Percent of collections or flat per door: which management fee structure is fairer at 8 units?
I'm building out management services and the fee structure question keeps coming back at me from both sides of the table. In this size range, five to twenty, the two common shapes are a percentage of collected rent, usually somewhere in the high single digits, or a flat dollar amount per unit per month.
Percent of collections is the one owners recognize and it lines up incentives on paper. If a unit sits empty nobody gets paid on it, and if I push rents I earn more. The complaint I hear is that a vacant unit is more work than an occupied one, so the fee falls exactly when the labor rises.
Flat per door is predictable for the owner's budget and it prices what actually drives cost, which is doors and tenants and phone calls. The complaint there is that it pays the same whether the building is 95 percent occupied or 70, so the manager has no money reason to chase the last unit.
Then there's the hybrid, a lower percentage plus a separate leasing fee per new tenant placed, which fixes the vacancy incentive and adds an argument every time a tenant turns.
On an 8-unit with rents around 950, the percentage and the flat fee land within about 80 dollars of each other, so this is mostly about behavior, not price. Owners in here, which would you rather sign?
Management fee structure you'd rather sign on an 8-unit
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