How Profitable Is Property Management?
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
How Profitable Is Property Management?
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Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
13yThis subject always comes up with predictable replies. "Who are these idiots working for practically nothing, incurring all these headaches and slaving round the clock for peanuts. I'd never do it, but glad there are some idiots out there that do."
By contrast, the companies I see that seem to have the best thing going are multi-faceted with multiple profit centers that gel together.
• PM Fees
• Lease Up Fees
• Maintenance crew markup for turns and non-licensed maint work
• Rehabbing newly acquired rental properties for investors
• Sales commissions buying/selling properties for investors
• In great position to find great deals in acquiring their own rentals, essentially managing these at cost
• Using crews and contacts to sell turnkey rentals, and possibly even retail flipping.
These activities all work well together and fully exploit the PM's position in the middle of a web of investors.
Just looking at the PM mgmt fees and leasing fees is way too narrow, as any half way intelligent business person will quickly expand it to something much more substantial. They will also effectively utilize the labor of others and systematize/automate all processes.
It is at least a business that will have rapidly growing demand in the coming years that will be less cyclical than some other aspects of RE that depends on adequate inventory, price cycle, economic cycles, etc. But no doubt the business I described above has quite a few employees and all the associated issues of a sizable operation, versus the near-solo operator making good money in a transaction-based fix-and-flip or commercial brokering business. At the end of the day, you have to enjoy it.
45 Replies
- Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes13y
In my area, it's standard for a PM to take the first months rent and then 6-8% thereafter. Where they "get you" is on repairs. If the tenant wants something fixed, they send their guys (at a steep markup) or call a contractor. Either way, the owner is paying the bill.
As far as Rich Weese having a couple in Texas managing his properties, I don't think they need to be licensed if they are his employee. I'm of the impression that you must be licensed unless you're managing your own properties OR you work for someone managing their properties.
- Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes13y
Thanks Rob. Tina kinda took both sides. In one post she states what I'm doing is not legal, then the last one she states if they work for me an my employees it is ok. Guess which one I have, along with a HIGH priced legal counsel... Rich
- Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes13y
This subject always comes up with predictable replies. "Who are these idiots working for practically nothing, incurring all these headaches and slaving round the clock for peanuts. I'd never do it, but glad there are some idiots out there that do."
By contrast, the companies I see that seem to have the best thing going are multi-faceted with multiple profit centers that gel together.
• PM Fees
• Lease Up Fees
• Maintenance crew markup for turns and non-licensed maint work
• Rehabbing newly acquired rental properties for investors
• Sales commissions buying/selling properties for investors
• In great position to find great deals in acquiring their own rentals, essentially managing these at cost
• Using crews and contacts to sell turnkey rentals, and possibly even retail flipping.These activities all work well together and fully exploit the PM's position in the middle of a web of investors.
Just looking at the PM mgmt fees and leasing fees is way too narrow, as any half way intelligent business person will quickly expand it to something much more substantial. They will also effectively utilize the labor of others and systematize/automate all processes.
It is at least a business that will have rapidly growing demand in the coming years that will be less cyclical than some other aspects of RE that depends on adequate inventory, price cycle, economic cycles, etc. But no doubt the business I described above has quite a few employees and all the associated issues of a sizable operation, versus the near-solo operator making good money in a transaction-based fix-and-flip or commercial brokering business. At the end of the day, you have to enjoy it.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes13y
I do not know every law for every state out there and I am sure that will be the case for many on this board. While everyone strives to give the most accurate information it doesn't apply universally to all situations.
Some parts of Federal and state statute laws are very clear and some are vague and not as defined on a hard line but open to interpretation. This is why legal counsel in the state where you own the property or are conducting business is best for opinions on a situation where answers are not clearly defined.
Managing 350 properties as one poster mentioned to gross 60k for themselves to me is a bad use of time for ROI. This all goes to my earlier point that you can scale PM work but you hit ceilings for nominal returns. If they love doing that however more power to them and I am happy for them.
Commercial PM work is different and you are usually managing larger complexes with higher rents at a lower rate of 5% to 7% depending on size of the portfolio you are given or the individual building.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes13y
"But no doubt the business I described above has quite a few employees and all the associated issues of a sizable operation, versus the near-solo operator making good money in a transaction-based fix-and-flip or commercial brokering business. At the end of the day, you have to enjoy it."
Yes David there can be some residuals to a PM company. Sometimes PM companies try to hamstring the owner and sign an agreement that they get to list it when they sell at some enormous fee.
