At what point does it make sense to bring Property Mgmt in house?

5 Replies

Hi All - 

We're looking to start growing a multi-family portfolio in the Midwest and I'm trying to line up property managers to handle the units so I can keep my focus on acquisitions and development, but I'm not finding much in the way of 3rd party managers for bigger apartment complexes.  

Our focus is to acquire buildings with between 40-100 units to start.  A lot of the bigger apartment complexes I'm seeing in the area seem to have their own property management in-house.  But since we're just starting in the acquisition space, I was thinking it's better to have a 3rd party management team to start, and then bring the services in-house down the line.  

At what point do you think it's worth having your own management wing? Am I putting the cart before the horse by even considering it at this point? 

I have been part of Clemons RE for 3 years now...we have had both in house management, and 3rd party management. We currently have about 1000 units that we own or are partnered on.

My experience says there is no right answer.  I can tell you that finding and hiring the right PM is no easy task. I am sure there are tricks to the trade that I am not aware of...that is something you should be doing research on..how to hire the best PM.  We ran a PM devision for 2 years at a loss...we have had our units in someone elses hands for 1 year, and that has not been perfect either.

If I was buying close to 100 units at a time I would plan to hire an onsite PM, and have them work under my supervision...If you buy less than 80 units it becomes more difficult to have full time on site staff. So may be the answer to the question is it depends on the size of the asset you acquire. If you acquire greater than 80 I would lean towrd in house if you buy less than 80 I would lean toward 3rd party.

Im sure my thought process has left this clear as mud :) Hope this helps.

@John Acklen I would stay away from going in-house on the PM front if you're in acquisition mode. 3rd party PMs will take a lot off your plate especially as you're trying to scale up. You can think about going in-house once you hit a 1,000 units or so (you hit it, not participated in deals where you invested in 1,000 units). 

Essentially, it's a cost-benefit situation. Do you have the skills and experience necessary to manage the property manager. I can tell you that the PM job requires a lot of skill which most investors don't have. Investors also have a tendency to discount the critical role played by the PMs. 

Once you hit a certain volume, you can poach your regional by offering them a better salary plus equity in your deals. 

@Omar Khan has sound words.  Put it on your long term plans, when you're getting close to 800-1000 units then start to consider bringing in PM.  Your portfolio, role, experience, and business criteria may have changed by that point around PM.

@John Acklen That's a great question brother and I'm thrilled to see you are going big right away! I really agree with @Omar Khan opinion. If you are in acquisition mods you shouldn't be dealing with leaky toilets, sinks or broken down units and stuff. That is something you need to designate to someone else. However like @Matt Popilek said finding a trustworthy and reliable PM company is no easy task. I personally think that 50 units is a good place to have someone on site full time. The best case scenario it to find someone you know and trust who knows the business of PM and have them do it. However 3rd party management is much simpler, it just isn't easy because of the amount of time it will take to find the right one. Just a quick tip when vetting PM companies (I can speak from experience because I used to work for one and experienced this) ask what other properties they have in and around that area. If you are going to have them manage your 70 unit, and there is a 150 unit 2 miles down the road, don't expect things to get taken care of right away because more than likely they will prioritize the larger complex when it comes to things like repairs, emergencies etc. I know it shouldn't be that way but it is. Good luck my friend and I hope you find a great company to work with and grow with!

Like any business you will have to staff up, train, develop internal and external syatems to support the people. Most likely you will be learning as you go (aka experimenting and guessing) and you will have to have a monthly revenue level to support all this. For me I figured about 80-90k per month. Once you have employees the game changes; payroll, fringe benefits, health care, HR, vacations, laws, etc. Tough to do all that and run and grow your business at the same time.