introduction is worth on his side of the waterfall. He may say no. At least you'll know where you stand before you paper it.

@compass is right and I'd add that whatever he says, get it in the operating agreement rather than a side letter people forget. Trades taught me that the guy who did the work first and papered it later gets paid last.

I'm still learning most of this, and option three worries me for a simple reason. 60k is everything you have liquid, and you'd be putting it in the deal where you're also the manager and your family holds the rest. If it goes badly you lose your savings and your fee income. Thanksgiving gets ruined too. Even if the deal's good, that's a lot of one thing.