Does anyone have any experience having owned and operated a 3rd party property management firm? At the smaller end (ie <500 units managed) it seems like a competitive, low-margin business where you are essentially buying yourself a job. But for firms that manage 1000+ units, it seems there may be enough scale to make that an organized business with systems, processes, and employees. I've been kicking around the idea of buying an existing 1000+ unit property management firm for a while so would greatly appreciate any and all input. Thanks!
Walt (Los Angeles, CA)
I own a prop management business with approx. 300 units under management (though many are in various stages of renovation).
It's a pretty terrible business. No one calls their property manager out of the blue to compliment them on running a safe, clean, attractive building. Instead, the calls you get are of the "what the f#$^ is wrong with you? I broke my toilet two days ago and never told you about it. Why haven't you fixed it yet?"
We have the prop management business because it supports our development business, which is lucrative.
If you're going to enter the property management business, here are some tips:
1. You should have a brokerage license, too. You will end up with close relationships with owners. It is only natural that they should turn to you for advice buying and selling, and this is a good source of additional margin.
2. Do not compete on price. Position your company as a high-end solution. Provide good service and charge a reasonable amount for it. Smart owners don't mind paying a bit more if it means they can sleep easier at night.
3. Accept only high quality buildings. You are going to be paid a %age of the rent. The work is the same to manage a cheap one bed and an expensive one bed (in fact, it may be more work to manage the cheap one, because lower paying tenants tend to be harder on apartments). You might as well focus on the expensive ones so that your take is higher.
4. Ruthlessly exploit opportunities to use technology to lower cost / complexity. Systematize EVERYTHING.
Thanks Moses, I really appreciate it. From an economic perspective (ie EBITDA, margins, etc), is it still pretty terrible business?
@Walter Chung I manage a small portfolio of about 60 homes. Most are pretty high end rentals, so I don't have to do much work to maintain them. The tenants are pretty easy on the properties, and most pay their rent on time every month. I've only done two evictions in the last four years, and that was because I inherited bad tenants when the owners turned the property over to me. Yes, it's a job, and I have no idea what it's like to run the business on a large scale, but I'm such a control freak, that I would be terrible at managing other people. I like my small business. I do also sell properties, and between my own investing, management and sales, I've made a good living.
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