Property Management on Midsize Multi-family Complexes

28 Replies

Hello all (and thanks in advance!),

I'm looking for midsize apartment complexes (10-50) units, and I'm having some difficulty budgeting for property management expense. Here is my understanding:

On sfr and small multi-family, pm would usually run 8-12% of rent collections, plus incentives such as leasing commissions, renewing commissions, evictions, etc. On larger complexes (50+ units) that support full time pm, they usually charge 3-5% of collections, plus salary of those employed. Additionally, the full time staff should be able to handle most repairs, which means that you don't have to bring in outside vendors for every little issue, hopefully reducing the r&m expense, as well.

Assuming that's correct (please let me know where I'm wrong), what about these in-betweener complexes of 10-50 units? They don't really support full time employees (at least not a maintenance tech and a leasing specialist), but paying the higher percent to a pm company in addition to leasing incentives seems like it will add up to an awful lot.

Any and all feedback, information, direction, etc. would be greatly appreciated!

@Simcha Davidman your assumptions look correct. Usually you need over 100 units to support full time onsite staff.

Best thing is to call some management companies in the areas your interested in and ask them these questions. Every company does things a little different and has their own unique fee structure. 

50 is actually sometimes the most difficult to manage because you don't need a full time manager or maint  person but often need close to that. Trying to find an onsite manager who would reside there and handle all duties usually works out really well in that size building.

@Simcha Davidman

As others mentioned, it may be challenging to find/get full attention from a property manager for a 50 unit. What one of my colleagues have done is partner up with other investors in the area with a similar size property to get a full time property manager to cover both properties. It worked out pretty well for them.

Best of luck!

There are property management companies that specialize in smaller properties. They do the management from their office and have full time maintenance staff they use for all their properties. It all depends on the area your in but most larger cites have multiple companies that are very good at managing these types of assets.

@Frank Procopio Thank you! I've seen that, I just thought that it is not an ideal situation. I'll look into it more.

How small of a complex does a resident manager usually work on? Or better, what is the range of complex size that you'd see a resident manager?

@Simcha Davidman I have had onsite manager/maintenance I'm as small as 32 units that were studios w high turn over. Also have had them in as large as 70 units. So I think a 50 would be perfect. Going this route will save you alot of money if you can be somewhat hands on and have that person report directly to you. Obviously you need to find the right candidate.

@Simcha Davidman it all depends on the market and property type you are invested in. If the area is B or better you might be able to manage offsite. The best thing you can do is call 10-20 property managers in the area where you want to buy and ask how they manage and what they charge so you can better estimate management costs when analyzing apartments to purchase. 

@Simcha Davidman - Solid advice all around.  Talk to multiple PM's.  Some will have a lower percentage of rents, but will make it up on fees, so if you have a more turns it may cost you more in the end than a flat 10% of rents.  Try to work with companies that have the most resources for repairs and maintenance in house.  If they are using 3rd party contractors for smaller jobs it will increase the cost and time significantly.  

Don't be surprised if it takes a couple of PM's to find the right fit.  Hire slow, fire fast.

@Simcha Davidman I think@Alina Trigub had a great suggestion. Finding other small building owners and "pooling" your units together to get a dedicated PM is a great way to get a discounted rate as well as dedicated staff. It allows you to get the focus your units need at a better cost.

I see you live in NJ and I also live in NJ. @Frank Procopio suggestion is a really good one but there are some legal snafus you can face if your property is in NJ. To manage a property (as in collect the rent and enforce a lease) in the state of NJ you either have to have an ownership interest in the property or the PM company has to operate under a brokers license. If you have a grounds keeper who lives on the property you may run into legal issues down the road. If you just need a repair person to fix things than having a groundskeeper should work but the owners would still need to enforce the lease and collect rent.

Best Luck! 

3rd party PM for tweener sized properties can be a serious problem.  I cycled through two management companies before I found a decent one.  The other companies were honest and hard working but could not execute (poor management of occupancy and maintenance costs).  My vacancy rate is still too high and maintenance is too expensive but it's manageable.  Case in point...my number of vacant units is low due to high demand but my vacancy dollars are too high (i.e. turns are way too long relative to norms).  As others have mentioned, resident managers and management companies with a niche in this size property are possible solutions...plus added vacancy and maintenance costs in your proformas.

Regarding fees, I would recommend a structure that had better aligned interests than one with lease up fees...and with 10-50 unit properties, you likely can get a hair cut on the 8-12%.  I pay no lease up fees, 7% mgmt fee, $45/hr for in-house maintenance, and a markup on 3rd party contractors.

My management company covers Central NJ but admittedly we haven’t managed buildings that large. I have seen fees as low as 6% for 100+ unit places. It’s a niche within a niche. We stick to 1-4 family, commercial and small apartment buildings that are 5-20ish doors.

@Mike Dymski thanks for your feedback.

How much leverage do you feel you have in negotiating terms with the pm company? I've had some discussions with companies that have standard 12-month language, and early termination requires an immediately due amount generally in the range of what they otherwise would've earned had the contract played to its end.

Originally posted by @Simcha Davidman :

@Mike Dymski thanks for your feedback.

