Is it worth it to bring your Property Management in house?

10 Replies

Two years ago I brought property management in house in my business.  I made this decision after I realized that property managers don't work for me. Instead, they work for themselves.  Sometimes our interests intersect but sometimes they don't.  Looking back this was one of the best decisions I made in real estate. Now I hire people who work directly for me and this has allowed me to save tremendous amounts of money.  Please note that I'm not saying I self manage. I still don't communicate with most of my tenants but I pay an employee (s) to do that. The difference now is that the employee works for me, is accountable only to me, and I have total control over my investments.  This is a very different scenario than what I previously had with a property manager 

I was curious if other people have made this leap, and what their experience was.  

Please not that I am in no weigh impugning the work of property managers.  My last property manager was someone I respected and we parted on good terms.   Property managers helped me get started in real estate and without them, I wouldn't be here today. 

Thanks for sharing, @Dan K.

I think it depends on one's goals. If the investor wants to be truly "passive" then they need someone else to  manage the properties. They hire a QUALITY property manager and completely rid themselves of a job. A good PM knows more about managing rentals than you do. You should be able to hand things over and walk away with very little time spent checking reports to verify things are operating smoothly.

In your case, you've created a job. You have to hire someone, train them, and then regularly supervise them to ensure they are doing things the way you want. This gives you exactly what you want (assuming you know what you are doing) but it requires much more time.

I also have to wonder how good of an employee you're able to find. A professional will cost 10% of rent income collected but you don't spend time advertising, interviewing, hiring, training, and daily supervision. The only way you could find someone cheaper is if you compromise on quality or have a lot of doors. Maybe you hire someone for 5% of rent income collected but how much time did you spend advertising, interviewing, hiring, training, and supervising?

I'm curious to see some real numbers and how this is working for you when comparing apples to apples.

@Dan K.  How many units do you have?  I'd think the size of your business would justify bringing PM in house or now.

We have 163 units and we do our PM all in-house.  IN fact we're at a point where we're going hang out our shingle and do PM for other people too.

@Nathan G.   I think that even when you find good PM's its very difficult to have a truly "passive" investment.  Repair and turnover is one of the prime money drains in a rental investment and a PM's approach to these expenses isn't necessarily the best solution for an owner. I'll give you one example.

A few years ago I had 2 separate homes with a main line sewer issue.  The PM's got their typical bids from a plumber and the various repair estimates came out somewhere between $6000-$10,000.  I paid the cost and we moved on, and I know my PM did what they could.  Fast forward a few years to today and I have another house with a mainline sewer issue (on a different property than before,) but this time my employee is overseeing the property.  I asked him to get 3 bids and they were about $6000-9000. I guess all sewer replacement jobs are really expensive.  However, this time I instructed my employee to ask the plumber to do a video scope and detail where the breaks were in the sewer line and mark them on the surface of the lawn.  I then instructed my employee to find a few of those day laborers who hang out at Home Depot, and to pay them a days wage to dig up the lawn to the sewer line. The plumber would replaced the sewer pipes at the breaks.  I paid the plumber for his work and he probably made about $200/hour and so he was happy, and I was happy because I was able to get the entire job done for under $1000.00.   In the past, I was literally paying thousands of dollars to have a plumbing company dig up my lawn.    I don't think my previous PM would have spent the extra time following my "instructions" because he/she had 100 other units and owners to worry about. In other words the PM is worried first about their business and they simply don't have time to concern and spend that much time on my properties, and I don't fault them for that.   

      I have dozens more examples like the above where I am able to save on maintenance costs and upkeep because I have direct control over what and how things get repaired.  When you can't tell someone what to do, you really don't have the control you think. Of course you can change PM's, but that's not really an option when you are trying to resolve a large maintenance issue.

     I'm sure there are PM who don't have that many units who will go that extra mile and if an investor finds such a PM, then that's great. But PM"s who go that extra mile also attract new investors, and unless they have great system in place, it will be challenging for them to spend personnel time on your property, because now they are focused on growing their business, overseeing their employees, etc.  

@Andrew Cameron   Thanks for responding.  I think that if an investor has more than 10 rental units in a single geographic area, he can self manage his properties with a part time employee.  The more properties you have, the more employees he can higher.  

@Nathan G. I agree with you that its hard to find a good employee to help you. However, what if you were to hire someone with a lot property management experience who only wants to work part time, or do this as a side hustle? Think of people who work at a property manage business currently, or a mom with kids, semi retired people, etc.  Although you might have to go through a couple of people before finding the right person, there are many people who have tons of property management experience,  that are available.  

   Lastly, I honestly spend less time worrying about my properties now than before because I actually know what's going on and because I now have control over the incoming rents.  

@Andrew Cameron   I check out your website:    https://yourlandlordcoach.co/

Looks very cool and I wish it were available to me when I was starting out.  Congrats on growing your business so quickly, and I'm sure you have alot to offer through your mentoring.  

