At What Point Did you Hire Property Management Co.

9 Replies

Just curious for those with 10+ units...at what point did you decide to hire an outside company to manage your rental properties?  I've been self managing for a long time and done well, but wondering if maybe I can go bigger by freeing up more time v. there's not many deals out there now so will my time actually be productive?

@David K. I ended up having to go the PM route once my partner and I acquired our 20 unit in South Bend. I am still managing 13 units here in Berwn and Lyons near where I live, but I now see the value in property management. I personally will be working on switching to property management for all of my properties in the next year or two so I can continue to scale. 

The key seems to be the size of the multifamily property. For instance, I am getting quotes in one market of 8-10% for property management for a 36 unit I am considering. I currently am paying only 5% for my 20 unit though, and several commercial lenders have told me they like to see 3-4% on the 100+ deals. There truly are economies of scale to be found. 

Originally posted by @John Warren :

@David K. I ended up having to go the PM route once my partner and I acquired our 20 unit in South Bend. I am still managing 13 units here in Berwn and Lyons near where I live, but I now see the value in property management. I personally will be working on switching to property management for all of my properties in the next year or two so I can continue to scale. 

The key seems to be the size of the multifamily property. For instance, I am getting quotes in one market of 8-10% for property management for a 36 unit I am considering. I currently am paying only 5% for my 20 unit though, and several commercial lenders have told me they like to see 3-4% on the 100+ deals. There truly are economies of scale to be found. 

How bout with expenses?  Are they reasonable?  Keep units full?  A fear I've had is knowing that they like to raise rents a lot I'd get a TON of turnover.  Turnover costs me the most $.  I always would rather get slightly lower rent somewhere and have someone stay 5+ years than constant 1-2 yr turnovers

@ David K.  the size of the property definitely affects the rate charged.  @John Warren was right about the 100+ deals. We just closed a 125 door townhome asset in Lexington KY and are being charged 3.5 %. However we could get that down to 3% if the asset had been 250 doors.  I know other syndicators that routinely get 3% fees on their deals.  Good luck!

Originally posted by @David K. :

Just curious for those with 10+ units...at what point did you decide to hire an outside company to manage your rental properties?  I've been self managing for a long time and done well, but wondering if maybe I can go bigger by freeing up more time v. there's not many deals out there now so will my time actually be productive?

 I got property management on my very first property which is a 4 plex in Phoenix, AZ.

I have always been a long distance landlord, and on top of that I have a very demanding career where I travel a lot and do not have the time to do hands on investing.

402-965-1853

I was around 20 or so SFR rentals before I hired a 3rd party PM. With a full-time job, I was able to self manage about 15 and do a good job. Once I hit 20 or 25, I found my turnaround time starting to slip during vacancies and make-ready projects. If you have people you can trust in the construction trades (especially plumbing and HVAC), maintenance is not a time consuming thing. Just shoot them a text and have them coordinate with the tenants and send you a bill. It's the vacancies that are time consuming and costly. Every day that they are vacant is money out of your pocket, and if you are too busy to jump on them right away, it can really kill your ROI over time (especially with multiple vacancies).

Some may disagree, but I think everyone should self manage a few units initially so that you understand how much things cost and how the processes work.  Otherwise it would be difficult to know if your properties are being managed correctly, and if you are being overcharged or not. 

It also depends on your goals.  If you only want a small handful of rentals for retirement, then self-managing them shouldn't be too difficult and will save you some money (if you have the available time).

If you want to scale up and make it a legit rental property business, it would be difficult to do so without PM - whether 3rd party or in-house.  It sucks giving up the cashflow, but I sure don't want the headaches of managing all of my rentals.

Hi @David K.

That is the dilemma as we want to expand.  It was great that you learned and have been managing your rental properties and know all the ins an outs.  Now, when you start to interview PM companies, you will know if they walk the walk or talk the talk.  You know how much it costs to change out a water heater etc....

