I’ve recently had to start interviewing new property managers. At the same time I started my search, I had a client who was doing the same thing. He happened to ask me a question at exactly the same time I was wondering the question myself:
Should I go with the large property management company or an individual property manager?
The two potential options for a new manager that he had identified, one a large company and one an individual, seemed legit. He was trying to weigh them both when he asked me which would be smarter to go with.
I had just been wondering this myself about my own properties.
Because I hadn’t gotten a solid answer about this for myself yet (still haven’t), all I was able to do was provide him with details of my experiences with property managers over the years — both larger companies and individuals — and let him make a judgment call from there.
I honestly don’t know the answer. I’m sure it’s safe to say there is no perfect equation and no way to always know which will be better. But if you are left with two seemingly equal options for a property manager and both seem equally promising, do you go with the large company or the individual?
What I’m going to do is give you the pros and cons of each. Chime in with any other ones you can add to the list, and let’s see what we come up with.
Large Property Management Companies
The absolute most critical detail about a large property management company is simply how they are set up. If a large company has been built correctly and is maintained correctly, then there shouldn’t be any major problems. So keep that in mind as I list out the pros and cons of a large property management company. It’s not to say that any of these things will be true with all companies — they are just issues I’ve run into.
Also, what constitutes “large”? I have no idea. In recent discussions with and about property management companies, the “large” ones have had between 1,000-1,400 properties managed at one time. Does that mean a 500-property company isn’t large? I don’t know. Use your judgment to decide what is large based on your individual managers and smaller companies having, say, 100 or less properties to manage at once. An individual may only have 10 properties to manage! So, gauge for yourself.
Remember (I’m saying this twice for emphasis), nothing in these lists pertains to all companies! I’m sure phenomenal large property management companies exist, and they would in this case be the exception to what I’m about to put out as a “cons” list. So look at these lists as more like “greater chance of” — both for the pros and the cons.
Pros of Large Property Management Companies
Built-in Structure & Systems
I can only assume all large property management companies do have some level of structure and systems. How else would they manage 1,000 properties? They wouldn’t — they never would have made it to that number in the first place. Now, that’s not to say the structure or system is good, but something exists. It may actually be a phenomenal one. But having structure and systems in place is definitely a positive.
Anytime you have large quantities of anything, you have a better chance of getting things cheaper. In the case of a property management company, having 1,000 or more properties likely means they either give particular contractors a ton of consistent work or they can afford to have in-house contractors. Most times a company is given consistent work of decent scale, they lower their fees.
So if one plumbing company gets the calls for all plumbing issues of the 1,000 properties, they are probably going to not charge an arm and a leg. They want the repeat business, and ultimately repeat business is what keeps companies in business. Or with the property managers themselves, they might be able to charge a lower monthly fee to the owners of the properties because they have so many properties they manage that they can entice owners with lower fees and ultimately draw more in.
It’s already happened. This one is huge (I’ll get to why in the “cons” section of the individual property manager). You know what you are getting with a large property management company. A smaller company or an individual property manager may grow significantly in the time they manage your properties, and not everybody weathers growing pains well.
A large company already has this one in the bag. As mentioned before, they already have their structure and systems in place. Sure, they may add improvements along the way, but the bulk of the growing is done already. You don’t have to worry about your arrangement or setup with them changing drastically. It is what it is when it begins.
If there are a lot of employees working in a company, it’s going to be a lot harder for one person to get away with something ridiculous. There are probably bosses and managers, systems in place, and rules for employees to follow. Sure, someone could sneak something around everyone, I’m sure. But for the most part, that structure of the company keeps things flowing so there’s not a lot of wiggle room for how your property is managed.
Cons of Large Property Management Companies
Nothing is worse than not being able to get information about one of your properties! In my experience with large property management companies, I’ve not been able to either get the same person on the phone twice or get information from the one person I do talk to. Getting a different person on the phone every time makes for extremely inefficient question-answering. Or you get the same secretary on the phone, but she hasn’t a clue and swears she’s trying to get the info, but you continue to not hear back from her.
Think about it. These guys are managing 1,000 properties, and you need information on just one. You can probably see how much potential for information getting lost in translation there is. Nobody knows what is happening with your particular property off the top of their heads, so they are reliant on either finding the information in their “system” (good luck with that) or finding someone who does know the answer. It’s just not feasible for a company this size to be so closely tied into your properties that they know everything immediately or can even answer your calls directly. Shoot me now.
Speaking of not being able to get VIP service on your single little property, your property is basically going to enter the “system” when it needs anything. Maintenance, tenant calls, problems, etc. This isn’t bad if the company’s system is fantastic, but that’s just not always the case.
Efficiency will be dependent on the company’s systems and processes and the availability of the employees or contractors necessary to fix the problem. And tying efficiency back to communication, how efficiently are you able to get answers or responses to your questions or inquiries? So efficiency covers a lot of ground.
As I mentioned briefly in the “accountability” section in the last sentence — “wiggle room for how your property is managed” — if you have particular preferences for how you would like the management of your property to go, you may not have a lot of negotiating room with the bigger companies. They have necessary processes in place to be able to manage so many properties, and even if they want to, they may not be able to accommodate special requests that fall outside their established processes. Can you imagine 1,000 special requests? It’s not feasible. There may be some budge room, and some companies may offer different package options, but there’s a good chance a large company can only deviate so far.
