When does compensation look more like highway robbery? I mean your operator should be fairly compensated and aligned with the deal. However, they shouldn’t be loading it up with fees that guarantee their payday whether or not the investment performs. Some fees make sense. Others are junk, jammed into an already bloated payout. Knowing the difference is how you protect your capital.
A GP wears a lot of hats: acquisition, due diligence, closing, strategy, investor reporting, operations, staffing, and eventually refinancing or selling the asset. Some run this through two separate companies: an asset management firm that handles the capital raise, structure, and reporting, and a property management arm that runs day-to-day operations like leasing, collections, infill, utilities, and maintenance. Others keep it under one roof. Either way, the responsibilities don’t change.
And here’s the kicker: for established GPs with multiple deals, those costs get spread across the portfolio. They’re not all being carried by your single investment.
So don’t fall into the trap of thinking fees don’t matter because the pro forma shows a 20% IRR. Fees are decided at the front of the deal—long before you know if the plan will actually work. More often than not, things don’t go perfectly. They don’t always implode, but they rarely land exactly as projected.
That’s why the only way an LP can protect themselves is to make sure compensation is fair and aligned before committing capital. Because once fees are paid, they’re gone. If that 20% IRR turns into 5%, there’s no clawback.
Acquisition Fee
The first round of GP compensation comes before operations even begin: the acquisition fee. This is the MOST talked about fee in the industry. It’s a one-time fee paid at closing to compensate the GP for sourcing, structuring, and getting the deal across the finish line. Think of it as the GP’s paycheck for months—sometimes years—of work that goes into a deal before LPs ever see it.
Getting a deal closed isn’t easy. A GP may review dozens of deals, chase ten, and close one. Along the way they:
- Build trust with brokers and sellers
- Develop lender and bank relationships
- Structure the capital stack
- Put up deposits out of pocket
- Cover due diligence and lending costs until closing
- Set up LLCs, bank accounts, and operating agreements
- Hire attorneys and pay their fees
- Raise capital and answer endless LP questions
Important distinction: The acquisition fee doesn’t usually cover these hard costs. Those—like deposits, attorney fees, surveys, inspections, appraisals, closing costs, and broker/wholesaler fees—are reimbursed at closing from LP capital. The acquisition fee is the labor cost for the GP’s time and effort. That’s why the offering documents should clearly show the Use of Funds—so LPs know what’s reimbursed versus what’s a true fee.
Why charge it at all?
Because without it, the GP could spend six months (or more) working and walk away with nothing if the deal doesn’t close. This isn’t a hobby—it’s a business. The acquisition fee allows operators to keep sourcing quality deals without going broke doing it.
What’s typical?
- 1% – Rare, more theory than practice.
- 2%–3% – Seen in larger $10M+ deals, usually with seasoned GPs doing multiple acquisitions a year.
- 3%–5% – Most common for smaller $1M–$5M value-add deals with heavy turnaround work and GP lift. A GP signing on debt, sourcing, raising capital, and running operations? At 5%, it’s earned.
When is it a problem?
- Stacked on top of broker fees, refi fees, and high asset mgmt. fees
- 5% charged on a stabilized $15M Class A deal
- No clear disclosure to LPs about how much the GP is pocketing upfront
Bottom line: Acquisition fees are fine—when they align with the work required and the rest of the comp structure. A high acquisition fee with no other junk fees and a fair promote can make sense. A low acquisition fee but a deal loaded with back-end fees and aggressive splits can be worse. The structure has to balance so the GP is compensated fairly from start to finish—without misaligning incentives or draining LP capital before the deal even gets going.
Asset Management Fee
The asset management fee pays the GP for running the business after closing. It’s not for raising capital, and it’s not a bonus—it’s compensation for executing the business plan, managing the manager, solving problems, tracking financials, updating investors, and driving the deal to the finish line.
Without it, the GP would be:
- Working for free for years
- Subsidizing operations out of pocket
- Hoping the backend promote pays off (which is risky and delayed)
Why charge it?
To cover overhead (staff, systems, travel), keep the GP focused long-term, and align execution with investor outcomes. It’s the stay-in-the-game fee, not the get-rich-off-my-investors fee. But whats fair?
Unlike the acquisition fee, this one is recurring—usually paid quarterly or annually out of the deal’s income. When the property manager collects rents and nets the numbers, the GP deducts the asset management fee before making distributions to LPs.
How it’s calculated:
- Effective Gross Income (EGI) – Most aligned.
Why it works: tied directly to execution. GP only earns more if income grows. - Gross Collections – Also common, slightly simpler.
