Property Management: can you reduce cost with scale?

Question

Hi all,

I came across an interesting line in David Greene's "Long-Distance Real Estate Investing" book. In it, he says that "Investors have leverage to negotiate better prices and services based on the size of their portfolio. The more properties you bring them, and the more total revenue they are managing, the more money they will make. This, in turn, makes them much more likely to make you the priority you always wanted to be. It can also mean you negotiate lower prices!"

I understand the downside of getting cheap on property management. But, curious if anyone has examples for how pricing changes as you scale from having a PM manage 10 units to 100 or 500 units. I imagine there's some improved economics for both sides.

Further, would it be possible to combine efforts in a given region and have 10 property owners with 20 units each bid out their PM contracts as a group?

Thanks!

Chris

Drew Sygit · Answer

@Chris Abkarians to build on what @Nathan G. stated, it never ceases to amaze us how "penny wise, but dollar foolish" investors can be!

They overpay for purchases, yet want to grind every penny out of their PMC - because they read it online somewhere.

Very few owners take the time to understand what they are getting for the management fee they are charged.

Nathan Gesner · Answer

I network with thousands of property managers. Most of us offer a discount for investors with more than X units, usually around 8-10 units and we discount management fees 2%. There may be more wiggle room if you came with 50+ units, but I doubt it. The fact of the matter is, the more discounts an owner asks for, the more troublesome they probably are and they'll end up being more work than the average owner.

Most professionals do not offer steep discounts or alter their management style because it increases the workload by forcing us to change processes to meet that one owner's desires. It's more likely to create confusion and problems.

There's also a question regarding the quality of what you bring. If you bring me 50 B-class, single-family homes, then I'm very interested. If you bring me 50 C-class apartments, I'm not so happy because I know the lower-quality apartments will take up more of my time than 200 single-family homes.

Theresa Harris · Answer

Some PM will lower their monthly rates if you have multiple properties.  It isn't a lot, but every bit helps.

Chris Abkarians · Answer

Thanks you @Joseph Cacciapaglia and @James Hamling for your feedback! Sincerely appreciated.

James Hamling · Answer

@Chris Abkarians I am not certain of the exact question.

If asking if @David Greene states far as leveraging volume with PM to get better positioning in service and/or pricing, yes, that is 100% the truth of it unless dealing with a real mess of a service provider.

And, going a step further, it greater enhances the potential of that PM group "bird-dogging" on opportunities that may best fit for yourself, including the off-market side of things.

The idea on grouping owners, while it works for trash collection, not so much on PM side of things. On PM side, 10 owners coming in together is still 10 separate owners one has to deal with.

Joseph Cacciapaglia · Answer

Our PM team in San Antonio has volume discounts based on dollars collected each month. The benefit to the PM is that it's easier to deal with one owner of 10 properties than it is to deal with 10 owners with one property each. I find that owners of a single property tend to cause more problems than more experienced investors with larger portfolios too.

I have one client that has worked with several investors to collectively bargain for lower rates with a couple PMs. He is acting as a single POC for that portfolio though, and is very easy to work with. I don't think a PM would be as open to the group bargain, if they then had to deal with a bunch of individual owners anyway.