Are you getting a good idea of the large property management companies? Great, now let’s move onto the individual property managers.
Individual Property Managers
An individual property manager could mean two things:
- An actual individual who is maybe a real estate agent or does something else in real estate to have the knowledge (and licensing, if applicable) to do property management. Maybe he takes on properties just through referrals or some other small network. He likely has an additional stream of income from some other gig because small-scale property management doesn’t pay much. He may only manage a handful of properties — probably not more than 20 or 30.
- A small property management company, likely having only one actual property manager and maybe one or two secretaries and a go-to handyman. So a little more company-like than the individual, but technically, he’s still an individual manager. He can probably handle more than 20 or 30 properties — maybe closer to 100. Maybe he has systems in place, maybe not, or maybe they are just extremely basic and simple.
For intents and purposes of the points at hand, I’ll continue to call both of those “the individual property manager.” But know that it may pertain to a very small company as well.
Pros of Individual Property Managers
Yay for communication! This is my favorite part about individual property managers. Are you ready for it? Can you handle this? Hang onto your seats. I can most likely call this manager directly on his cell phone, and he might even answer! Yes, you heard it, friends. What’s better than being able to call your property manager directly and him answer the phone?
He is very likely to know the answer to any question you have about one of your properties right off the top of his head. I know, right? It’s like I’m talking crazy-talk now. Hands down, no question, communication ability with individual property managers is my absolutely favorite pro about them. I’ve notoriously gone with individual managers simply because the same person will answer my call every single time and be able to tell me the answer to my question.
On more than one occasion with individual property managers, I’ve requested something outside of their normal processes, and they were happy and able to oblige. Individual managers don’t necessarily have or need set, strict systems in place because they can manage all of the properties by hand without them. Therefore, they can usually be pretty flexible to tailor things for what you need.
Now, don’t get crazy on someone and make all sorts of ridiculous demands, but little details here and there aren’t usually a big problem. For instance, when I moved to California, I needed the statements for my rental back home to contain certain information because my company was reimbursing me for the fees, and they needed a certain template. My individual property manager at the time was happy to adjust and provide what I needed.
Either a Pro or Con With Individual Property Managers
This one could go either way with individual property managers — either pro or con. I would vote that more often, it becomes a pro because when a property manager isn’t distracted with 999 other properties, the manager can get necessary things done for it very quickly. In some cases, though, efficiency could be a con with the individual property manager because it’s possible he doesn’t have the man-power for it.
Also possibly going either the pro route or the con route is who can save you more money. I’ve had the experience where the individual has killer contacts in the industry that he knows personally who can come out and do work for you cheaply. On the flip side, because the individual property manager can’t give a handyman or contractor work on as big of a scale as the bigger companies can, they may not be able to get the same lower rates. So, this one could go either way.
Cons of Individual Property Managers
There’s not really any. An individual can change business or do what they want with no major threat of repercussion. As in, they don’t have a boss to fire them or manager to tell at them what to do. Obviously, they can’t do totally crazy things outside of contracts or whatever, but things don’t always have to fit a certain standard. If things are great in the beginning but start going downhill, there’s not much you can do about that (like call the boss and complain).
This one bit me hard last year. I had an individual property manager on my properties who I loved for years. His communication was great, everything was smooth and efficient, he saved me lots of money, and I could always get him on his cell phone — until I couldn’t. With no warning, things seemed to change. I had some problems, and when I talked to him on the phone, he explained that he had grown so much that he was experiencing some growing pains and not to worry — all would get fixed.
Well, I naively believed him for just shy of a year before I finally believed the bad feeling in my stomach and paid a friend (I’m a long-distance owner) to run by all of my properties and let me know how they were doing. The first property he went to was so severely damaged by smoke inside that I went ballistic. I should have believed the communication problem when it happened and taken that to mean other bad things were happening.
This manager placed such a bad tenant in my nicest rental property that the entire property had major damage to it — and the manager had no clue! I would say this is an example of what can really go wrong with growing pains. The manager didn’t know how to grow a business, so things started getting sloppy. That would be OK if he didn’t convert in the process. Somewhere down the line, he had gone from this amazing, nice and friendly manager who I had met on several occasions to this monster who wouldn’t answer my calls, tell me anything about my properties, and had no idea one of my properties had basically been set on fire thanks to a very obviously horrible tenant he had placed. To this day, I have no idea whatever happened with that manager to make him do such a 180. But there was no accountability, and he had no idea how to grow a business. It happened so slowly that I never saw it coming.
OK, all is said and done now! How are my lists? Do you guys agree with them or have any edits to them? I’m all ears. Let’s band together and try to decipher this property management thing. Obviously, I haven’t figured it out because I’ve been through enough to compare them all. Right now, I’ve found a couple companies I’m going with who are kind of in between the large property management companies and the individual property manager. They have systems in place, they are established (meaning no major growth coming), resources in place (handymen, contractors, etc.), but they cap how many properties they do so they stay more boutique-style. So, in theory, I’ll get the all the benefits that I’d get from both a large company and an individual. Well, we’ll see how true it turns out to be. I may have to do an addendum to this article down the road!
Investors: Do you prefer large property management companies or smaller ones? What has been your experience thus far?
Give your thoughts and tips!