I can't seem to find much information on this. I'm curious what you guys think. Is it a good idea to own more of the real estate business by having your own property management company to service your rentals?
Ex. - Start out with 3 or more rental properties and do everything yourself as the owner and sole employee of your property management company. Then, as you increase your rental properties, hire more help until you have a property management company that works to service your rental properties.
Perhaps you could decide to open yourself to other people's rentals, or you could sell the company pnce you've built a name for yourself if you want to move onto bigger/better things.
@Kyle W. in no way am I trying to turn you away from starting a PMC, heck that is how we got started. Just that there a A LOT of factors to consider when trying to do it 'part time'. It's not illogical for an investor or landlord to connect the dots and think that it wouldn't be a far stretch from managing say... your own 40+ doors and managing 40+ for other owners but how wrong of an assumption that would be....
1) Realize that most owners with 2+ self-managed properties consider themselves 'the best manager' - although coincidentally most owners have never attended any continuing education i.e. management courses, laws, fair housing, etc. etc. nor have managed properties they haven't had an ownership interest in.
2) Realize that most owners will just not understand how to run a property effectively.
3) Realize that most owners will focus on price first and foremost instead of services rendered
Although on the surface it may not seem that there is much to it... when starting a PMC there a lot of factors and is probable one of the most complicated businesses out there. There is a lot of prep that goes into it, all things which you may not necessarily do now as a LL or investor:
1 - You NEED to be an entity (LLC, etc.) for liability, for taxes, for validity - $500
2 - You NEED an abundance of insurance E&O, buiss. liability, umbrella, etc. - $2,000
3 - You need to be licensed (depending on state) - $1,200+
4 - You need to set up special dedicated bank accounts escrow, operational, etc.- $200 (<-- your time and effort)
5 - You need to draft or send your existing documents leases, agreements, etc. for attorney review - $500+ (<-- even if you don't you'll have to modify them/ time and effort)
6 - You certainly need to establish your Tenant approval criteria and get attorney approval - $200
7 - Property management software... no not excel, or cozy... serious software that allows you to have owner portals, tenant portals, maintenance, 'pull' funds from tenants bank accounts, send 1099's to owners, etc. -------- $600 - $3,000/yr. (you can do without out, but the time and effort you spend will equate to the same)
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So far... this is all before you even take on ONE client and as you can see I'm way undervaluing the amount of $$$, time and effort spent to get the above all ironed out and jiving smoothly. Then you have everything that goes with acquiring accounts and standing up a professional business and appearance - because, lets face it... no one trusts a guy with a spread sheet and a note pad.
Once you get going... you'll have owners that are not like you... they may not care about their properties, which looks bad on you since you are the managing entity or you may have owners that are emotionally attached and don't realize it's an investment property and will ask you to do things like 'inspect my property and tenants every two weeks', which will expose you to liability and wasted time and effort. On pricing, you'll have owners that wonder why it's not 'all inclusive' and why you're not stopping by the property every week, paying their bills, coordinating lawn maintenance, coordinating plowing, scheduling maintenance while their property is vacant and refuse to understand that it all takes time and effort from you and your time is not free but will still ask to do all of it even though their amazing all incentivizing $80 month in management fees is not being charged while vacant.
It really is something to think about. Through the years we have learned to be WAY more selective on which owners we take on. We continue to invest in properties all the time and keep a good track record both with owners and driving investments to their max... but our philosophy has defensively grown to what it currently is now... 'We know what we're doing, we own and manage a multitude of rental properties, you hired us to manage your property, please get out of our way so that we can make it cash-flow for you, protect your property and make you happy" --- any owners that are not okay with that and instead want or need to be involved in all aspects of our system or abandon their owner responsibilities to the property - we certainly stay away from.
These are some of the things to consider which are different when taking on other people's properties.
@Kyle W. Personally I believe this is a great strategy. One of your largest expense line items on smaller (75 and under) is property management. Property management is also the one thing that will make or break you. If you can bring that in house it not only controls expenses but also control quality of service. It's another spoke in your wheel to maximize your expertise.
It's a great strategy. If you do create a management company, you will want it to be separate from your rental company. Actually create a new LLC or corporation. That way you clearly segregate your passive and active income, and provide some added liability protections.
@Kyle W. reconsider unless you're already financially free.
@Ricardo R. I figured that as it grew I would switch to part time with my current company so I could give more time to my property management business. Do you think that would appropriately address the concern you're raising, or is there another aspect that you think I should consider?
@Kyle W. in no way am I trying to turn you away from starting a PMC, heck that is how we got started. Just that there a A LOT of factors to consider when trying to do it 'part time'. It's not illogical for an investor or landlord to connect the dots and think that it wouldn't be a far stretch from managing say... your own 40+ doors and managing 40+ for other owners but how wrong of an assumption that would be....
1) Realize that most owners with 2+ self-managed properties consider themselves 'the best manager' - although coincidentally most owners have never attended any continuing education i.e. management courses, laws, fair housing, etc. etc. nor have managed properties they haven't had an ownership interest in.
2) Realize that most owners will just not understand how to run a property effectively.