I often tell owners that many PM companies are great at managing but that doesn't make them great at doing transactions on behalf of a seller. Depending on the asset it might be best for a seller to use the PM company just to manage and a transaction broker for the sale and marketing of their property.
I am in the commercial brokerage and investor component you mentioned. My goal is to transact as much as I can in the next 10 years and keep investing with the proceeds. My monthly cash flow from investments will grow substantially as a result. If in 10 years sales dried up because of a market cycle for commercial I would still have excellent cash flow.
Older brokers I know in their 60's and 70's have a bunch of their personal holdings and just work with existing clients and rarely take on new clients unless they show they are serious and ready to go. The brokers work only when they want to and not because they are a hamster on a wheel trying to make a nut.
- 13yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
This is one of those topics like so many others where there are always strong opinions one way or the other, but very few that can back it up with experience and "first hand" knowledge and not just coffee talk from the local REIA. Property management is something i happen to think my families company does very well. If it is set up properly, managed properly and operates for the right reason - wait, come to think of it, isn't that a description of the way any well-run business should operate?
We manage 1700 homes in two cities and add between 40 and 45 homes a month to the management rolls. We only offer the service to our clients following much of the model that David Beard described above and we offer a white labeling of our management services to one other small company. He adds about 100 properties a year.
Just like any other business from a taco stand to a hair salon to being a Realtor, if you know what you are doing, have a good business plan, provide a needed service at a good value...you can make money. As far as what is critical mass for making a profit? We started our management company in Dallas in 2012, are currently managing just under 60 properties and are already in the black.
Many people simply do not want to even consider what it would be like to manage properties for others. I think Joel Owens even says he was not put on this earth to manage property. But for others, if you have the right model and can provide a needed service, there is no reason you cannot make money and operate a very, very profitable business. Property management can be very profitable if done correctly and that profitability has nothing to do with the coffee talk from above like cutting staff, reducing expenses and churning through maintenance bills. Does that stuff happen? Yes it does. Do the best companies in the business do it? This one doesn't - I can't speak for the rest.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes13y
At the end of the day there is a different path that works for everyone. I agree with Chris that if that works and they enjoy it then it can be great.
I have talked to agents before when I was helping my brother-in-law look for a house. I don't do residential but was just helping family because they wanted me too. The listing agent asked about commercial real estate and when I told her about it she said there is no way she would do that and couldn't get into it. I told her I was just the opposite and couldn't stand residential for the exact reasons she loved it.
It's one of those things where one person sees trash and not worth their time another sees treasure and opportunity. I do like the way Chris has set up his property management company. I remember I guess it was a year or more ago when Chris asked what investors disliked about other PM companies. I remember him getting blasted for selling turn key properties. He stayed humble and valued the input whether it was what he wanted to hear or not. Now look at how much their company has grown. That shows no matter the niche that if you listen and focus on the clients needs that the business will grow naturally and thrive as a result.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes13y
In this state, you need to be a licensed BROKER to manage real estate. Of course you can have agents under a broker managing, but the broker must agree to managing. Most brokers don't want to be bothered, when times are great and sales are fast paced as sales generates much more revenue.
Also here you can not manage for a single entity and be unlicensed unless you are an emplyee of that entity. Being an employee connotes a lot of other things like fringe benefits, vacation, sick leave and mandated government health care.
I've seen in resort areas where PMs charge 12% to 20% fees. Many non-resort areas fees are 6% to 10%. In one resort area the same broker charged 10% for weekly rentals and 12% for yearly rental. I would have thought it backwards, but weekly rentals are much higher, therefore generating more rent, but they also have more vacancy particularly in areas without 4 season warm climates.
Most of the investors that I have met over the years don't like property management. There's the old cliche, "Take away the toilets and tenants and rentals would be perfect."
It also seems to me that PMs do not do as good a job as you would do yourself. If you are the owner and you have a vacancy, you're probably very diligent about re-renting the place, showing it on evenings and weekend. some manager take the weekends off except for emergencies. Want to see a vacant place, come back next week duirng business hours.
- Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes13y
One thing about PM as well is that there is probably more opportunity to create a business with enterprise value that can ultimately be sold at some reasonable, though modest I'm sure, multiple of annual net income. The solo commercial broker or rehabber is only as valuable as the last transaction completed.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes13y
Great posts!
David, good comments and you are certainly on target, it's not really about pulling 10% of rents but the opportunities that arise from the position.
Chris, over time it can be profitable, it's building the business that is tough.
What about turn key deals, sell to investors and retain management? Anyone doing that?