Based on actual cash collected. Easier for small operators. Range: 1%–2%. - Percent of Equity Raised – Rare.
Downside: not tied to asset performance. Can feel like a junk fee. - Total Deal Value – Red flag in MHP syndications.
Best practice: 1%–2% of EGI. Anything else is less aligned.
What if the GP is also the property manager?
It depends. If a GP is truly doing both, they can charge both—but not for overlapping responsibilities. If they’re just stacking fees on top of rent collection, that’s a red flag.
As always, fees and responsibilities should be disclosed clearly in the offering documents.
Disposition Fee
What is it? Typically 0.5%–1% of the gross sales price, taken at the time of sale. GPs justify it as “work related to marketing, brokerage, and closing the deal.”
The biggest pushback I hear from LPs? The GP is already getting the backend promote through the equity split, so why charge another fee just to sell the asset? That’s part of their job. I couldn’t agree more.
GPs argue it covers the heavy lift at exit:
- Preparing financials for buyers
- Polishing operations and NOI
- Coordinating with attorneys, brokers, buyers, inspectors
- Managing estoppels, payoff quotes, lien releases
- Negotiating terms and keeping the deal alive through retrades and delays
- Handling the sale without a broker
- All while still running the property to the finish line
Their defense: “The promote rewards me if we do well. The disposition fee pays me to get us there cleanly.”
Here’s what LPs should push back with:
- Financials for buyers: Already covered under asset management. You’ve been reporting quarterly. If your books aren’t ready at exit, you weren’t doing your job.
- Cleaning up ops/NOI: That’s the business plan from day one. You don’t get paid again now that it’s polished.
- Coordinating with attorneys/brokers: If third parties are involved, they’re doing most of the work. Your coordination is part of protecting your promote.
- Estoppels, payoffs, liens: Title handles most, and the rest should already be clean if operations were run properly.
- Negotiating terms: So is running the park every week, but you don’t get a bonus every time you answer the phone. Asset management fees cover this.
- Fighting through retrades/delays: If the only motivation to close is a 1% dispo fee, maybe we picked the wrong GP. Strong operators push because they believe in the outcome.
So what is a disposition fee really? In most value-add syndications, well it’s a last-minute cash grab for work the GP was already incentivized to do from day one — work already rewarded through the promote. It sounds a lot like: “Now that the deal is finally performing, I’d like to take a little more before we split profits, just because I can.”
When might it make sense?
- No broker involved: If the GP truly handles the sale themselves, saving the partnership a 2–3% broker fee, then 1% could be fair.
- Low promote/equity share: In some cases (like 90/10 or 80/20 splits to attract LPs), fees offset the GP’s smaller promote.
But if it’s allowed, keep it tight, 0.5% or less.
A GP who executes well doesn’t need a disposition fee to get paid. They already collected an acquisition fee and asset management fees. If they’ve done their job, the exit should be clean, fast, and profitable for everyone — no extra bonus required.
Refinance Fee
This is typically 0.5%–1% of the loan amount, charged at the time of refinancing.
What GPs say:
“Refinancing takes time and expertise — we had to underwrite, shop lenders, negotiate terms, gather documents, and coordinate closing. It was a lot of work.”
Why it usually makes no sense:
This is part of managing the deal. Just like a disposition fee, most of that work is already covered by the asset management fee. The refinance was part of the business plan from day one. You pitched it to LPs, collected fees to manage it, and now you’re charging extra to do exactly what you promised? That’s not an “extra” task — that’s the job.
And let’s be real: refinancing directly benefits the GP. It lowers debt service, improves cash flow, often triggers a capital event, and in some cases kicks in an early promote. If you’re already getting paid from the upside, why take another fee on top?
Refi isn’t optional in value-add deals. It’s usually baked into the pro forma and part of the expected plan. There should be no bonus fee for doing what you said you were going to do.
Construction Management Fee
When a deal has heavy lifting — infilling homes, rehabbing units, replacing water/sewer lines, adding infrastructure — someone has to plan, manage, and execute it. That’s construction management.
The fee compensates the GP (or their in-house team) for:
- Scoping the work
- Hiring and managing contractors
- Controlling budgets and invoices
- On-site oversight
- Approving payments
This isn’t the property manager’s job, and you can’t just outsource it to a third party and hope for the best. It’s boots-on-the-ground execution, and it often determines whether a turnaround succeeds.
How much is it?
Typically 5%–10% of the construction budget, drawn down as projects are completed. On a $250,000 CapEx plan, that’s $12,500–$25,000 over the course of the project.
