Making Sure You Pay Your Resident Residential Property Manager Properly
When I say resident residential property manager, I am referring to an apartment complex manager who lives in one of the suites in the building and manages the day-to-day activities of the property. This "resident manager" is not to be confused with a certified property manager who would be hired to manage the entire commercial property including hiring/firing the resident manager.
The resident manager is your front line employee. A "good" resident residential property manager can literally be the difference between making money on your investment, and losing money. Here is an example.
I own a 23 unit building that is located in a small town. A few years back the building was experiencing higher than normal vacancy rates. And then we switched resident managers. It wasn't that the old manager was so "bad", but the new manager was exceptional. The building filled up quickly and has been virtually full for over two years now. I am sure the local rental market has played a role in this as well, but having an excellent "front line" resident property manager made a big difference.
So how much should you pay your resident manager? (Remember, when you pay peanuts, you get monkeys). Actually, the question should be how much do you legally have to pay your on-site manager. Many states, provinces, countries etc. depending on where you live, have introduced strict employment laws when it comes to compensating apartment property resident managers. Laws vary from place to place so it is important that you and/or your professional property management company are abreast of the local laws. The days of just giving the manager free rent and then working them like a dog are gone. (Which is a good thing by the way).
Take California for example.
The laws that govern the employment of resident managers is laid out in a document entitled:
Industrial Welfare Commission Order No. 5-2001 Regulating Wages, Hours and Working Conditions In The Public Housekeeping Industry
If free rent makes up a portion of the wage paid to a resident residential property manager, that amount cannot exceed 2/3 of the ordinary rental value or $381.20 per month, whichever is greater. As well, in order for this amount to be credited against wages due there must be a written agreement.
Again, make sure you know the law where you are buying apartment properties.
How Is The Wage Of The Residential Property Manager Relevant When You Are Buying An Apartment Building?
You will inevitably come across pro forma operating statements given to you by realtors or owners of apartment properties that understate the wage of the resident residential property manager. Should you care? Yes. You must assume that you will have to pay the legal wage due to the employee (even if you change managers) and that amount is what should be included in the pro forma for analysis purposes. Don't let the realtor or owner convince you that you can continue to underpay the employee. Do your homework on this.
The last thing you want is a former resident manager suing you for unearned wages in a few years and having to come up with a large sum of money all at once.
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