Do you bonus your property manager?

[MarkTorgerson]

My experience has taught me that the property manager is one of the most important roles in my investment team. Good ones are very hard to find. I currently have a great manager who has been a large part of bringing up rents and decreasing vacancies....thus increasing the value of my building.



Does anyone bonus their property manager?

I'm considering putting in an incentive program for 2013. Possibly a percentage of any increase in net income. Possibly other matrixes...



I am curious to what other investors are doing and some creative strategies to having the property managers become even more engaged.



Thanks in advance,

 

[Duperron]

Our property manager gets a $100 bonus each month for having a full building. We also do a 6 month bonus if they have 6 months in a row of no-vacancies.

 

[MarkTorgerson]

Hey Dean,



How many suites are being managed for the $100 bonus? Total revenue?



How much do you bonus after 6 months?



Thanks

 

[Rickson9]

I've never thought about adding a bonus to my PM. This is a great idea! Waiting to read more!

 

[housingrental]

Small bonus's are common

I have also received a few significant ones

It is a good thing

BUT the best job possible is done for both the clients that provide a bonus and those that do not



As happy as I'm with an electrician when they do a good job for a good price I do not provide them a bonus



Depending on the company you are dealing with, potentially a waste of $ for the property owner



Another issue is if this is no longer a bonus but performance based compensation (as one poster is posting) - you have to be very careful to ensure you are not setting the performance objective in a way that is not in your long term interests



This will vary from building to building, and market to market, but in your case it could be that you have created an incentive for your PM to not recommend trying for a higher rent rate they think is attainable when a unit comes for rent as it might be an extra month to fill and less compensation for them - For property management most performance to compensation scheme's beyond a percent of gross rent can have similar perverse outcomes

 

[bizaro86]

[quote user=housingrental]Another issue is if this is no longer a bonus but performance based compensation (as one poster is posting) - you have to be very careful to ensure you are not setting the performance objective in a way that is not in your long term interests





My first thought when I saw that "no vacancy" bonus was that I'd rather have a vacancy than have the PM take a bad tenant just to keep the place full...

 

[Rickson9]

How about if the PM gets to keep the first month's increase from a new lease? So if the lease goes from $700 to $750, they get $50? Flat bonus.

 

[MarkTorgerson]

Adam,



How were your prior bonuses structured? What were they based upon?

 

[MarkTorgerson]

[quote user=Rickson9]How about if the PM gets to keep the first month's increase from a new lease? So if the lease goes from $700 to $750, they get $50? Flat bonus.




Not a bad idea Rickson. I'm getting resistance from the PM on a building for getting the rents up.

He is worried about losing tenants. I feel we are below market.

 

[Thomas Beyer]

[quote user=MarkTorgerson]He is worried about losing tenants. I feel we are below market.
Not uncommon. You are both right most likely.



Most PMs want to maximize rent collected, thus maximize their management fees with modest amount of work.

Raising rents causes vacancies and associated work on the suites, lowering the management fee with more work, often far more work depending on the work required.



Thus: find a manager that knows what you want, and is in agreement, and pay them accordingly.



A solution might be to pay the PM a flat fee, perhaps based on a rent roll that is agreed to both parties, until the asset has a higher rent roll due to ongoing upgrades, then move back to a %. This is not uncommon in highly vacant buildings or buildings with a lot of turn around work and evictions.



A second solution is to pay the PM for upgrades, say 15% of the additional work for material that has to be purchased and handymen or sub-trades that paint, fix plumbing, drywall, change doorknobs, upgrade lights, renovate whole kitchens etc.



You cannot expect to get your rents up by paying little to the onsite nor the PM.



If you feed peanuts you get monkeys !



You also need the money to upgrade. If you rent 2BRs for $600 and the market commands $850, likely that suite needs some work, i.e. $s. So, you will lose income through higher vacancies and upgrades, but the asset value will be higher due to higher rents. However, equity is not cash.



Cash is cash.



Thus, we focus on and measure both. True wealth is built by investing cash wisely and increasing the asset's equity, which is monetized on sale or refinance (usually years later). Thus, careful cash planning is critical to not become a motivated seller in a hurry. [Feel free to ask me how I know this].

 

[housingrental]

Most have not been structured. Owners have given me extra money as a thank you - generally this has been at the end of renovations, sale of a property I've managed awhile, or a few provide yearly but are not obligated too (often saying we'll keep giving this to you if you keep getting 100% occupancy and collection), and some for the holidays.



The ones that are structured are not really bonuses but compensation and are:



Percent of collected rent



Renting a unit, or renting a unit by a certain date



Renting a certain amount of units in a certain amount of time (ie $X per unit if 3 units get rented this month, but $X+Y if 4 or more get rented)



$X if Y reno's end up finished for less than Z







[quote user=MarkTorgerson]Adam,



How were your prior bonuses structured? What were they based upon?

 

[RedlineBrett]

[quote user=bizaro86]My first thought when I saw that "no vacancy" bonus was that I'd rather have a vacancy than have the PM take a bad tenant just to keep the place full...


Ding ding there is your winner. Be careful what you ask for!



The way you get the best of both worlds is to get a tenant in at a fair rent rate and then make small, consistent rent increases to get the rents where you want them. Tenants won't move over 5%.



If you are buying a 'project' property - one that needs a lot of work - then Thomas's suggestion of a flat rate moving to a percentage or awarding your PM the 'GC' position on the work being done is a better way to go than just market rents.



Whether or not your PM will work with you on a creative 'bonus' element depends on the work involved for the manager to make that extra buck. If you're asking them to work 2x as hard to make 10% more don't expect to hear what you want to hear...

 

[MarkTorgerson]

Went through all of the rents with PM. We gave 3 months notice to all the tenants that were eligible for increase.

The rents have been increased by $700/month in total. That equates to 100k plus in building valuation. Good days work. Very little push back from the tenants at this point but we will know more a few months down the road.

I am working something out with PM based upon annual net income. I am going to tie him into overall building performance and not just revenue. Pros and cons of any type of bonus structure......great feedback.

 

[Anonymous]

You should provide property manager in percent of sale. It could be 1 or 2 percentage depend on profit. Providing static bonuses will not excite your manager to work more. Giving percent from the profit and increase more profit.