The Hidden Truth About Property Management Fees: Aligning Incentives with Property Owners
At Atara Property Management, our journey began 20 years ago managing properties for friends, family, and ourselves. Today, we continue to manage many of those same properties, including my own investments, using the same pricing model we apply to all our clients' properties. This consistency stems from a fundamental principle: our pricing model was built from an owner's perspective, designed to align with property owners' goals.
The Importance of Aligned Incentives
As Charlie Munger, the legendary investor and Warren Buffett's right-hand man, famously said, "Show me the incentive, and I will show you the outcome." This principle is critical in property management, where many traditional fee structures can actually work against property owners' interests.
Understanding Common Fee Structures and Their Problems
Maintenance Fees
Most property management companies make money on maintenance in two primary ways:
Hidden Markups: Many companies add 10-15% to vendor bills. For example, a $100 maintenance bill becomes $110-115 for the property owner. While this should be disclosed in the management agreement, it's often not prominently featured in their pricing model.
Maintenance Coordination Fees: Companies charge a flat rate for each work order. While this might seem reasonable at first glance, it creates a problematic incentive structure.
The Problem with Work Order Fees
When property managers profit from each work order, they have little incentive to prevent maintenance issues. At Atara, we take the opposite approach. We actively work to eliminate unnecessary work orders through preventive measures and tenant education.
For example, when a tenant reports a malfunctioning garbage disposal, instead of immediately dispatching a plumber, we first provide troubleshooting guidance. Often, simple solutions like pressing the reset button can resolve the issue without requiring a service call.
The Vacancy Fee Dilemma
The most challenging time for property owners is during vacancies – when there's no rental income but expenses continue. Unfortunately, many property management companies charge leasing fees during these periods, meaning they profit when your property isn't generating income.
The Compound Effect of Traditional Fee Structures
Consider what happens during a tenant turnover:
The property is vacant (potentially triggering vacancy fees)
Maintenance work is needed (leading to maintenance markups)
A new tenant must be found (resulting in leasing fees)
Under traditional fee structures, property management companies actually make more money during these costly transitions than they do when maintaining stable, long-term tenancies.
The Atara Difference
Our pricing model is intentionally designed to align our success with yours. We make money when you make money, and we don't capitalize on your expenses. This alignment of interests means we're incentivized to:
Keep your property occupied
Maintain long-term tenancies with quality renters
Prevent unnecessary maintenance expenses
Minimize turnover costs
As both a property management company owner and a property investor myself, I understand the importance of this alignment. Your success is our success, and that's exactly how it should be.