Me personally, I still push a button whenever I have a vacancy every two to three hours and a new craigslist ad goes out with my PM's phone number. Often, he does not like being inundated with sooooo many calls.  I don't care.  He needs to rent out my place to quality tenants, have 70% collections by the 15th of every month and have 85-100% collected by the 25th of every month, including late fees.  Also, he needs to give 60 Day notices at the end of all leases with new rental increases.  All units need at least a nuisance increase of $15-$20.00 per month at every lease renewal.  What newbies don't realize is that if you go 3-5 years without a rental increase and then you happen to have some big repairs or replacements during those 3-5 years, you are going to need to increase the rents dramatically to make up those added expenses.  When you raise the rents dramatically and you try to explain to the tenants you kept the rents low for them to 3-5 years and never raised it on them in that period, the still want to move because over the course of the next 12 months they are paying $1500-$2,000 a year more and it is worth it to move now.  If you give a nuisance rent of $15-$20.00 a month each year, people don't want to move for the $180-$240.00 nuisance increase for the year.

You need to get your tenants to expect small rental increases each year.  If you don't, my experience is they will leave if all of a sudden you increase their rents $100-$200.00 a month, due to that furnace you had to replace this past year etc...

If you don't know what you are doing and do not have clear expectations laid out for your new PM, you will be like lots of people on BP that contact me saying they are going through their 2nd or 3rd PM and they have only had the rental property for less than a year or so.

Swanny

@David K. I never *didn't* have a property management company.  Why?  I invest out of state so there is some logistical challenges there.  But the reality is that I knew that I didn't want to be a hands-on landlord.  The family had some rentals growing up and I spent enough time helping with all of the fun "landlording stuff" that I knew I didn't want to do it.  I'm sure others will call me lazy but I just didn't want to.  Does it free up time?  Sure.  Does it let me go bigger?  Probably not.  It just gives me time back for other activities.  

There's also the reality that there are very different cost savings if you're talking about being a landlord (i.e. property manager) vs. a DIY handyman along with it.  If you do the repainting, carpet cleaning, show the property when it's vacant, minor plumbing fixes, etc. yourself I think you can get some great savings.  But that's a lot more labor intensive than "call a lock-smith"...  

Originally posted by @Michael Swan :

Hi @David K.

That is the dilemma as we want to expand.  It was great that you learned and have been managing your rental properties and know all the ins an outs.  Now, when you start to interview PM companies, you will know if they walk the walk or talk the talk.  You know how much it costs to change out a water heater etc....

Me personally, I still push a button whenever I have a vacancy every two to three hours and a new craigslist ad goes out with my PM's phone number. Often, he does not like being inundated with sooooo many calls.  I don't care.  He needs to rent out my place to quality tenants, have 70% collections by the 15th of every month and have 85-100% collected by the 25th of every month, including late fees.  Also, he needs to give 60 Day notices at the end of all leases with new rental increases.  All units need at least a nuisance increase of $15-$20.00 per month at every lease renewal.  What newbies don't realize is that if you go 3-5 years without a rental increase and then you happen to have some big repairs or replacements during those 3-5 years, you are going to need to increase the rents dramatically to make up those added expenses.  When you raise the rents dramatically and you try to explain to the tenants you kept the rents low for them to 3-5 years and never raised it on them in that period, the still want to move because over the course of the next 12 months they are paying $1500-$2,000 a year more and it is worth it to move now.  If you give a nuisance rent of $15-$20.00 a month each year, people don't want to move for the $180-$240.00 nuisance increase for the year.

You need to get your tenants to expect small rental increases each year.  If you don't, my experience is they will leave if all of a sudden you increase their rents $100-$200.00 a month, due to that furnace you had to replace this past year etc...

If you don't know what you are doing and do not have clear expectations laid out for your new PM, you will be like lots of people on BP that contact me saying they are going through their 2nd or 3rd PM and they have only had the rental property for less than a year or so.

Swanny

@Michael Swan

Same boat here with rent increases.  Typically at year 2 I increase $25 etc.  Over the course of time it adds up to a lot of money.

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