Lease-Up Cost
For those in multifamily, what are typical fees paid to property management during lease up? Do you pay any overhead up front or just a per unit commission? The deal I'm looking at is 40 units, so no on-site manager. Any input is appreciated!
I don't personally have experience in MF less than ~200 units and we always have an on-site manager so take this with a massive grain of salt...we typically do a lower-middle salary (obviously not applicable here) but we also include incentives for monthly lease up numbers and how fast we reach stabilization. For example, we might give an extra $250 if they lease up 10 units in a month, $500 if they do 15 units, and $1,000 if they lease up 30 units. We might also have a $2,000 incentive if they can reach stabilization of the entire property in less than 6 months. These are completely hypothetical numbers, so don't take these as gospel. If you hire a management company, they take their 3-5% of EGR and no need to provide incentives because you would be paying for the service through the fee.
^This. Given the unit count it's really going to come down to how the property management gets set up, but because it's only 40 units I doubt you would have one dedicated full time property manager. More likely one person that manages a couple properties simultaneously, so you'd have to go out of house unless it's a larger property management firm.
Used to work at a brokerage firm in undergrad that would take on these type of brokerage listings where we'd get an upfront base fee, and then leasing commissions for each unit with incentives based on lease-up time and what the asking rents are. These were all 60 unit listings.
Typically with a property management company they will change a percentage of EGR, but also have a minimum dollar amount per month as a floor during lease-up. For larger projects (150 units+) I've seen the floor at like $7,500-10,000 that transitions to 2.5-4% of EGR.
For institutional PMs, they are typically $40/month per unit minimum of $2,500.
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