Property Manager Compensation Idea
Aloha all!
I must first admit that I am a total newbie and haven't yet done my first deal, but I've been studying a ton for the last year and just had a thought about compensating Property Managers that I wanted to put out to the community.
I'm also currently reading The 7 Habits of Highly Effective People and one of the things they talk about is setting up systems and compensation for Win/Win scenarios. I realized that traditional property management compensation where they get paid a percentage of rent and then get a bonus for every new tenant is not in line with an owner's best interests.
If the property manager gets half of a month's rent every time a new tenant signs on, wouldn't they be incentivized to regularly get new tenants in there? However, from an owner's perspective, we want to have tenants that are going to stay a while and pay rent on time.
What if you set up compensation for a property manager that said that upon first signing a tenant, they'll get 8% of monthly rent. Then, after a tenant stay for 6 months, that bumps up to 9%. After a tenant stays for a year, it bumps up to 10% and we give the property manager a bonus of half a month's rent. You could then continue to bump up the percentage one percent every additional year and continue to give bonuses. To me, this model will highly incentivize the property manager to find great tenants that are going to stay a while.
You could also tie a bonus to the property manager's compensation if the tenants consistently pay on time (or a penalty if they don't). You could also tie bonuses/penalties to the number of service calls a tenant makes or to the dollar amount of repairs that happen while each tenant is in.
I think you catch my drift.
I understand that this is going to create a more burdensome accounting situation for me as the owner, but it seems like it's well worth the extra tracking to ensure that everyone on my team is incentivized to do what are in my best interests as an owner.
I know @Brandon Turner (great meeting you on Kauai!) and @Joshua Dorkin have talked a little bit about this on the podcast, but I wanted to open up the conversation further because I'm sure there's something that I'm overlooking as to why this isn't done more.
Mahalo (Thanks) in advance for your input!
Greg