Property Manager - Principle Agent Problem

[Matthew Menning]

Hi All,

So here is the situation. I employ a 3rd party management company to manage my units. They make a percentage of collected rent, and also do most maintenance and repairs using their own crew, which I am billed for. The president of the company is very forthcoming and told me outright that he charges a margin on all maintenance and repair work.

I want to redesign the fee structure to avoid this obvious principle-agent problem. On the income side, our interests are aligned... however on the expense side, the more money I spend, then the more money the management company makes. I have been drawing a blank on how to accomplish this.

My best idea so far is to pay a higher percentage of collected rent to the management company, and then they are on the hook to pay for all repair and maintenance costs. However, in this scenario, I reap no benefit when/if there are lower expenses.

Any thoughts? I'm sure several others have a similar situation.

Thanks!

Matt