Does hiring in-house management make sense for small investors?

Question

My father and uncle own 124 residential units with cashflow around $520,000/yr. This isn't including a management since they currently do it themselves. They are now looking to wind-down and focus on commercial properties while letting management take care of their units. They want to know if they should start hiring in-house employees or simply let a third-party management company do it.

I've been talking to management companies and getting quotes of 8% of gross rents for the entire portfolio. I've also done some research on here and throughout reddit where people hate management companies so I looked into seeing what an in-house management team would cost.

1 FT property manager = $45,000

1 FT Handyman = $40,000

PT bookkeeper = $20,000

Leasing an office = $15,000

Paying employees insurance = ?

Paying for vehicles or gas = ?

Software = ?

Total might be around $140k-$150k a year for in-house management, this is my estimate, I could be way off. I'm sure this also comes with a lot of it's own hassles that can't really be accounted for.

The management companies are charging 8% of gross rents collected. Gross rents are $1.12 million/year, at 8% that would be around $90k a year. The big issue I see online is that management companies might overcharge for repairs or add in fees here and there. \

Would it still be worth hiring in-house? If not, when does in-house become worth it?

Yoni Benimetzky · Answer

Hey @Alex RodebergSelf managing is certainly the way to go if you're up for it, in my opinion of course. There's nothing like having your finger on the pulse of your rentals. 3rd party management companies will do the job but they will add fees on top of everything they can (it's part of the business) Plus, they don't really have any vested interest in over delivering.

It's much easier using a 3rd party management company though. If you end up hiring employees you'll have to also manage them. Sounds like your father and uncle have enough units to get a better deal on using 3rd party so maybe shop that around more.

Bjorn Ahlblad · Answer

Once you start to hire your own employees you have to account for hiring, firing, sick time, training, payrolling, vacation, supervision, fringe benefits including healthcare and more, adding about 75 cents to every payroll dollar. 125 units maybe the minimum number of doors to have it make sense.

Alexandre Marques dos Santos · Answer

i wish i have that headache. Property management is a business to build that needs a large scale properties in order to brek even, and after that, start collecting the revenue.

In your case, seems you are almost in break even point: lets see:

1) you have now a hand man that will cover the repair cost in many of the units

2) you have a group that could collect application fees

3) the same group would potentially reduce brokerage cost (depending on the state of the properties) advertising themselves

4) You can expand this business and make it profitable... and that business would give you insights of properties to invest...

Not sure if you want to move from business 1 to add a business 2... but you are in the edge of doing so, with low entry cost.

Good luck

Brian Mazzilli · Answer

I only have 36 doors so your game is different than mine but instead of asking management company's your in position to tell them you are paying 6% if hey are interested.This is what i did on one of my 18 units and they took it.

Does hiring in-house management make sense for small investors?

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