Can Property Management be a real business?

Question

I am a cash investor managing my own properties in CA. Due to high acquisition costs, I am limited in making the number of investment units I would desire, but do want to remain in touch with the market and generate a recurring revenue stream. Am considering opening a Property Management firm (already have a RE license in CA) to provide services to others, but would like opinions from this forum.

If I do it, I will invest in the management software, portals, and already have an experienced bookkeeper, but could use some words of advice.

Comments?

If I do it, I will invest in the management software, portals, and already have an experienced bookkeeper, but could use some words of advice.

Comments?

Rhett Tullis · Answer

it seems pretty profitable to me. we manage approx 300 units and own quite a few as well.  it has its ups and downs but there is alot of money to be made on alot of fronts with a PM business.

Jean Bolger · Answer

IMO, it takes a certain personality type to be effective as a property manager on a larger scale.  I would describe it as "authoritarian workaholic". But I mean that in a good way, lol! If you are at all like me (personality type: "pushover lazybones"?) then you'd be miserable trying to do it.

As Joel mentioned, you'd need a large number of units to be cost effective. The manager I have now makes a ton of money, but he's "on" pretty much 24/7, has a lot of folks working for him, and thrives on that workload (very much the authoritarian/workaholic type). Seeing him in action just makes me realize how smart I was to stop trying to do that.

Joel Owens · Answer

It's a low cost volume business. Meaning I know friends that manage hundreds of houses and with infrastructure and having their PM's and systems they are lucky to net 60k to70k off of it. The records and drama you have to deal with is crazy.

A lot has to do with type of assets you manage. A lower PM fee for a high end rental for a client where the tenant pays on time and hardly causes issues is different than a property in the hood. The hood property there is a lot of tenant damage, evictions, multiple collections per month to get the full rent in bits and pieces, increased book keeping costs etc.

I don't do PM stuff but just transact. Not worth my time to do PM hourly work. I would take a major pay cut in my returns on time.

Chris Clothier · Answer

@Bob Lowry -

There are a lot of other questions to consider and much of your happiness and success as owner of a property management company will be determined by WHY you are considering this option.  We started our management company about 7 years ago out of necessity for our clients.  We had no background as property managers, but had a tremendous background as business owners and entrepreneurs.

We are now managing just under 2,400 properties in three cities and growing by 500-700 properties a year.  To be perfectly clear, we are not property managers.  We own a property management company and when run properly, even when it was building to scale, it can be a very profitable business for good business operators.

There is a big difference between being a property manager and owning  a property management company.  Feel free to reach out to me if you want to spend a few minutes talking specifically about scaling a business such as this.

Chris

Gualter Amarelo · Answer

I think this says it all! Do you want to be "that guy"? I don't know your financial situation, but if you can, I would leverage the properties you have and GO BIG! I think a local investor said it best when she told me, "buy as much as you can, where ever you can"!

Cheers!

Eddie T. · Answer

I believe property management becomes easier and more profitable with scale.

If you are managing 40 units and can only afford to hire 1 assistant then all the work will be shared between two people and it will be difficult. But if you are managing 400 units then the ability to hire staff and delegate certain responsibilities make things a lot easier.

But either way that would be a full time job for you so unless you plan on quitting your day job and truly have a passion for property management i wouldn't do it.

Maybe you can look in other markets that the acquisition costs are lower then your home market and buy/hold 2-3 sfr for monthly cash flow without having to work 40 hours a week for it.

Marie S. · Answer

I would assume that you would screen your tenants in the "hood" the same way you would screen them anywhere else. Partial rent payments is a scary feat so I just don't do it. All or nothing in the rental game.

I deal in a low income area. As of last month, all of my tenants (with the exception of one) pay via auto pay on their pay day. The same goes for the ones on a fixed income. Disablity and SS pay on the 3rd of every month and early if it falls on a Saturday or Sunday. They like it and I love it.

A good thing about renting in the "hood" is that I know everything that goes on in and around my building. Some landlords are too afraid to get to know the neighbors. I get more information about what's going on in the "hood" than I do for my property in an middle class neighborhood.

I made deals with local contractors (plumber, electrician, handyman, pestcontrol...) for my properties. I put their contact information in my tenant's handbook for emergencies and have them submit workorders in Rentec if it's a non-emergency. I have an answering service take all of my random calls and email/text me the message.

I haven't found a need for a property manager. I would go higher end if I were in this situation. Automation is not your friend.

David Frol · Answer

I agree, it would depend on the type of property you manage, lower quality may require a lot of time involvment, may not be worth it.

Michael Seeker · Answer

You'd be much better off looking at ways to leverage the properties you own into more/bigger stuff.  As @Joel Owens mentioned, PM is a huge time commitment for very thin margins.  I've got a good friend who owns 400+ units and manages another 600+.  He told me if I ever consider PMing to just go ahead shave my head because I'd pull all my hair out in the first year.

Some folks are quite successful at it, but I can't imagine you'd be excited with the $/hour return when compared to rental properties.

Another option would be to consider investing out of state - you give up some of the control you have, but can get much better returns and pay somebody else to deal with the headaches.

Can Property Management be a real business?

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