Is Property Management a Good Business?

37 Replies

Earlier I asked about how to become a property manager, and got some great responses and have been talking to people all about having a property management company.

Now I want to know the pros and cons and all the opinions about the risk and reward of having a property management company. I don't see a lot of people running to work in this side of real estate. Most people don't get their brokers license to manage other people's rental. What's the good, the bad, and the ugly of doing property management?

Julie, 

I have been managing properties for others for about 8 years. We manage about 500 SFR doors. It is a great business. To really make it work you need to get your Brokers license and not work as an agent under another broker. It is always different from state to state but there are several ancillary business streams that can grow out of PM as you get larger. Start with the basics and get a good software in place. I mean real management software, not the stuff a self managed person would use. You will be accountable to other owners so it needs to have good reports and accounting built in. The down side is that many owners have unrealistic expectations. The tendency when you start is to always say "yes" bc you are building and want the business. Make sure the things you agree to are sustainable. An owner may ask for you to drive by inspect every 2-4 weeks. This might sound easy with 20-30 properties but will be impossible with 300-400. If you are not firm from the start with tenants and owners from the start they will both try to run you over. Lastly, NARPM, The National Association of Property Managers. If you manage single family or small apartments it is a must to get involved. The education and resources will save a lot of headaches.

@Julie Marquez I can’t imagine ever wanting to do it, I’m happy to pay for it. But just for fun, look at 10% of gross rents and see how many doors you have to have to break-even for your day job. Then ask yourself if you want to be 24/7 available in case there’s an issue, burst pipes, etc. If you don’t, now it’s a business with employees, etc. And you’ll probably need an office. So you’ll have to scale up doors to cover that.

Others will have 100% better opinions than mine but it shouldn’t take much effort in Excel to come up with a break-even doors-under-management minimum.

Just my nickel of advice...

I've been a Property Manager for eight years and it's very lucrative if you are efficient. Something that works with 20 homes will not work with 200. You have to learn to be efficient, standardized, and business minded.

I'm managing 300 units and have built strong policies. Applications are processed using a score sheet that takes any guess-work out of the picture. Add a tenant or remove a tenant? We have a form online that explains the process and we charge the tenant for the additional effort required. Tenant moving out? Require notice in writing, email them my move-out instructions, and move on.

Every time I find an issue that occurs regularly, I create a process for it and automate it as much as possible. Because of this, we are able to manage 300 units with me, an assistant, an office manager, and my wife handles owner payments and the office finances. I could probably take on another 50 - 100 units before really needing to hire another person.

There are a thousand things to learn but here are a couple more key points:

1. Be selective. It's enticing to grow your door count but it can eat away at your profit. Apartments take more effort than single-family and produce less income for you. A single D-class house can take more work and cause more stress than ten B-class homes.

2. Join National Association of Residential Property Managers (narpm.org). They have a private forum that will teach you more than you could learn from 100 books, plus some good educational classes. I know a guy that just started in PM a couple years ago that was completely clueless and asking the most basic questions on the forums. Now he's actually dialing in and managing around 100 units.

There's far too much to address but I'm happy to answer any questions if you want to message me or tag me in a post.

@Julie Marquez   Yes we have plenty of staff in place to help.  2 property managers, 1 leasing agent, 1 book keeper, 3 maintenance staff, 2 admins.   We then pile on a lot of technology. We slowly added those as we grew. If you do decide to start reach out and I will give you some more info on what I should have done from the start.  

I live in Idaho and run a property management company, it's been a great thing for our lives and we love it. You do not have to be a broker to do so in Idaho. I don't have a ton to add to the above, there's great info. I will say, running a property management company doesn't differ much from managing your own rentals; the number one thing you can do is find excellent tenants. If you do this, at least 90% of the problems that you hear about with rentals will never be a part of your business.

Best of luck!

To me this really depends on asset class.. 

inner city C and D class can be pretty time consuming and frustrating dealing with owners that dont undertand that those tenants tend to not be super stable.  

