Buying a 17unit with a friend, what to charge for managing it

Real Estate Deal Analysis & Advice
4yFollow

Buying a 17unit with a friend, what to charge for managing it

John W.
Rental Property Investor · Buffalo, NY · Member since 2017 · 257 posts · 130 votes

Hi everyone, I'm buying a 17unit in the Buffalo Niagara NY area with a friend. Rents average about $500 (25% under market value), fully rented as well. I will be managing it as he is out of state and I have 10 years experience owning and managing rentals. I am deciding on the terms. I believe it will be a fair amount of work to manage and it is 5 separate buildings on one lot. 
We will be splitting everything down the middle. So all of the subsequent fee breakdown will end up being halved. My thoughts were to charge 10% of rents, $50 every time I have to go out to the property for some issues besides collecting rent. I will also do as much of the repairs and improvements as possible. Also, If any time consuming/costly repairs need to be done I will reach out to my partner and agree on a price and then we split the cost. 
What do ya'll think of that?

Thanks

-John

0Reply
39 views

Most Popular Reply

Tim DelaneyPro Member
Buffalo, NY · Member since 2018 · 790 posts · 530 votes
4y

@John W. I think it’s completely fair to charge the management fees, but I would consider baking in a certain number of trips every month. Maybe 5 or so that is just part of management expectations. Or maybe you only charge if you have to go outside business hours.

I also put in my leases a clause that I can charge the tenant if they call for emergency service that doesn’t turn out to be an emergency, something like that would offset your expense of going out there.

Podcast Guest on Show How to Buy Yourself a 6-Figure Income Stream
3Reply
See this reply in the discussion

14 Replies

Jump to latestLatest
  • Dom Cassissa
    Staten Island, NY · Member since 2021 · 26 posts · 19 votes
    4y

    If you're taking  % as a manager I would stick to the same cost as what the area management companies charge, I think that $50 a problem thing will end up getting super lopsided if there's a lot of work.

    Have you considered maybe like a 60/40 split of the equity instead, you take the extra 10% for the additional work/management you have to provide? Granted it's less money upfront in the short term but in the long run if you rehab it good and get this place up and running strong I think the increased equity will pay you back way more than a few bucks extra will.

    0Reply
  • John W.
    OP
    Rental Property Investor · Buffalo, NY · Member since 2017 · 257 posts · 130 votes
    4y
    Quote from @Dom Cassissa:

    If you're taking  % as a manager I would stick to the same cost as what the area management companies charge, I think that $50 a problem thing will end up getting super lopsided if there's a lot of work.

    Have you considered maybe like a 60/40 split of the equity instead, you take the extra 10% for the additional work/management you have to provide? Granted it's less money upfront in the short term but in the long run if you rehab it good and get this place up and running strong I think the increased equity will pay you back way more than a few bucks extra will.

    I think we are gonna just keep at 50%. My thought was that, say it was a bad month and I had to go out there 10 times, it's still only $500, which actually is only $250 from him to me which seems low but I have to keep in mind that half of it is baked in. 
    0Reply
  • Dom Cassissa
    Staten Island, NY · Member since 2021 · 26 posts · 19 votes
    4y
    Quote from @John W.:
    Quote from @Dom Cassissa:

    If you're taking  % as a manager I would stick to the same cost as what the area management companies charge, I think that $50 a problem thing will end up getting super lopsided if there's a lot of work.

    Have you considered maybe like a 60/40 split of the equity instead, you take the extra 10% for the additional work/management you have to provide? Granted it's less money upfront in the short term but in the long run if you rehab it good and get this place up and running strong I think the increased equity will pay you back way more than a few bucks extra will.

    I think we are gonna just keep at 50%. My thought was that, say it was a bad month and I had to go out there 10 times, it's still only $500, which actually is only $250 from him to me which seems low but I have to keep in mind that half of it is baked in. 

     Reason I mentioned equity over payment is because you said it's with your friend. So say you do have those "bad" months, you don't think when you profit that month and he's feeling in the hole for shelling out extra cash that wont get in between your personal relationship? Take the extra equity and make out like a bandit on the refi or sale down the road.

    0Reply
  • John W.
    OP
    Rental Property Investor · Buffalo, NY · Member since 2017 · 257 posts · 130 votes
    4y

    it's not a bad idea. but is an extra 250 a month alot you think? when all the rents are up to snuff, rents will be 10k a month. a lot of expenses though. i think he will be happy someone is doing the dirty work for him, haha

    0Reply
  • Dom Cassissa
    Staten Island, NY · Member since 2021 · 26 posts · 19 votes
    4y
    Quote from @John W.:

    it's not a bad idea. but is an extra 250 a month alot you think? when all the rents are up to snuff, rents will be 10k a month. a lot of expenses though. i think he will be happy someone is doing the dirty work for him, haha

    Maybe run different options by him and agree to one, if you kick that property up $200-300k in added value you’re then taking about an extra $20-30k to your name that more than likely amounts to more than $50 extra a run no?
    1Reply
  • Tim DelaneyPro Member
    Buffalo, NY · Member since 2018 · 790 posts · 530 votes
    4y

    @John W. I think it’s completely fair to charge the management fees, but I would consider baking in a certain number of trips every month. Maybe 5 or so that is just part of management expectations. Or maybe you only charge if you have to go outside business hours.

    I also put in my leases a clause that I can charge the tenant if they call for emergency service that doesn’t turn out to be an emergency, something like that would offset your expense of going out there.

    Podcast Guest on Show How to Buy Yourself a 6-Figure Income Stream
    3Reply
  • John W.
    OP
    Rental Property Investor · Buffalo, NY · Member since 2017 · 257 posts · 130 votes
    4y

    @Tim Delaney @Dom Cassissa i've never used a management company so I don't know. When there's a problem, do they typically show up to the property or just call their handyman and make the owner pay the fee?

