Personnel costs for onsite management and maintenance

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Personnel costs for onsite management and maintenance

Ken P.
Rental Property Investor · Northville, MI · Member since 2013 · 263 posts · 183 votes

For a hypothetical complex of 150 units, what are some ranges for personnel costs in the Midwest for the onsite office manager and maintenance person or people? That is, when I'm penciling in personnel costs in a spreadsheet when underwriting a potential apartment complex deal of that size, what are some reasonable numbers to use? I don't want to use the numbers that the seller has currently because we don't want to manage the complex as they have, as we don't want to get the same resident complaints about poor office hours and delayed maintenance. As far as we can tell they only have one person that does everything, with offsite help brought in when needed (when the customers are screaming!).  The complex can support higher personnel costs because rents are substantially below market, and besides raising rents on existing tenants the unit upgrades we have planned on turnovers will further improve the top line.

Also, what are some best practices for compensating the office manager so that their interests are aligned with our interests?  We want to pay a bonus for lease renewals that values renewals more highly than new leases, to minimize turnover expenses.  What has worked for you in this situation?  Does anyone have a compensation scheme for maintenance people that provides an incentive that maximizes tenant satisfaction?

My own experience is limited to self-managing 26 units, so I appreciate the input from investors with experience 'managing the manager'. 

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Abel Sng
DFW, TX · Member since 2016 · 58 posts · 68 votes
9y

@Ken P. are you planning on using a property management company? At 150 units I would highly recommend it. If so, make sure you interview a few and ask MF brokers in your market who they would recommend. Each property management company will run their operations slightly different so once you've landed on one you should ALWAYS get their input so you can avoid surprises.

As for the Midwest, I don't have experience in that market, however in DFW and ATL I always underwrite for around 1200 a unit for payroll all in. That could go up or down but it gives you a good starting point. You are correct for not using the sellers numbers as there are many times we see P&L's that have payroll at around 700-800 a unit which means they are either self managing to a certain extent or there is not sufficient staff in which case you could see a higher repair and maintenance / contract services cost. 

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  • Andrew Campbell
    Multifamily Syndicator · Austin, TX · Member since 2015 · 127 posts · 247 votes
    9y

    @Ken P.  I can't help you much on the Midwest pricing, but we've recently spent a lot of time interviewing property managers here in Texas as we prepare to grow the portfolio.  

    To your compensation question--leasing bonuses are pretty standard, though I agree with wanting to balance renewals vs lease ups. It sounds like you are looking at a value-add type property? If that's the case, you can look at giving a bonus to the manager based on NOI targets--so they are equally incentivized to keep expenses down and keep occupancy up. That aligns interests pretty well.

    I'd also not be afraid to pay a little more on the payroll side--you truly get what you pay for.  And if you're going to use 3rd party management, that's a critical person on your team.  

    Good luck!

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  • Abel Sng
    DFW, TX · Member since 2016 · 58 posts · 68 votes
    9y

    @Ken P. are you planning on using a property management company? At 150 units I would highly recommend it. If so, make sure you interview a few and ask MF brokers in your market who they would recommend. Each property management company will run their operations slightly different so once you've landed on one you should ALWAYS get their input so you can avoid surprises.

    As for the Midwest, I don't have experience in that market, however in DFW and ATL I always underwrite for around 1200 a unit for payroll all in. That could go up or down but it gives you a good starting point. You are correct for not using the sellers numbers as there are many times we see P&L's that have payroll at around 700-800 a unit which means they are either self managing to a certain extent or there is not sufficient staff in which case you could see a higher repair and maintenance / contract services cost. 

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  • Chibuzor Nnaji
    Multifamily Investor · Dallas, TX · Member since 2016 · 67 posts · 92 votes
    9y

    Hi @Ken P.I agree with the input that both @Abel Sng  & @Andrew Campbell gave. As far as increasing your personnel costs when underwriting the deal that is recommended, I'm not sure if there is an exact percent that you should use to increase personnel costs in your underwriting from what they've provided but I like to think of it this way and that's by increasing the costs from what they've provided by more than what you think it may be, your underwriting will be more conservative than if you go with their numbers. And in underwriting I think you want to be as conservative as possible therefore you are not making sense of a deal work with numbers that might be underestimated. I think being conservative in the underwriting process is important is what I'm getting at. As far as incentives for the property manager Andrew hit it right on the head, by having NOI targets because ultimately if they are able to hit the NOI incentive well that means through the fiscal year of the deal, they were essentially able to keep expenses down, increase income/rents and keep occupancy at a level that allow them to hit that NOI you projected which is the ultimate goal or one of your main goals as an operator of a deal.

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