Starting a Property Management Company

OP

Rental Property Investor · Fort Collins, CO · Member since 2008 · 168 posts · 105 votes

9y

@Luke H. Thanks for you input. If PM companies charged 3-5% they would be losing money. Also, getting 3 bids for all work would be very time consuming and inconvenient for tenants.

Luke H.

Real Estate Investor · Dallas, TX · Member since 2013 · 388 posts · 174 votes

9y

@Adam M., i understand and appreciate the feedback.

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Kim Meredith HamptonBusiness Member

Real Estate Broker · St Petersburg · Member since 2014 · 2k+ posts · 2k+ votes

9y

@adam

@Adam M. does everyone understand how much time is involved in managing properties? It's not just about collecting rent and unclogging toilets. I could write a book and film a reality show!!! Read some of the questions asked on these forums, this is s never ending, sometimes thankless 24/7 hour job. It's one thing to manage a few houses, but once you get more units, there comes more and more problems

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OP

Rental Property Investor · Fort Collins, CO · Member since 2008 · 168 posts · 105 votes

9y

@Kim Meredith Hampton I'm not doubting that it's a very time consuming job and business! I'm a landlord so I have a pretty good snapshot at a much smaller scale.

Do you have any feedback on the questions I asked? I would love to hear your take from an experts perspective. Thanks!

On average, how long does it take to obtain 50, 100, 150 doors?
How many doors can one person manage before needing to hire help?
What are the biggest challenges when starting?
Good incentives to get new customers to sign up and earn their business?

Jeff CopelandBusiness Member

Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes

9y

@Adam M. - I did much the same thing, but in opposite order. I started doing property management before I owned my first rental.

I have not aggressively pursued new properties to manage - mainly word of mouth and existing clients buying new properties - and I'm approaching 40 doors after less than 18 months.

I'd say that's an upper limit for one person to handle (I do have some help, and lots of contractors on speed dial).

The biggest help is having PM software in place that makes the process scalable (I use Buildium, but there are several others to consider). Via the software, I do everything from tenant applications to credit checks to rent collections, maintenance requests, work orders, and payments to vendors and owners. I could not come anywhere close to doing PM at this volume without it.

Hope that helps!

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3 Reply

Jordan Fritts

Fort Collins, CO · Member since 2013 · 4 posts · 2 votes

9y

I'll address the fourth question from a person who's planning to look for a new mgmt company this summer.

Yes - if you want to attract new customers, you should do so, especially with no experience as a "professional" per se. Not knocking your land lording experience, I'm noting what I look for when I evaluate new companies. Experience, length of time your company has been around, matters to me.

Incentives that would be important to me would be a lower-than-usual monthly rate, say 7%, to be held at that rate for ~2 years. Considering that you're going to hit me with random fees and repair expenses, that's what i would go for.

Another idea might be to involve your owners as much as they want to (i.e. they make the final call on non-emergency repairs, regardless of amount; let owners take care of their own repairs; etc.). Things that let them learn how to be landlord, and also reduce costs. You're learning too, so share in that experience and you'll build longer-term customers I would bet.

Hope that helps,

Jordan

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Peter TverdovBusiness Member

Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes

9y

Adam I can sympathize with you because I also started doing PM a year ago. I was inspired by reading different threads on here and reading that more than one person managed 30-50 while still keeping their day job. I myself only manage a handful but I haven't spent much money advertising and I have also turned down some opportunities where the owner sounded like a maniac or the property was in a bad area/too far from me. Most of it has been word of mouth and Craigslist, although I am going to get more aggressive with it this year.

The biggest challenge I face is finding landlords who WANT a PM. Some people really enjoy doing it...others are cheap as can be and their properties show it. Some incentives I offer is a lower rate than I want to charge, just to prove my worth (although I am pretty cheap to begin with). Best bet is to target out of state owners or older LLs. People advertising on CL, etc.

I also talk about it more and more on here and hope this site can send some business my way. Make sure you have lots of vendors available, a good system for collecting rent, answering tenant issues and of course accounting stuff.

Aaron Douglas

Investor · Springdale, AR · Member since 2016 · 14 posts · 2 votes

9y

One thing that lead me to choose my PM was a very low fee for signing a new tenant. It just made me feel better that they were not profiting off turning tenants. This way it is in both of our best interests to screen for quality, hopefully long term tenants.

