How to charge on tools/equipment with different partnerships?

Question

Big dilemma on best practice or most efficient way to charge "rent" on tools/equipment that one partnership owns that will be used for remodeling/maintenance work on other partnerships with different owners. Let me rephrase this: we are doing mini-BRRRR on the new partnership's property but the tools are owned by this partnership of 4 - not just maintenance items. And, what are "market rates?"

Scenario: I am part of 4 different partnerships of which one is a property management company we recently started that hires labor (in-house construction workers - we have 1 full-time and 2 part-time guys) and owns equipment/tools. There are 4 members in the property management company and we just created a new partnership with a 5th (same 4 other partners, 1 new partner) to own a 15-unit we are closing on next week.

How should we go about charging this new partnership of 5 (15-unit investment) tools/equipment rent? We brainstormed several ideas such as identifying useful life in hours each tool/equipment that costs > $100 and charging per hour "rent" when used but this gets more complicated the more tools we will be using (we likely have $15-20k in tools and equipment), OR we should just tack on a "rent" charge of say $10/hour on top of the labor wage we're paying our in-house construction workers (for e.g. $20 base/hour + $10/hour for equipment "rent") but this $10/hour is very arbitrary number (could it be $5, $15, $20?).

Thoughts, anyone?

Mitch Coluzzi · Answer

I don't want to be dismissive, but $15-20k in tools is not enough to be dissecting useful life and brainstorming compensation over when 80% is affiliated ownership.  If you're adding people to a business model (person #5) they should be buying in for an equivalent percentage and bringing something to the table... Access to the relatively small asset of another business is a part of the bargain.  Consider it like the existing partners are bringing contractor contacts (their other entity) to the table.  It's no different than me hiring ABC Plumbing to swap a water heater, minus the affiliated business relationship.

That said, the services rendered by entity A for new entity B should be accounted for in the form of inclusive services... services need to be costed, warranted, insured, and held to the same standards you'd expect from a non-affiliated contractor.

Keep It Simple. Entity A in this case needs to charge a market rate and provide a market service.  Entity B might have shared ownership but it needs to be treated as a stand alone entity.

Bill it out as a service or hire a 3rd party entirely...  don't waste time with the details of tool rentals, etc.

Greg Dickerson · Answer

This is the best way to go. You would charge going rates for different aspects and trades. No one charges for tools it’s all built in to the hourly. If it’s a special situation requiring equipment you do not own you can hire an company that does that specific job. they charge flat rates.

Becky Hiu · Answer

@Bill Brandt - Thanks for your input. We do want to charge "market rates" but since we're new to this in-house construction business, it's tough. We plan to do mini-BRRRRs for this 15 unit and plan to charge the same rate for all the other partnerships, if that makes any sense. No screwing anyone over. :) I do know good handymen charge $30-50/hour including their tools, so perhaps we just use that as a ballpark.

Bill B. · Answer

If my property manager charged me rent on his tools I think I’d go to a different property manager.

Simply charge a market rate for property management and a market rate for repairs.

Is there a purpose other than to screw the 5th guy since the same other 4 own both partnerships?

Unless these are d class apartments or an ancient building the repairs should be almost nothing per year. And to be fair to the 5th guy I’d get competitive quotes on anything over a few hundred dollars.  What if you do a tile job or some other such thing, charge $1500 from partnership A to B, and the 5th guy says whoa, the tile shop down the road woulda done it for $1,000, why did we pay $1500?

How to charge on tools/equipment with different partnerships?

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