Paying a Super 6% of Gross?

Question

I am thinking of offering my handyman 6% of gross rents to take care of an apartment building I will be getting soon. He will do everything except bookkeeping, paperwork, and filling vacancies (I have a great rental agent for that). The question is - should he bill me ADDITIONAL for every little fix he does? Because technically the 6% is for just being the "brain" so to speak, the manager of all repairs.

Also: Should I give him a pot of money for the year and say "if you do all fixes for less you keep the remainder" as an incentive to be frugal? Because I am worried otherwise he'll bill me through the nose for unnecessary repairs.

Chris Martin · Answer

Regarding "I am thinking of offering my handyman 6% of gross rents to take care of an apartment building I will be getting soon. He will do everything except bookkeeping, paperwork, and filling vacancies (I have a great rental agent for that)."

I think your agent isn't as great as you think. 
	 
	 Who handles tenant calls? Does the "great rental agent" have a system in place for tenant trouble tickets? Can you "see" the tickets? Can the "great rental agent" call the handyman for service calls? Does the "great rental agent" charge 50% extra for making the call or 15% or 0%?

Why the %^&@ have a "great rental agent" if you feel the need for paying 6% more for services that may not warrant the expense? Get a system in place that has some accountability for those people you are paying. Until that happens, you are wasting money.

Matt B. · Answer

I personally would not give up a straight 6% to a handyman. Pay for performance only. If they perform they may possibly be worth more than 6%.

What size property is this? Does this person live on the property? What exactly is doing everything? Do they handle phone calls from tenants or do you do that?

For someone that lives on site, we usually give them a small stipend (depending on the size of the property) for dealing with tenants and minor repairs, such as unclogging a toilet. We give them extra for painting, make readies and larger repairs.

Give them a set $ amount that they can fix on their own and above that price they need to confirm it with you. Have them document all repairs with before and after pictures.

Anthony Martin · Answer

I would only say 'nay' to the pot o' money because, and it really depends on the contractor, I wouldn't want them to be so frugal that they cut so many corners just to keep most of the pot and you end up with a much bigger bill on the back end to fix everything he "fixed" poorly.  Just my 2c.

Account Closed · Answer

Just throwing some ideas out there. Maybe tie the % of gross rents to performance. You could apply factors based on how happy the tenants are with service, cost control, etc..etc... and come up with a % at an annual review. He would get that gross rent percentage for the year forward.

Matt B. · Answer

We don't really have a list of what is a "minor repair", but they generally consist of anything that does not involve a run to the hardware store for parts. If it is going to take more than 15 minutes of their time we will pay extra for it.

If it involves items such as electrical, major plumbing or HVAC we have licensed contractors do that.

Like everyone said you need to supervise it. That doesn't mean you have to be looking over their shoulder at everything, but we do live in a digital age, use it to your advantage. Have them Skype you a before and after video of the repairs and the cost. At the very least, they can text you some pictures of it.

Give them a short amount of string and see how they do, if at any time you start to feel they are taking advantage of you, get someone different.

Patrick T. · Answer

That's a good one Brian!  My @mention doesn't work, so I hope you get this.

Brian Mathews · Answer

But isn't real estate investing passive income?   And yes I'm kidding.  :)

Patrick T. · Answer

I've been watching this thread and I see one really important gap: Supervision.  It's your project Matt.  You can't just turn key decisions and details over to someone with no skin in the game and no experience.  Either jump in there and run the operation or pay someone who knows how to.  But don't pay someone for an unknown result...that's ludicrous.

Brian Mathews · Answer

So you're going to pay him a percentage to be your handyman and then pay him extra when he actually does work?  Then pay him a pot of $$$ for the year to do work?  But let him keep what he doesn't spend  so he doesn't bill you for unnecessary repairs.  I'd rather pay for things the maybe don't need repairs than half ass some repair so he can keep the proceeds personally. Then your building turns into a dump.   This sounds like  recipe for disaster.   Pay him for what he actually does.

Matt Liu · Answer

This is great advice. But do you have a complete list of these "minor repairs". Because what happens when you get to a gray area that seems like a minor repair, but the manager on site wants to bill you for it saying it's a bit more involved job. HAve you had that issue?

Paying a Super 6% of Gross?

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