Real-world example: One of our recent acquisitions had a $1.1M CapEx plan over five years: 20+ full home renovations, demolitions, 16 new homes placed, 30+ tree removals, infrastructure upgrades — all on top of normal park management. A 10% fee would have been $110,000, or $22k per year. For that workload, it’s not crazy. But we didn’t charge it. Why? Our projections were already tight. We had a fair acquisition fee and promote. We were courting new investors. We also owned multiple parks nearby and could cross-utilize vendors, so sourcing labor and materials wasn’t a burden.
Could we have charged it? Yes. Did we need to? No. And that’s the point — this fee should make sense within the overall comp structure, not just get slapped on top.
When it’s justified:
- Significant CapEx work (not just light turns)
- GP or internal team is running the project, not a 3rd-party GC
- Work requires real timelines, cost controls, and oversight
- Fee is a reasonable 5–10% of spend, disclosed upfront
- Paid over time based on milestones, capped at budget
When it’s not:
- Property manager is doing the work and already charging for it
- No real CapEx beyond basic repairs
- Fee is buried in financials with no explanation
- Stacked on top of other heavy fees in a weak deal
If I’m the one walking muddy sites, dealing with subs, and protecting budgets — then yeah, that’s worth a fee. You wouldn’t expect a GC to work for free. Don’t expect your GP to either — as long as it’s justified, disclosed, and earned.
Other Junk Fees
There are a handful of fees that show up in syndications that, frankly, don’t belong in most deals—especially not in standard value-add mobile home parks. These include restructure fees, entitlement fees, marketing/capital raising fees, and related-party broker fees.
Let’s be honest: most of these are just creative ways to charge LPs again for work that should already be part of the GP’s responsibility—or covered by the promote. They sound harmless tucked into a deck or PPM, but in reality, they chip away at LP returns while padding the GP’s pocket.
Restructure Fees: These pop up when the capital stack changes, like after a refi or recap. Unless the GP is engineering a complex legal save or bringing in new capital to rescue the deal, there’s no reason to charge just for adjusting terms. Especially if the restructure is only happening because of bad underwriting or over-leverage. You don’t get paid extra to fix your own mistakes.
Entitlement Fees: The only time this makes sense is in true ground-up development, where the GP is taking risk navigating zoning, utilities, and approvals—like building a 500-lot park from scratch. But charging an entitlement fee on an existing park with minor county coordination? That’s a reach. If entitlements are in your business plan, they’re not extra—they’re expected.
Marketing & Capital Raising Fees: This one’s the worst. LPs are the customer—you don’t charge the customer for the cost of finding them. If a GP wants to run ads or hire capital raisers, that should come out of their own pocket, not LP capital.
Related-Party Broker Fees: If the GP owns the brokerage and pays themselves a 2% commission, that’s double-dipping unless it’s clearly disclosed, fair market, and offset against other comp. Otherwise, it’s just a way to skim the front end.
I’m not against fair compensation. But when a GP charges for raising money, tweaking their own capital stack, or routing deals through companies they own—on top of acq fees, AM fees, and promote—it’s not alignment. It’s greed. And LPs should run the other way.
Operational / Admin Fees: Some GPs slip in “operational” or “admin” charges beyond the standard acquisition fee, asset management fee, and promote. They’ll call it bookkeeping, investor portals, guarantor fees, organizational setup, or “tech costs.” On paper it sounds small. In reality, it’s another way to skim LP returns.LPs should treat these fees as a red flag. A GP who needs to nickel-and-dime investors to make their model work is showing you they don’t have a real business—they have a fee machine.
Promotes or Equity Splits
At the very core of GP compensation is the promote, or equity split. This is how profits are divided after return of capital, the preferred return, and any catch-ups. It’s the GP’s performance-based payday.
What do splits look like?
- 80/20 – Institutional, big checks, low risk appetite.
- 75/25 – LPs still getting favorable terms, GP doing more hands-on work.
- 70/30 – Most common in MHP value-add.
- 60/40 – GP is taking on heavy lifting.
- 50/50 – High complexity turnarounds, GP co-investing heavily, usually fewer LPs or JV-style deals.
Here’s the catch: a split means nothing in isolation. A 70/30 deal with conservative underwriting and low fees can net LPs more than an 80/20 deal packed with junk fees and aggressive projections.