@Dan K.  Thanks for the comments on my new website.  I just started it the first of December and am really enjoying writing and creating content on the site.  When I started out I got a lot of help, and my site is a hope to repay that help.

How have you found working with a part-time PM?  I've always been hesitant on bringing on a part-time PM because I've always wanted the person available during full-time hours.  

I made a similar decision when I looked at lawn care and snow removal, I got prices from sub-contractors and for a little bit more money I could get someone full-time.  

@Dan K. I can't explain why you received such high quotes. I've replaced many sewer lines and the most expensive job was around $3,000. And I'm in a small town where there's little competition so prices are typically higher.

You saved money with day laborers but you could have saved even more by digging the hole yourself. Why didn't you? Probably because you have better things to do with your time. That's my only point. 

What you do apparently works for your goals. Other investors enjoy inspecting their properties every month or installing toilets themselves. Other investors are slumlords that make a pretty penny by pinching every penny. My only point was that hiring a PM, hiring a personal assistant, or doing everything on your own is a personal decision based on your goals. I would rather put the effort into finding a quality PM and letting them do the majority of the work, even if it costs me a little more, so I can focus on what's important to me.

Originally posted by @Dan K. :

@Andrew Cameron   Thanks for responding.  I think that if an investor has more than 10 rental units in a single geographic area, he can self manage his properties with a part time employee.  The more properties you have, the more employees he can higher.  

@Nathan G. I agree with you that its hard to find a good employee to help you. However, what if you were to hire someone with a lot property management experience who only wants to work part time, or do this as a side hustle? Think of people who work at a property manage business currently, or a mom with kids, semi retired people, etc.  Although you might have to go through a couple of people before finding the right person, there are many people who have tons of property management experience,  that are available.  

   Lastly, I honestly spend less time worrying about my properties now than before because I actually know what's going on and because I now have control over the incoming rents.  

 That is exactly the same thing I have found with using contractors, both for rental repairs and for flip renovations.  Paying contractor rates for entire jobs when much of the work could be done by unskilled labor.  I mostly manage my own properties and will hire some type of assistant if I someday get that big. Someone such as a PM that doesn't have the incentive to be very cost efficient isn't likely to do so.  I do have 1 property in another city where I previously lived and have a PM for that property.  Right now there is a wooden fence there that needs to be repaired and the PM got a quote for $900.  I called someone else and got a price of $300.  It probably took me a total of 30 minutes to get the cheaper quote.  It's just easy for a PM to not take that little bit of extra time to save you significant amounts of money. 

Hi Dan,

I think it depends on your goals. Do you plan to grow your business into a huge property management portfolio? If so, it probably makes sense to develop a business plan and standard operating practices which you can control to meet your needs. If you just plan to keep things small at 10 properties, it's probably better to just find a good property manager whose philosophy matches up with yours. It's all in how you and your people run the business. Don't forget that part of what you pay a property manager to do is to keep up with licensing, trainings, and E&O.

I'm in SA, and I have a lot of experience in managing a portfolio of SFDs. I've seen some good property managers, and some bad property managers. Each relationship is different, but you want someone who has a standard operating practice for all the day-to-day situations that come up regardless if they're working on a contract basis, or if they're in-house.

This is an interesting topic. I am fairly biased since we manage properties as a 3rd party.

Here are some areas to consider:

1. Do you want to scale up quickly? Do you want to leverage pricing and performance and utilize existing relationships a PM may bring? My goal is to pay for our service first- but ideally add tremendous value that will exceed revenue growth, integrate RUBS for example and help underwrite deals with lenders/investors based on our past performance metrics.

Essentially you are buying an expert, not an order taker that will push your business forward. We do larger portfolio deals mainly, but a PM with 20 years is likely going to allow you to scale faster verses starting fresh on your own. It opens/produces doors quickly.

2. Time and goals? - If you want to grow a PM business and don’t work full time while investing this maybe a worthwhile endeavor. If you want to focus on finding and putting deals together working “on” the business vs. “in” the business this is something to consider.

3. How many hats do you want to wear? As I get older this is vital to me. In PM you already wear too many hats already :-). I would never want to replace my lender, lawn care, broker/agents, accountants, maintenance techs, software......could go on and on. If you hire the right PM they are “YOUR” expert (potential coach). We have helped drive huge results by leveraging “OUR” industry experts that took decades to build.

4. Make sure goals are aligned! This is my biggest concern. I spend a lot of time interviewing potential owners for this reason. If your goals are not aligned and you make a decision on price vs. long term sustainable growth the relationship may suffer.

If you got married again or for the first time would you marry the most cost effective spouse that is spread to thin?

More likely the best fit, potentially requiring more of an investment, but someone you want to grow old with. In any business relationship I focus on this line of thinking and often pay more myself upfront, but get so much more out of the relationship by aligning with the “best” vs. simple/affordable choices or choosing to do it on my own.

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