    0Reply
  • Dom Cassissa
    Staten Island, NY · Member since 2021 · 26 posts · 19 votes
    4y
    Quote from @John W.:

    @Tim Delaney @Dom Cassissa i've never used a management company so I don't know. When there's a problem, do they typically show up to the property or just call their handyman and make the owner pay the fee?

    Ours is 7.5% the collected rent, 75% 1st months rent for move in charge. They deal with all the leases, rent collection, evictions & phone calls and all that stuff. They’ll go out and deal with problems to an extent but anything with tools they let us know “hey this whatever whatever needs to get done” and it’s deciding if we need a contractor or his handyman can do it, then yes you are paying extra for that I haven’t heard anyone have that included.
    1Reply
  • Matthew Irish-JonesBusiness Member
    Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
    4y
    Quote from @John W.:
    Quote from @Dom Cassissa:

    If you're taking  % as a manager I would stick to the same cost as what the area management companies charge, I think that $50 a problem thing will end up getting super lopsided if there's a lot of work.

    Have you considered maybe like a 60/40 split of the equity instead, you take the extra 10% for the additional work/management you have to provide? Granted it's less money upfront in the short term but in the long run if you rehab it good and get this place up and running strong I think the increased equity will pay you back way more than a few bucks extra will.

    I think we are gonna just keep at 50%. My thought was that, say it was a bad month and I had to go out there 10 times, it's still only $500, which actually is only $250 from him to me which seems low but I have to keep in mind that half of it is baked in. 

     Hey John, you need to separate leasing duties from maintenance duties.  If you are getting paid a % of rent you need to include some administrative functions with rent collection.  Like move ins and move outs, accounting, letting vendors in, etc.. . When it comes to maintenance like fixing doors, windows, leaky faucet that should be billed at an hourly rate.  Its not normally billed based on hours of work done on site.

    Lastly, you may want to double check regulations because once you start charging for property management services you are technically a property manager.  You would need to be licensed and insured as such.  You are able to self manage any units as a part owner but, once you start charging half of ownership for actual PM fees that may change. 

    Irish Jones Realty4.947 Reviews
    View Page
    2Reply
  • Matthew Irish-JonesBusiness Member
    Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
    4y
    Quote from @Matthew Irish-Jones:
    Quote from @John W.:
    Quote from @Dom Cassissa:

    If you're taking  % as a manager I would stick to the same cost as what the area management companies charge, I think that $50 a problem thing will end up getting super lopsided if there's a lot of work.

    Have you considered maybe like a 60/40 split of the equity instead, you take the extra 10% for the additional work/management you have to provide? Granted it's less money upfront in the short term but in the long run if you rehab it good and get this place up and running strong I think the increased equity will pay you back way more than a few bucks extra will.

    I think we are gonna just keep at 50%. My thought was that, say it was a bad month and I had to go out there 10 times, it's still only $500, which actually is only $250 from him to me which seems low but I have to keep in mind that half of it is baked in. 

     Hey John, you need to separate leasing duties from maintenance duties.  If you are getting paid a % of rent you need to include some administrative functions with rent collection.  Like move ins and move outs, accounting, letting vendors in, etc.. . When it comes to maintenance like fixing doors, windows, leaky faucet that should be billed at an hourly rate.  Its not normally billed based on hours of work done on site.

    Lastly, you may want to double check regulations because once you start charging for property management services you are technically a property manager.  You would need to be licensed and insured as such.  You are able to self manage any units as a part owner but, once you start charging half of ownership for actual PM fees that may change. 


     *It IS normally billed at hours of work done on site. 

    Irish Jones Realty4.947 Reviews
    View Page
    0Reply
  • Mike Davis
    Lender · Annapolis, MD · Member since 2022 · 154 posts · 70 votes
    4y

    @John W. my advice with doing this with a friend is document how and what will be taken care of, the responsibilities, any weird scenarios that may come up. Don't assume anything. Good Luck with your venture!

    1Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    4y

    Too many people enter into partnerships based soley on the relationship, instead of treating it like a business relationship (as they ALWAYS should!).

    1) Put whatever you agree upon in a Partnership Agreement. Include language to handle:
    -What happens if one party wants to sell (right of first refusal?)?
    -What happens if a partner dies? Does the remaining partner want to deal with the whims of heirs?
    -What happens if a partner can't come up with their share of needed funds? Equity tradeoff?

    2) Execute an actual management contract stating who does what! 
    -Do NOT assume anything, everything needs to be in writing.
    -Pretend that the two of you are hiring a third party to manage the property.

    3) You should be compensated just like any other PMC you two would hire. Suggest you get bids from 2-3 PMCs in the area and copies of their contracts. You an then merge their contracts into what you want. Just don't take the lowest costs from each contract! Every company balances different charges/services to make a profit.

    4) Can you partner handle the accounting tasks? What else can they do remotely to balance the load?

    Of course, this assumes that you are 50/50 on down payment and all funded renovation costs.

    [email protected]248-209-6824
    Logical Property Management4.9459 Reviews
    WebsiteView Page
    2Reply
  • John W.
    OP
    Rental Property Investor · Buffalo, NY · Member since 2017 · 257 posts · 130 votes
    4y

    @Dom Cassissa @Matthew Irish-Jones @Mike Davis @Drew Sygit all great info and advice, thank you. 

    0Reply
  • Dom Cassissa
    Staten Island, NY · Member since 2021 · 26 posts · 19 votes
    4y
    Quote from @John W.:

    @Dom Cassissa @Matthew Irish-Jones @Mike Davis @Drew Sygit all great info and advice, thank you. 


     Anytime man, best of luck on the project!

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free