Example:
- Deal A: 80/20 split, 2% acquisition, 2% AM fee, no catch-up → LP IRR: 16%
- Deal B: 70/30 split, 3% acquisition, 1.5% AM fee, 3% catch-up → LP IRR: 18.5%
On paper Deal B looks “worse” for LPs, but in reality, it may deliver more—if the assumptions are sound and the GP is solid.
Red flag: High split + high fees + rosy projections. That’s when the structure is designed to pay the GP first, no matter what happens.
Smart LPs look at the full stack:
- All fees (acq, AM, refi, dispo)
- Waterfall mechanics (pref, catch-up, promote tiers)
- GP co-investment (skin in the game)
- Return assumptions and stress tests
Then ask: “Is this GP earning their cut—or just engineering it?”
Because I’ve seen 70/30 deals that are LP gold—and 80/20 deals that are dressed-up cash grabs. What matters isn’t the split—it’s what LPs actually take home after the GP gets theirs, and how much risk and work it took to get there.
Catch-Ups
A catch-up is a provision where the GP gets 100% of profits after the preferred return is met—until they’ve caught up to their promised equity share.
Example:
- 8% preferred return to LPs
- 70/30 split thereafter
- With a catch-up, the GP takes 100% of profits after the 8% pref—until they’ve received 30% of total profits. Only then does it return to 70/30.
Why do GPs use it?
They’ll say:
- “I’m not getting paid until investors hit their pref—this just gets me to my fair share faster.”
- It ensures they don’t miss their share if the deal is tight.
- It keeps them motivated to push performance early.
When it’s fair:
- There’s substantial cash flow to meet the pref and still pay the GP
- It’s clearly disclosed and modeled in projections
- It replaces other aggressive comp structures
- Overall alignment with LPs is strong
When it’s a problem:
- It’s buried in the PPM
- It’s paired with high acq fees and other charges
- It makes IRR math look better than the real LP outcome
- It’s used in small deals with limited upside
Why it can be misleading:
Most LPs hear, “You get your 8% first.” What they don’t realize is the GP may then scoop up all the upside for a while. It front-loads the GP’s take. If the deal is tight, the GP might still get a big check—even if LPs barely hit target returns. It looks like alignment, but it really shifts risk.
My take:
A simple, transparent catch-up isn’t a trick—it can reinforce alignment. If LPs hit a 7–9% pref, that’s already higher than most dividend-paying stocks. The GP should be compensated for delivering that, especially when their only income up to that point was an acquisition fee and a modest AM fee. A catch-up keeps them motivated to push occupancy, collections, and rents instead of burning out waiting for a backend promote.
But complexity is a red flag. When waterfalls layer IRR hurdles, sliding scales, or multiple step-downs—70/30 at 15% IRR, 50/50 at 20%, 100% to GP at 20%+—that’s engineered confusion. If the structure takes a flowchart to explain, LPs should run.
Types of Catch-Ups:
- Full (100%) Catch-Up – After LPs hit the pref, GP takes 100% until they reach their share. Motivating for GPs but can suppress LP returns during the catch-up window.
- Fixed Catch-Up – After LPs hit the pref, GP takes the next set % (e.g., 3%). Simple, LP-friendly, and capped. My personal preference.
- Tiered/Sliding Catch-Up – Temporary skewed splits until GP is caught up. Smoother than full catch-up, but more complex and prone to abuse.
Bottom line:
Catch-ups aren’t bad on their own. Fixed catch-ups can keep GPs motivated without draining LP returns. But hidden or overly complex structures are red flags. The best model is a simple pref + split + (maybe) a clearly defined catch-up—nothing more.
What does it all Mean?
A well-structured deal should do one thing: make sure the operator only makes real money when investors do. Anything else is misalignment. Fees, splits, catch-ups—they’re not inherently bad, but stacked the wrong way they turn into red flags that bleed LP returns while guaranteeing the GP’s payday.
That’s why the most important test isn’t the pro forma—it’s the operator. Most GPs structure their deals the same way every time. Once you’ve vetted an operator, tested their results, and trust how they align compensation, you’ve found someone worth backing again and again.
The bottom line: bad structures pay the GP no matter what. Good structures force them to win alongside you. Choose wisely.
LOCK N’ LOAD
-The MHP Operator
Disclaimer:
This article is for informational and educational purposes only. It is not an offer to sell or a solicitation of an offer to buy any securities. Any investment opportunity will be made only through official offering documents provided by Realovative Asset Management LLC in accordance with applicable securities laws.I’m not a financial advisor, CPA, or attorney. Everything shared here is based on my personal experience and opinions. You should always do your own due diligence and speak with licensed professionals before making any legal, financial, or investment decisions