Jeff CopelandBusiness Member

Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes

9y

@Kim Meredith Hampton - I agree! In my first year as a property manager, I had a dead tenant, a live rat in a toilet bowl, a marijuana dealer in one of my units (not legal here yet), rats in the attic, a flooded crawlspace...I could go on and on. In most cases, my owners were not even aware of the problems until they were already dealt with.

I tell my property owners all the time - you can absolutely do this yourself. But the learning curve is steep and I'm years ahead of you...I have systems in place to deal with this stuff that will take you years to develop yourself. It's a question of how you want to spend your time. Most of them absolutely see the value and have much more productive ways to spend their time (like buying more properties!).

And buy and hold investing becomes more scalable when you have a property manager. Say you could manage 10 of your own rentals by yourself. That's great...you don't need a property manager.

But what if you want to scale up and own 30, or 100 rental properties?

Who is making more money and building more wealth: The investor self-managing her max of 10 rentals and saving 10% on the management fees...or the investor who owns 25 units and pays a property manager 10%?

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4 Reply

Kim Meredith HamptonBusiness Member

Real Estate Broker · St Petersburg · Member since 2014 · 2k+ posts · 2k+ votes

9y

@Jeff Copeland thank you for my laugh of the day!!! Amen!!! Only a PM knows what PM goes thru everyday. Like I said, we could write a book and shoot a reality show at the same time

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OP

Rental Property Investor · Fort Collins, CO · Member since 2008 · 168 posts · 105 votes

9y

@Jeff Copeland. Thanks for your feedback. One of my revenue streams would be brokered transactions, but would not be my main focus. I'm guessing you would probably do 3-4 transactions a year just by being in the business. How much focus do you put on that side? I agree, systems are absolutely crucial. I've looked at Buildium and it's probably my #1 choice.

OP

Rental Property Investor · Fort Collins, CO · Member since 2008 · 168 posts · 105 votes

9y

@Jordan Fritts. It's great to see someone from Fort Collins in this thread! You have a lot of really good ideas and make some good points. Not sure I could swing a 7% monthly rate for 2 yrs, but I like where you're going with that. My plan is to keep the fees really simple and limited. For example only 3 fees total: gross rent, new lease, and lease renewal.

I'm all about owners stepping up and doing their own repairs and keeping them in the loop as much as they want to be.

Jack B.

Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes

9y

Originally posted by @Adam M.:

@Luke H. Thanks for you input. If PM companies charged 3-5% they would be losing money. Also, getting 3 bids for all work would be very time consuming and inconvenient for tenants.

What would they prefer, you having to raise the rents sky high because you constantly overpay due to this irrational fear of inconveniencing tenants or having your PM let them in like they are supposed to so you can get a fair bid??

Luke H.

Real Estate Investor · Dallas, TX · Member since 2013 · 388 posts · 174 votes

9y

@Adam M., my experience with PMs is limited, but my understanding is they have their 'preferred' vendors or I can do things on my own. My brother had a PM and he saved $300 dollars by shopping around for carpet guys. He stopped using them after that.

I think the compensation should be some sliding scale, the less you do the less you are paid, and the more you do the more you are paid. My opinion, and think more people would jump on this business type.

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Cory BinsfieldPro Member

Financial Advisor · Duluth, MN · Member since 2012 · 156 posts · 194 votes

9y

Just throwing it out there. Have you looked at buying one of the existing companies or approaching a real estate broker and building your company from within the brokerage? We have a successful brokerage in this town that not only has a ton of agents but also a property management arm. Just some ideas to scale quicker.

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Kim Meredith HamptonBusiness Member

Real Estate Broker · St Petersburg · Member since 2014 · 2k+ posts · 2k+ votes

9y

@adam

@Adam M.

Wow such big questions, and can depend on so many scenarios;

-how long does it take to build your portfolio? This depends on your market, your niche, how much you want to spend on marketing, what and how much you spend on SEO, is the market a buyers or sellers market. I have over 900+ right now, but have had as many as 1400. This took me 20 years to do this, it ebbs and flows.

-how many homes can each person manage. This also depends on how you have your company set up; portfolio, departmental of a hybrid. I run a hybrid with a lot of third parties. I have three offices and a total of 15 people

-what are the biggest challenge when you start. Mine was over 20 years ago and the PM business has changed immensely. The big help now is that technology is leaps and bounds better than it was 20 years ago and helps your efficiency beyond anything else. Joining NARPM was the smartest move ever!!