3) Realize that most owners will focus on price first and foremost instead of services rendered
Although on the surface it may not seem that there is much to it... when starting a PMC there a lot of factors and is probable one of the most complicated businesses out there. There is a lot of prep that goes into it, all things which you may not necessarily do now as a LL or investor:
1 - You NEED to be an entity (LLC, etc.) for liability, for taxes, for validity - $500
2 - You NEED an abundance of insurance E&O, buiss. liability, umbrella, etc. - $2,000
3 - You need to be licensed (depending on state) - $1,200+
4 - You need to set up special dedicated bank accounts escrow, operational, etc.- $200 (<-- your time and effort)
5 - You need to draft or send your existing documents leases, agreements, etc. for attorney review - $500+ (<-- even if you don't you'll have to modify them/ time and effort)
6 - You certainly need to establish your Tenant approval criteria and get attorney approval - $200
7 - Property management software... no not excel, or cozy... serious software that allows you to have owner portals, tenant portals, maintenance, 'pull' funds from tenants bank accounts, send 1099's to owners, etc. -------- $600 - $3,000/yr. (you can do without out, but the time and effort you spend will equate to the same)
-----------------------------------
So far... this is all before you even take on ONE client and as you can see I'm way undervaluing the amount of $$$, time and effort spent to get the above all ironed out and jiving smoothly. Then you have everything that goes with acquiring accounts and standing up a professional business and appearance - because, lets face it... no one trusts a guy with a spread sheet and a note pad.
Once you get going... you'll have owners that are not like you... they may not care about their properties, which looks bad on you since you are the managing entity or you may have owners that are emotionally attached and don't realize it's an investment property and will ask you to do things like 'inspect my property and tenants every two weeks', which will expose you to liability and wasted time and effort. On pricing, you'll have owners that wonder why it's not 'all inclusive' and why you're not stopping by the property every week, paying their bills, coordinating lawn maintenance, coordinating plowing, scheduling maintenance while their property is vacant and refuse to understand that it all takes time and effort from you and your time is not free but will still ask to do all of it even though their amazing all incentivizing $80 month in management fees is not being charged while vacant.
It really is something to think about. Through the years we have learned to be WAY more selective on which owners we take on. We continue to invest in properties all the time and keep a good track record both with owners and driving investments to their max... but our philosophy has defensively grown to what it currently is now... 'We know what we're doing, we own and manage a multitude of rental properties, you hired us to manage your property, please get out of our way so that we can make it cash-flow for you, protect your property and make you happy" --- any owners that are not okay with that and instead want or need to be involved in all aspects of our system or abandon their owner responsibilities to the property - we certainly stay away from.
These are some of the things to consider which are different when taking on other people's properties.
@Ricardo R.
Oof, put this on a BiggerPockets blog! Seriously, you really should consider doing that if you haven't already. I really appreciate you taking the time to explain this to me, and I hope other people will benefit from this too.
I understand your point now. It's not just a side hustle. It's something to be taken seriously - especially if my goal in real estate is more freedom. I'll continue to look into the idea of managing a business outside of rental properties and consider my options heavier. Thank you for the well written warning!!
Damn @Ricardo R. that's a hell of a write up!
@Kyle W. for a less doom and gloom version of the story... :)
I do PM as a 2nd job...or more like a 3rd or 4th job. I love it. I am doing exactly what you are talking about. I still invest in real estate and started a PM company to manage my own properties. Then someone asked if I would manage theirs, which i couldn't do yet since i hadn't gotten my Realtors license yet. Well in CT, there are certain things you need a license for and other things you do not. So I started out as the "Maintenance Guy" and let the owners do all the leasing, rent collecting and such. Got the required license and off I went, had my foot in the door and now manage over 50 units after only 6 months in the official Biz.
I have plans on leaving my W2 by scaling the PM company. Because what I've found in my area, nobody wants to manage the 2-6 unit buildings for single owner investors. The big boys want condo or 250+ apartment complexes and most Realtors that do PM only want SFHs, so I’m aiming for the niche.
One thing i like about managing more units in addition to my own is now your team of maintenance techs and contractors get a lot of business from me and give me better deals on my own properties as well. Another thing is talk about a great pool of contacts! Who would be calling you to manage properties, but other investors. Although I don't advertise buying and selling real estate, since i had to have by license I now have worked with investors to buy properties that I also manage. One more step closer to W2 freedom.
But once you start managing other properties for other owners you now have two customers. The tenants AND the owners and it's a whole bunch of fun being in the middle of all that.
I wouldn't trade it for the world.
Cheers
@David Wolber ha... touché... great points.
@David Wolber
I would say that it sounds like you've created a job for yourself, but you've only been doing it for 6 months and had that much success in your area. Would I be right in saying you're planning to hire management to run your PM company so you can achieve that 4-hour work week?
That 4-hr work week really isn't in me honestly. I'm a bit of a workaholic. A better yet I enjoy it.
My first goal is to leave the J-O-B, and run the business full time. HOWEVER, I do plan on building the company to a point where I will hire a manager and PMs and such to operate the business. I will concentrate on growing the business, the portfolio of investments and such. I am in desperate need of an office assistant at the moment and will be hiring one very soon.
In CT, and in a lot of other states, I can't hire PMs because they would need to be Realtors and therefore I would need a Broker's license, which is at least 3 years out for me.
@David Wolber
I don't know anyone out in CT. I'm in NY myself, but I can see if one woman I know would be willing to relocate - provided you interviewed her and she accepted ofcourse. She's a fantastic office assistant and would definitely make a great addition to any team. She used to be the property manager for the company I work for. They contract their PM work out to a different company and she was working for them onsite full-time. I believe she's looking to get out of this area at some point. Send me a DM if you're interested in having me reach out to her. I could see if she'd like to send you her resume.
As for your response pertaining to the 4-hour work week comment, I can definitely see why it's not all doom and gloom to you, haha. I myself am trying to gain more freedom, so, between you and Ricardo, it sounds like it might be best for me to try to find a good PM to leverage instead. Thanks for the advice, Dave!
I started out with managing my own property, The portfolio got big enough to hire a full-time person to help me out and a Virtual Assitant.
After a while, I had operations DOWN and felt comfortable enough taking outside clients. All I had to do at that point was plug them into my existing system.
You need thick skin in this business but I think most of the money from it is made by creating a system that manages your own portfolio well, not other people's portfolios, especially in multifamily.