- Flipper/Rehabber · Greensboro, NC · Member since 2010 · 623 posts · 615 votes13y
@David Krulac- in our state, there are now only Brokers. This changed recently but every licensed agent is now a Broker. @Bill Gulley - yes, we do turn key. We buy, sell to investors - both in state and out - then manage the properties for them. Another thing that makes property management a great addition to the businesses we already had running.
- 13yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Originally posted by Bill Gulley:
Great posts!David, good comments and you are certainly on target, it's not really about pulling 10% of rents but the opportunities that arise from the position.
Chris, over time it can be profitable, it's building the business that is tough.
What about turn key deals, sell to investors and retain management? Anyone doing that?
That is exactly what we do.
And yes you are correct, the presumption has always been that over time you develop a profitable business, but as I noted above, our Dallas, TX. property management company is a stand alone unit and it turned a profit in less than a year. That is with us hiring the staff to do everything and us simply owning the company. My point was to kind of piggy back on David Beard's comments. A good, run company where the owners and the employees enjoy what they are doing can be profitable. You cannot do all the crazy things that many property management companies have been guilty of doing and expect to grow and remain as a successful company. You have to operate with a need to provide great service and then you can absolutely build a profitable property management business.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes13y
Chris, you have done very well and that's what I probably would have done if I had gone that route.
My rental management experience is really limited to my rentals owned from time to time, then jumping up to the overall management oversight of a large public housing authority, 1,200+ units, 3 highrises and 1,000s of Sec 8 issues as a commissioner.
Even at that, you had to deal with tenants many of whom had issues, one on one, mostly settling disputes and then the corporate structure within government. That was enough for me and that wasn't my 9 to 5!I like turn key operations where management is retained with a good company. Too bad there are so many scams built around this strategy, that's where I caution others.
Joel, you have a great plan as well, it's smart to build your business around 2 or 3 main themes to address business cycles in RE.
Build a business, not a job! :)
- SFR Investor · Jacksonville, FL · Member since 2012 · 285 posts · 83 votes13y
Since people love to sue those with assets, I use a service to screen and place my rental tenants. The regs and privacy issues are too much for me to keep track of, and when they screen the right person for me, I receive a renter for many years. The first months rent is well worth it to me. The prop mgmt is much easier with a better qualified tenant.
- Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes13y
Or you can grow by picking up a contract from one of the numerous buy-and-rent funds that are operating out there. A local PM company here just jumped substantially to 800+ units with this approach, and these are houses with 1,200-1,700 in monthly rents. And I bet those funds won't be badgering you about every dime you spend on maintenance.
- Real Estate Professional · Baltimore, MD · Member since 2012 · 30 posts · 4 votes13y
As already explained above, main venue to profitability from property management is probably if the PM manager or company also get into their own hold and rent investments.
Margin/spread is too thin to make much out of the 10%. Could be pretty easy cash if focus effectively on the higher end low hassle rentals (condo market with 1-2k rents). Maintenance etc. can carry some markup but can't scalp too much before pissing off the owners.
Get a cut on transactions via referral to brokers, or have an in-house buy/sell operation. Plenty of opportunity to build a real estate empire through property management by using it as a vehicle to acquire and expand intelligently.
PM'n for 5-800 rent with deadbeat tenants and nickel and dime owners is probably too much work, just turn those down and go upmarket.
- Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes13y
Originally posted by Leo Cao:
PM'n for 5-800 rent with deadbeat tenants and nickel and dime owners is probably too much work, just turn those down and go upmarket.
Easier said than done. Every PM company wants to just manage the high-end stuff, leaving lots of demand for effective managers of those $600-900 units.
- Lender · Miami, FL · Member since 2013 · 2 posts · 2 votes12y
Hi Guys.. This is my first post here on BP.. My father have a Property Managment Company and he have over 400 properties under is watch in Miami-Dade County. The average rent is about 1,300 a month, so in average he makes like $130 a month on each property. Like Seth Williams said before, the concept is to use sub-contrators to do the job (the money for repairs came from the property income, not our pockets). Also, renting units brings more income to the company, because as PM we are in a unique position.
With experience this business is not that hard as some of you may think. I know some Property Manager that have over 1000 properties under their belts (all over florida). If you have relationships with an assets managers, individual investors or an HOA community managers, then you can make a very nice living doing this.. BTW: Under the Florida Law, You need the Real Estate Licence, but you don't have to share the 10% with your broker (if you are an agent).
Starting the business is hard, just like any other bizz..
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