Can fee MGMT make a margin on outsourcing work on top of fee?

Question

I am looking for some feedback

If you have a management company working for you and they bill you $500 a month to mow your property.  But then they turn around and get a landscaping company to do it for $350 ￼￼pocketing the $150.

The management company has in-house mowers but they are not the ones mowing each week. Management is subbing the work out. I don’t think the management does anything on the property for landscaping.

I understand that you need to make a profit but isn’t that what the Managment fee is for?

They have in-house maintenance￼ too and I pay $50 per hour but I’m sure it’s costing them maybe $35/hr. I’m okay with the management making a margin on maintenace because it is their employee.

Are they breaking there fiduciary responsibility by not doing landscaping themselves?

Should I have just been given 3 bids?

.

Drew Sygit · Answer

@Nathan Faselt "then vending out and making a margin on that work seems wrong"

You can always hire an actual GC yourself and see how mcuh of a markup they charge. Usually they start at 25-30%.

David Avery · Answer

10% is peanuts for them babysitting everything through the process!

Nathan Faselt · Answer

@Jennifer Ruelens  So looking at the agreement It is not in there is just says that the PMC will do the lawn care. That's probably more the issue, as you said. I can see what @David Avery is saying about a flat 10% or something along those lines for subing out. As I said, totally okay with paying maintenance.

@Drew Sygit & @Evan Polaski I don't think property Mangers should be GC's when they have in-house services. like I said if the PMC employees on payroll like maintenance, cleaning, landscaping, even some admin time for court or appraisals Ect. I absolutely understand paying for, they should as Business people make a margin on that time.  Saying you will do it and then vending out and making a margin on that work seems wrong.

It would have been good to know upfront or in the contract, is what seems to be the big take away.

• -It appears based on titles many of my Property Management friends on here believe it to be okay and my Investor friends lean towards not okay. 
• Investors read your contracts closely and ask good questions.
• -PMC being up front and clear about this will earn trust and understanding.

@Jeffrey Donis

Jennifer Ruelens · Answer

Good property managers that provide quality service charge for their work.  A lot of work goes into "just cutting the lawn". I won't speak to the value you received but check your agreement.  My guess is this is in there, and if not you have a different issue. You won't find property managers who have been doing this for a long time for a lot of people without realizing that maintenance is its own things and has to be charged for outside the management fee. Amateurs usually undercharge.

Evan Polaski · Answer

@Nathan Faselt, your agreement is the source of all these answers.  But generally, you management fee (typically 10% of gross rents) is to collect rent, likely keep the books, and answer the phone.  Anything else: lawn care, leasing, handyman/maintenance work, even if done in-house is an additional cost.  Those additional costs, like any business, will be done to generate profit.

There is a nature conflict of interest when they have in-house services.  But even outsourcing, they will likely have a maintenance management/construction management, something fee, often times a percentage of cost, that is a mark-up.  Just like a GC marks everything up, even his sub's work.

David Avery · Answer

Nathan have done over 7500 W.O.    ( work orders ) for property management companies.

They go with their contractors, vendors, because they do good work, work well with tenants, and

are fairly prompt to do the work in a timely matter that pleases the tenant.

I believe it is in the contract that these services come with companies delivery of service to you.

If they mark it up it should be stated in your contract.

If they up the price and do not state that in the contract then they are taking you for that extra amount your paying.

And yes it does take 20-40 minuets to go to the store and buy the door to install.  But the venders are the best

that the company has found in your area.

The venders may even be working with 2 or more other property management companies.

It all comes down to this.....

If you don't the services rendered then get another company.

good luck!

Nathan Faselt · Answer

@David Avery

Thanks for the response good to know

What about products at the store?

Would you say it is okay for the Managment company to add 10% that items?

I already pay for the time of the maintenance guy to go to the store.

So if he shows up on site, needs a $100 Item say a door, then I am now billed $110 door plus the whole time spend on the door from showing up until leaving after the install so including the shopping time.

Drew Sygit · Answer

As the others have stated, PMC's charge for maintenance.

Yes, we know, every owner expects EVERYTHING to be covered by the monthly fee, but that's not practical.

Let's assume your property is rented out for $1500/month and PMC fee is 8% = $120

Hiring anyone decent costs at least $20-$25/hour. So, do the math $120 / $20 = 6 hours/month.

How much time do you think it takes to process rent payments, update software, send you your funds, answer tenant calls & emails, answer your calls & emails, followup with tenant if they don't pay on time, etc?

On a good month, the PMC makes a profit off their charge to you, on a bad month they lose money.

So, tell us where they have the time to hire, screen and followup with vendors?

Thus, the maintenance markup.

Jeffrey Donis · Answer

@Nathan Faselt I agree with @David Avery. They should be doing the work themselves.

David Avery · Answer

Good property managers do not up their vendors bids at all.  Sometimes just 10% to cover some of the cost associated with babysitting venders.

Big money is their % of rent!

Get another property management company

Can fee MGMT make a margin on outsourcing work on top of fee?

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