The Anatomy of a Perfect Property Manager’s Contract

Whether you’re a property owner looking to entrust the managing of your rental to a professional or a property manager looking to improve the way you sign up vacation rental owners, the insights Andrew McConnell from has on the subject of contracts will be invaluable to you.

1. What are the 3 most important criterias home owners look at when choosing a PM?

It really depends on the profile of the owner. Are they a pure investor? Is it a family home? Do they need the income to afford the mortgage? These all come into play in determining what weight an owner gives to the top 3, but the top 3 are pretty consistent:

  1. Who will make me the most money? You can say what you will about commissions, fees, guarantees, or gross rental income. What really matters is after everything is said and done, which manager is putting the most in the Owner’s pocket?
  2. Who will provide the best on the ground operations? With the proliferation of distribution sites, it is getting easier for Owners to handle bookings if they want. What they still can’t do remotely is all of the physical on the ground work. Who has the best service team? The highest standards? The quickest responsiveness? This will determine how well their home is cared for.
  3. Screening guests. This is one reason many Owners are reluctant to work with professionals. Owners, often wrongly, assume they can personally do a better job of vetting and screening guests. If a Manager has a better, more rigorous, and more accurate way to ensure guests booking the home with treat it with care and respect, that can win over a lot of otherwise skeptical owners.

2. Why are some Property Managers are more successful than others at signing up owners?

They are able to come up with a unique pitch. Every Manager will say they are the best. Every Manager will say they make you the most money, take care of your home better than anyone else, and view this as a ‘relationship.’ Repeated these tired phrases does nothing to set you apart from the competition and your voice is lost in the noise of market competition.

You don’t have to be great at everything, but you do need to be great at something. And that something needs to be the single most important thing to your Owners. Find out who your ideal Owner is, what they care about, and build the perfect business for them.

3. In your experience, what is the most successful pricing model?

For maximizing revenue and profitability, while also limiting the financial risk, it is best for Managers to take a balanced portfolio approach on their Owner contracts. To give them potential for outsized financial rewards, they should have a healthy mix of “guaranteed” or “fixed” contracts, assuming they can obtain them at the right price. This is where they essentially rent the entire year from an Owner for a fixed monthly amount, and then have full control, and get to keep 100% of all revenue on the home.

There is a certain amount of financial risk with this, so for that reason Managers need to balance the make up (probably no more than 30% on guarantees) of their contracts. The other 70% or so should come from commission contracts, but even here there is no single right answer.

Your operating costs on a home that brings in $250,000 are not ten times as much as on a home that brings in $25,000. Think how much “dollar contribution to margin” you want to make on the home, and you can offer far more competitive rates. For example:

with a 40% commission on the $25,000 home you keep $10,000. Assuming your costs are $7,000 for managing the home, that still leaves you $3,000 in profit. On the $250,000 home, even if the costs are five times that of the $25,000 home, a 20% commission would still leave you with $15,000 in profit, again five times what you would keep on the 40% commission for a lower value home.

If you told Owners you always had to charge one commission rate, you would charge far too little for lower value homes, and far too much to keep you highest value homes.

Answer being, run the numbers. There is no one “right” blanket approach, but rather think of your contract mix like you would think about your retirement funds. You want a balanced portfolio to increase your returns, and minimize your risk.

4. What are the most important things that need to be covered in the contract?

I have two law degrees, so my answer might be surprising. If you have to resort to the legal language in the contract, it is already too late. 99% of the time you should be able to work things out amicably. This has to be a relationship business. Get the rough outline of principles in place, don’t waste time haggling over minutia, and then work together under those principles as issues arise. If you can, always avoid getting attorneys involved.

5. How does help owners and managers? ensures Owners find the perfect Manager for them. This may be the one offering the most money. The one with the most properties under management in their area, or the least. Again, there is no single right answer. But by creating a competitive and transparent marketplace, makes sure the Owners get the best deal possible, with the least amount of work.

For Managers we are truly an extension of their team. Rather than them having to worry about recruiting new Owners, and losing focus on operations and bookings, we bring the Owners who want to work with them directly to them. This helps the best Managers grow quickly, easily, and cost efficiently as never before.

We can’t wait for your European expansion Andrew! Thanks so much for your time and for providing our readers with such great insights.

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