At What Point Do You Hire a PMC?

10 Replies

At what point do you hire a property management company on an apartment complex? More specifically, at what size apartment building or how many units could justify it? I know it can depend on the Income and Expenses but is there a hard and fast rule? The property management companies in San Antonio want 10% of gross rents plus fees for renewing people. Thanks for any help on this.

Andrew

There is no rule, but there is no good cash flow deal without quality management. Some people buy a 100 unit complex and manage it themselves (not recommended) and others hire property managers for the other side of the duplex they live in.

What we have done is built our own management company in the Kansas City area instead of outsourcing it or doing it ourselves.

I don't know the San Antonio market but elsewhere offsite property management can often cost around 10% (although I don't like the fee structure as it often creates poor incentives.) And onsite managers are usually closer to 6%. 

I would be more concerned about getting a really quality manager and don't be afraid to pay a lot for one as the price you pay for the management is nothing compared to how much money you will miss out on or lose with even mediocre management. I've always felt like good property managers were underpaid for how hard their job is but finding a good one is the hard part.

No rule to go by there, I'm afraid. Personally, I think a lot depends on your personality. Some people are good at managing tenants, others not. I am  not. One of the things that delighted me about moving up to more units was that I could justify having a professional manager. I would never, ever, go back to self-managing. I'm happy to spend the money and let someone else with some real skills in that area take charge. As Phillip said, finding a good one may be hard. So if you do find one, don't undervalue their contribution. 

No specific rule of thumb.  It is a matter of what your time is worth to you.

We professionally manage property in San Antonio and most of our clients have fewer than five properties.

The most I have seen some handle is about 20 units but they are very, very good as owner operator.

Most people a 10 unit is about it.

Once you get into larger properties of 40,50 units and up you really benefit from a full time PM and having a handyman on call etc. A lot will depend on the demands of the asset with repairs due to it's age and the tenant base there which will cause issues the lower you go in income and area.

You can get around 5 to 6% management fee. If you are talking 4 units and stuff like that then 10% is norm.

A real estate investor friend of ours with over 200 units told us long ago about what he terms the hell zone, holding between 10 to 20 units. Too small to afford to hire out and too big to do it all yourself. Well, we are at 15 units presently, so we are in the middle of it! Luckily, I have the skills for working with people, I'm well organized, and I have a passion for landlording. I'm content in knowing what I do contributes to the good of the community. It is also good for our financial position. But it is a lot of work! We maintain a good vendor list (30+ services) from Accountant to Window Washer. Putting systems in place and learning when & what to outsource can make the job a lot easier.

I think it depends more so on what you can and can not do. For me personally I travel a lot for work so doing in on my own is not feasible, so I hired a property management company. As for the management fee it is all negotiable the rate will typically depend on the type of property, location, number of units, the property management company's size and experience etc. You can negotiate a certain rate that will decrease as you acquire more units and give it to them to manage. I have seen people managing anywhere from 5% to 10%. Hope this helps.

I realize this thread is a bit old, but I have researched that question a LOT so thought I'd add my two cents.  

Most of the PM co's I talked to said 60 units was pretty much the bare minimum to bring them in, but 80 was their preferred minimum.  In that range the fees were 3.75-4%.  I didn't see what size property you were talking about, but 10% would be expected if you're looking at 5-40 units or so.  I did talk to some of the off-site companies, that do not ever have office hours at the property, and the best I found was around 5%.  The problem was the leasing fees were 50% of first months rent, plus $100 for every renewal.  The management fee was offset by the lack of having to pay part-time staff.  Keep in mind that avg apartment turnover can be 60%, so the fees can be huge.  

For that reason I'm self-managing a 32 unit.  I do have on-site leasing and maintenance people, just no management co. to do reporting, accounting, buying decisions, vendor relations, bill paying, etc.  There's a post on here somewhere in which I asked for suggestions on how to manage a property that size, and I got quite varied replies.  A few blasted me for even considering doing it myself.  It can be done, but it will take up a lot of your time in the beginning.  About five months in, the amount of time I spent on site dropped to near zero.  The problem is, I've talked to many other owners doing it this way that have had nothing but problems due to their staff.  That will make all the difference in the world.  I got very lucky in that we have great people running the place, but I've spent a lot of time getting other options ready because I know it could change instantly.  

I would keep talking to different PM's if you're looking to buy in SA.  They can help you quite a bit in the buying process, and you may decide to use them in the future so you'll already have a relationship with them.  

The other thing that may help you is to talk to other properties in the area and see who they're using.  Almost every company I talked to was willing to manage our property for less if they already had people in the area.  Its much easier for them if they can leverage staff already in place as long as the two properties are not competing.  Maybe you could talk to bigger properties if you're looking at smaller ones.  Or if you're looking at class C, go talk to the management co of a B class property nearby.  They usually don't compete for the same tenants.  

Interesting thread.  Thanks @Tom Lafferty for the detailed response.  We currently own a 14 unit apartment building and self manage, but all the units being under a single roof I think helps simplify things.  I'm looking to "move up" in the next year to something like 100 units or more, so Tom, your research is very relevant to what I'm looking at.

An interesting question for me is at say 100 units do you farm out the management, or do you start a separate management company and look for more units to manage?  Or is your time better spent looking for another 100 doors to buy?

@Wade Sikkink  if you're asking me, I will absolutely hire third party management for my next one.  In fact, the only reason I'm self managing this one is to have a thorough understanding of the business when it's time to manage the management company.  I would consider something smaller if it were very near to our current property so that we could combine them for a PM co. to operate for us.  

I do know several owners who have started a management company, but there is nothing passive about that income.  At all!  

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