-incentives for business. The one piece of advice I can give is that you should never give away your service for a discount. You will work your *** off and will wonder why you work for a couple of dollars a day!!! Get paid for your value, and we as professional PM's bring immense value to the investor

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James Orr

Real Estate Agent · Fort Collins, CO · Member since 2010 · 350 posts · 222 votes

9y

@Adam M.... There are some landlords that are lone wolves and will be seeking out a property manager themselves, my experience has been that most landlords that are going to be considering hiring a property manager are going to seek out a referral from other landlords or their real estate agent/broker.

When looking at acquiring landlord clients to manage properties for them, you may want to consider marketing to find on-going sources of business either in addition or instead of going directly to find the landlords directly yourself. In that case, maybe finding brokers that work with investors and don't offer property management themselves would be something to consider.

Jeff CopelandBusiness Member

Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes

9y

@Adam Meier - I did 27 transactions last year as a "traditional" realtor, in addition to six of my own deals...I'm a busy guy!

And yes - many of my property management clients are repeat customers on both the acquisition side and the PM side.

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OP

Rental Property Investor · Fort Collins, CO · Member since 2008 · 168 posts · 105 votes

9y

@Cory Binsfield. Yes, I actually have a lead on a gentleman who manages around 100 doors who is looking to retire. I'm trying to figure out how to value the business. I would definitely change how he is currently running it. This might be a new thread!

OP

Rental Property Investor · Fort Collins, CO · Member since 2008 · 168 posts · 105 votes

9y

@Kim Meredith Hampton Thanks for your feedback. Looks like you have a very impressive business that you've built over the last 20 years. I really appreciate you advice on incentives for business, really good stuff!

OP

Rental Property Investor · Fort Collins, CO · Member since 2008 · 168 posts · 105 votes

9y

@James Orr...I agree, that's what I would do also as a landlord. That being said, I would need to network hard and grow by word of mouth and quality service. I probably think getting the first 25 doors would be the most challenging.

@Jeff Copeland...Wow, very impressive and nice work! It sounds like from your model that the PM business and transactions really feed on each other with most of your revenue coming from the transactions? I'm starting to realize, that you almost need to have both of those income streams for it to work. Also, PM is probably one of the best ways to find good deals.

I really appreciate everyone's feedback in this thread!

Anthony Giannette

Residential Real Estate Broker · Renton, WA · Member since 2014 · 87 posts · 33 votes

9y

@Adam M.

Lots of answers in here. I've been an accountant at a medium PM firm in Seattle. Growth is all about aggressive marketing or none at all. A talented PM should be able to handle 150 single resident homes or 200 of mixed 1-4 door locations. Anything under that would be non profitable and an indication the PM has wrapped themselves around busy work.

At the 150 count, hiring a clerk to handle the office interaction will allow you to grow to 350 doors. The company I'm keeping anonymous grew from 5 doors to 200 doors in 3 years and is now 7 years in business with 800+ doors. Each door generates $99 to $300 per month on management fees. Half this given to the brokers, the other half goes to overhead and profit.

I agree that 10% is the high margin for management work. I am more comfortable asking for 6-8% myself. A sliding scale based on number of rentable units. The added fees come into play for leasing and high maintenance clients. But mostly I just grin and bear it. My clients will eventually realize the level of service is perfect.

Cindy Szponder

Real Estate Agent · Loveland, CO · Member since 2016 · 46 posts · 12 votes

9y

The woman who owns Armadillo Property Management used to have a property management class that she offered. Try calling her to see if she still offers that course. She might also be able to share information on how many doors you can manage before needing to hire help. I'm sure a lot depends on how much technology you are using to manage the properties, auto-payments, accounting, etc.

OP

Rental Property Investor · Fort Collins, CO · Member since 2008 · 168 posts · 105 votes

9y

@Anthony Giannette. Thanks for you insider info, very helpful! I agree, in my head a skilled PM should be able to handle 100+ doors IF the proper systems are in place, can outsource, and focus working ON the business instead of IN the business.

What did you mean by "half is given to the brokers?" Are you saying all of the brokers are partners on the PM side of the business?