Property Management Hire in House or Company?

Question

Hi all,

My investment company is presently a project manager/builder, an interior designer who doubles as a customer service rep/leasing agent for our tenants, a part time bookkeeper, and myself who is the investor/broker and I also handle the rest of the property management duties. I have 21 units totaling 73 bedrooms, about $600,000 in rental revenue, and that will increase to 26 units and 99 bedrooms in the next 6 months about $950,000 in rental revenue. Our tenants are a combination of students, young professionals, and families. All properties are in Ann Arbor Michigan. I will be passing off the brokering duties to my mentor this Fall who is the most skilled and ethical member in my network.

My question is property management. I'm looking to either 1) bring on a seasoned property manager in house that can build a team around them as I expand as as well as focus big picture strategy and effiency, OR 2) pass along all my properties to an independant property management company.

My goal is 500 bedrooms within the next 8 years. My lenders greatly prefer I keep management in house and performance wise I also see more upside with this option. 90% of property management companies are a shit show and even the best are meh. Properties fall apart, tenants hate them, more vacancy then should be, high maintenance and construction costs, overall they are just very expensive as rental rates in Ann Arbor are absurd, and they also get lower rental rates than they should. I've examined all property mangement companies in the area and there's really only one solid one and they happen to be one of my biggest investment competitors.

A big part of me wants to be totally out of property management. I'm a strong investor and property management makes me sick to my stomach. However, going along with all the other issues I mentioned above if I were to pass along to an independant property management company, I've got a few banks that really trust me and will lend me many millions as long as I maintain that trust - a trust that is somewhat dependant on me keeping property management in house. I'm worried financing will become more difficult if I don't keep it in house.

Any suggestions on which direction I should take?

Jaysen Medhurst · Answer

@David Greiner, the rule of thumb that I've heard from investors who own large complexes is 1 FTE per 50 units. Now that's with large 100-200+ complexes. You're not seeing the same efficiencies of scale they are, so it may not make sense for you, even at that level.

If you were to hire a PM company, you'd likely pay ~8%. So, $60k a year. Can you a hire a good in-house PM for that (including benefits) to do ALL that needs to be done?

Of course, finding a great PM company is the trick. If there are none around you, perhaps you seize the opportunity and start your own to service your properties and give local owners a viable offer. You may have found a gap in the market.

Regarding the one viable PM that's owned by a competitor...so what? You may find that making in roads with a competitor is to your advantage in the long run. Deals that they can't or don't want to do may get pushed in your direction. Especially, if they know they're likely to get the contract to manage them.

On a separate note, how are you increasing your revenue by nearly 60% with <25% increase in units?

Property Management Hire in House or Company?

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