When Does In-House Management Make Sense Financially?

Question

At what door count does bringing management in-house outperform third-party management?

Is it scale, control, or margin that drives the decision?

Patrick O'Sullivan · Answer

@Tracy Thielman Greg makes a great point about density being the real driver. From what I have seen, once you have 20 to 30 or more units in a tight area, the math for in-house can start to work because the saved management fees can cover at least part of a manager’s salary. But if the portfolio is scattered, those efficiencies disappear quickly.The other big factor is whether you actually want to run a management business inside your investment business. The control can be great, but the extra operational load is real.

Greg Namrow · Answer

In my experience, there is usually not a door count that would trigger an 'in-house management' alert. The real tipping point is density and your sanity.If you have 20-30 doors clustered in one market with consistent systems, in-house management can start to outperform third-party management. However, if the units are aren't within a single market (scattered across several), the returns can get ugly, quickly.

Operator control/bandwidth is usually what pushes owners to consider in-house management, but margin is what determines whether it actually works.

Make sure to be conservative when estimating things like the cost of payroll, leasing, maintenance coordination, and the simple fact that management is now another business inside the business!