I have a friend on Oregon that Only manages large apartments and has about 8,000 doors.

he is tight.. he is highly effiecient and it becomes managing the on site manager. his owners are all buying 2 to 20 million dollar props or more.. so sophisticated owners.. ( which is not what you get in mom and pop owners of one or two homes).  He charges 4% or there about.. but the owner of the building also pays for the onsite. 

In your area if you dealing with strong B and A  I would think it could be not as stressful.. 

But in reality most owners with debt dont make much more than 10% on their cash and as a PM in most markets your making 10% with no exposure to loan debt or tenant trash's the unit etc etc..  So there is some safety in that.

its just dealing with tenant 24/7 takes a certain personality and get big enough that you delegate it so your not actually doing the interface with the tenant.

the other thing on the positive for PM  is if you do build a 500 plus door business you actually have something to sell. as its recuring revenue.. were as say your a flipper of houses .. yes you usually make more  but you have very little resale value in your flipping business other than your assets you own.

Also look at the threads of owners BEOTCHING about thier PM s  its rampant and while its important to the owner 75% of the time the owner investor has no clue as to reality of being a landlord and unfairly attacks the managers.

I have personally witnessed though PM's try to step into C class and totally botch it and create havoc for thier owners..

it takes a special management style as i suggested.

@Julie Marquez My advice is either go BIG or SUPER SMALL. A handful of properties is easy to manage for select clients no matter the class, and with a ton of properties you can hire folks and only manage employees/systems. Its the in-between that is a killer. In-between those, the volume takes up too much of your time, but isn't enough to justify hiring help. When/if you decide to scale, go all out 100% effort, because if you are stuck in the middle you'll burn a ton of time and money.

Scale is the only way to go. Small isn’t worth it unless you own the units. Medium size and you are worried about make my payroll each month. Large and you can capture a significant amount of ancillary business. Make sure you have a sale’s license since PM can be a nice lost leader while you do scale.

Doing it over again I wouldn’t put myself through the brain damage and would have either partnered with someone with systems in place or focused on another part of the RE industry.

@Tracy Streich Thanks for the response, I'll look into NARPM. I help manage my family's 20 units, and wonder about the possibility to take on more once I get the systems in place. 500 doors is a lot and I see requires a lot of systems and some employees in place.

@Arlan Potter Same in Washington State to manage other owner's properties. Though the exam doesn't talk much about property management, more about buying and selling real estate.

@Andrew Johnson I already manage my own rental properties and help my family with their apartments, so I've already accepted the tenant issues. My day job of construction management also translate well into property management. Though I will have to admit, when I go into the big PM offices in our community, it sounds so great to give up all our properties to them and go sip mai tais on the beach!

@Nathan G. Thanks so much for the explanation on how you run your business! I love systems and such, and I imagine if I got good at managing our 20 units that I could easily scale up to accept more. No?

It sounds like systems, forms, and online access is your friend. And it sounds like your built your own from years of experience. No more picking up money orders each month like my dad does? haha

I super appreciate the information!

Can you "easily" scale? Not necessarily.

Things that take almost no time with 20 units can you eat up all your time with 300. Marketing in screening applications for 10 vacancies a year is pretty simple. You'll need a whole new set of processes when you have 10 to 20 vacancies a month! 

The processes you have in place right now may be sufficient for what you're doing but maybe totally insufficient when you scale which will force you to create new procedures as you grow. I'm sure I have processes in place that you couldn't even imagine with only 20 units. You just have to remain flexible and vigilant to discover what's killing your time and how to overcome it with new efficiencies.

I have a great PM. I don't know how the hell they manage to do all they, and pay all their staff, keep all of our tenants happy...and still turn a profit. I don't know how you would start a PM company with no clients, and build up the roster...it would be tough.

@Chuy Gonzalez I don't know how they do it either, that's why I'm asking! My friends are asking me to management their properties, but I don't know if it's a lucrative business idea to explore.