Start Management Company or Just Focus on Investment Growth?

Question

My partner and I own and manage 170 units. 70 apartments and 100 houses. We have always self managed due to the lack of quality management in our market. We have an office with additional warehouse space, a secretary, and 3 full time maintenance staff currently.

We are currently buying 1-2 rentals a month and flipping 10-12 houses a year. We do a very good job with leasing, management, and collections. I feel that I could grow a 3rd party management company fairly rapidly if I decided to. I get asked all the time to manage other people's units but have always turned them down.

My question is whether we should take the opportunity to build and grow a large management company for extra cash flow or if we should just focus on the investment side.  I am starting to loose interest in the flips, but I am not sure that I want to deal with answering to other property owners.

I would love to hear from other landlords and managers on what they have decided in my situation.  Any feed back is appreciated.

Nicholas Spohn · Answer

great topic, I quit my job with the idea that I was going start a property management company, but I kept finding great deals growing my own investment business. So when people would ask me to manage their properties I would think why would I waste my time doing all the work for you for 10% when I can do all the work for me and collect all the profits (cash flow, appreciation, amortization) etc. I just focused on managing my own. Managers in this area have a terrible reputation and I buy from people all the time who are losing their a$$ because of management. My growth strategy is to hire someone in house and train them to use my systems to manage once I am large enough. My thoughts are that if the property manager were good at their job they would just take the one extra step and buy the property for theneselves. But for some reason it doesn't seem that property managers here are running their own investing  business in parallel. I think those that have the skill and the " cajones" to do a great job investing don't want to be property managers .

Peter MacKercher · Answer

We sound like we were in very similar positions -- I started my own management company because I felt the same way. You've got more units than I do, but I've always heard that the magic number for PM is 500 units, when it starts to become profitable.

On one hand:

You have the structure in place already and you sound confident, so if you don't mind adding more and plan on continuing your growth it could make you some money. That said, if you're already questioning answering to other property owners, maybe you should consider your motives and if the extra work is worth the 10% fee.

On the other:

Of course, you could always start the company, take a few under management and try to work only with owners you like. I've fired owners that created trouble for me in the past, so you're not beholden to working with people that make running your business difficult. Assuming you already have your licenses in place, you even have employees already so the cost for you is just the company setup fees.

I think you have reason to go either direction, but the real issue is your motivation.

Jonathan Towell · Answer

Congrats on all your success so far. I'd love to be in a similar position in the next few years. Since I'm not, I don't feel qualified to give sound advice. Nonetheless, I'll just think out loud...

1. I'd recommend "The One Thing" by Gary Keller. It sounds like you're in a good spot and can do well either way. "The One Thing" might help you decide how to prioritize your time.

2. Maybe instead of focusing on one or the other, you focus on training leaders who can lead both parts of your business.

Anyways, I'd love to hear what you decide and how you decide it.

Start Management Company or Just Focus on Investment Growth?

Most Popular Reply