How much leverage do you feel you have in negotiating terms with the pm company? I've had some discussions with companies that have standard 12-month language, and early termination requires an immediately due amount generally in the range of what they otherwise would've earned had the contract played to its end.

If the management company placed the resident and the resident breaks the lease, it should not be the owner's responsibility to pay 12 months of management fees...nor duplicate management fees including the next resident.

Look for fit, for both parties, over negotiation.

@Simcha Davidman A few strategies. 

1. Partner up with some other operators and bring the collective group of properties to a management group and ask to get your own dedicated staff for the 80 to 120 units(maybe more). This way a 3rd party is the go between for you and the other owners, but for the management group they can hire a full time employee/employees and split the costs amongst the group. This may be challenging but it has been done and I have had property management companies recommend I try to do it when I have expressed interest in assets of the size you are talking about. 

2. Build your own management company. Maybe not ideal, but as you grow you can build your own management company. Maybe you need to go get some lawn mowing contracts and other fix it work to fill up your maintenance guys time. Maybe you need to subsidize your admins time with other work you may have. Maybe you can find folks who just want to work part time(they are out there). Not the easy, but could provide the best results for you long term as you maintain control.

3. Call until you find someone who will take over the asset. Probably not too many who will do it and they are probably not the best in the industry but if you dont want the work you are stuck with what you get.... Beggars cant be choosers. 

I am in the same boat. I have 23 units in one town I invest in and will have 23 after a new acquisition in a different region. I am hiring a part time handyman for each region at $20/hr and guaranteeing 10 to 20 hrs a month, most of it being work that can fill in as their schedules allow. My next goal is to find an admin who can help with leasing, calls, bookkeeping, and leasing activities (most of which can be remote). While it would be nice for onsite I am have to deal with the realities of these types of assets. This is the reason why I am focused on building investor relationships to leverage my current experience with additional capital to tackle larger projects where the property management work can get simplified. 

Originally posted by @Simcha Davidman :

@Peter T. Thank you. I'm actually looking outside of NJ, but it's good to know. Does your range include Trenton/Hamilton?

 We will open up shop there in the future but not currently. We like to stay in a close proximity to our office in New Brunswick, it allows us to deliver very good service. 

@Mike Dymski Thanks. Yes, I would think that bringing that many units to a pm company would allow for more negotiation.

I may not have been clear before - I meant that the pm agreement between owner and pm states that if the owner wants to terminate the pm contract, the owner owes the pm whatever (or something close to it) the pm would've received had the contract continued.

Is that standard? Is that negotiable? Thanks again.

@Joel Florek Thanks for your input. I like your idea of "partnering up" to bring more scale to a pm company. Do you find that this is very time-sensitive? If a different investor group already owns their asset, they'll already have had to address the management issue prior to my joining up with them. It may well be worth it for them to go through the hassle of switching, but it can be an issue. Is that off base?

Regarding your point about starting a management company, I've definitely thought about it, but I would need some serious scale before anything like that will really be on the radar.

To your third point, this seems to be the overarching advice I've received - call, call, call. There may be someone out there who can handle what I need, and there's pretty much one way I'll find them...

Best of luck with scaling up! Very exciting for you!

Originally posted by @Simcha Davidman :

@Joel Florek Thanks for your input. I like your idea of "partnering up" to bring more scale to a pm company. Do you find that this is very time-sensitive? If a different investor group already owns their asset, they'll already have had to address the management issue prior to my joining up with them. It may well be worth it for them to go through the hassle of switching, but it can be an issue. Is that off base?

Regarding your point about starting a management company, I've definitely thought about it, but I would need some serious scale before anything like that will really be on the radar.

To your third point, this seems to be the overarching advice I've received - call, call, call. There may be someone out there who can handle what I need, and there's pretty much one way I'll find them...

Best of luck with scaling up! Very exciting for you!

 From my experience you are likely to find owners that are not super satisfied with the way things are going and if there is a solution for greener pastures then you may have a shot. Its certainly harder but if you are good at networking in your market then this is a good option.  For instance, Ive got some friends that aren't super excited about their 22 unit management. Find 3 or 4 people like that and you are likely to hit your magic 80 to 120 unit number where a full time leasing and full time maintenance personnel make sense. You can also find that collectively you have $20k in lawn mowing. The equipment isn't much for cost, but if you hired someone to do that full time and then had them help with other jobs when its raining or during the winter you may be able to get a good part time employee for maintenance or renovations out of that person. 

@Simcha Davidman PM me. I want to see if there is a possibility my company can help you, or at least point you in the direction of someone who can if we cannot. 

I own a management company in both Austin and Nashville.

For us there is a minimum monthly of $1500 (has to be worth our time and the smaller the more difficult it is to manage) but we don't tack on a bunch of extra fees, it's just the flat fee but the properties always pay all of their own expenses including marketing and total payroll.

It's tough to make this work on smaller properties, 30-40 units and below.  Some management companies may have lower minimums but as you mentioned you need to be very careful on the extra fees.  Have a written management agreement that clearly spells out all of the costs and fees and what they will do for those fees and how they plan to manage you property.

My experience as an owner operator is that it usually take 70 or 80 units and above to comfortably afford FT staff.