If you own multifamily property and feel like your management company pays close attention to leasing but glosses over your expenses, you are not imagining it. The reason is built into how most 3rd party management contracts are structured.
As Ron Kutas, CEO of OneWall Communities, explains it: “In today’s world, most contracts are based on a percentage of collections. So most third-party management companies will charge anywhere from, you know, as low as one and a half to five percent of the collections that they receive from rents and other income at the property.”
That single detail shapes everything. When a manager’s fee is tied to collected revenue, their incentive points in one direction. “If a management company doesn’t grow rents, let’s just say, but spends all of their time on reducing expenses, the net operating income at the property will go up, which will satisfy ownership, but their fee stays flat,” Kutas notes. “And so most management companies put most of their time and energy into marketing and leasing in order to maximize the collections at the property.”
The result is an expense that rarely gets scrutinized. Take service contracts, the annual and seasonal agreements for landscaping, trash, cleaning, and snow removal. Left on autopilot, Kutas says, vendors “increase your contract by anywhere from 2% to 5% on an annual basis,” and those creeping costs can run into the tens or even hundreds of thousands of dollars a year.
This is where an owner-operator background changes the equation. OneWall Communities spent 15 years owning workforce housing before managing it for others, so expense discipline is not an afterthought. That is the whole point. For owners of Class B multifamily assets, that difference in mindset is often the difference in NOI.
Property management is complex, and the best solutions come from shared incentives. Whether you’re exploring new approaches or facing specific challenges, we’re here to talk.
Visit us at onewallcommunities.com or call us at (646) 596-7068.