What should the first 5 employees you hire be?

Question

This has been a question I've been debating myself recently, and I was wondering what BP's thoughts were:

The situation: Your LLC owns and manages approximately 100 units within the same area. You have enough funds to hire your first 5 employees. Who would you hire?

My thoughts are:

• two people to handle the day-to-day management of the properties
• a maintenance expert, who can perform most small-scale rehab tasks and property turns (painting, basic electric, carpet cleaning, etc.)
• a marketing individual whose job is to find new tenants and market the property
• a tax person who handles annual taxes, budgeting, and CPA accounting.

What does everyone think??

Adam Johnson · Answer

@Sean O'Dowd   - I have 16 employees currently. That is all I am going to say about how many. Now I will go into WHY I have 16 - I have enough work for 20!

Never, ever hire employees simply because you have a certain number of units or make a certain amount of money! Base the decision first on the need, then weigh it against the actual cost. Labor is probably the most challenging number to manage in any business and the easiest one to screw up.

Step 1 is to look at your need. Is there a part of your business that is dragging you down or holding you back from doing what you do best?

Step 2 is to look at whether there are tools that you can use (not people yet) to improve your own productivity.

Step 3 is to analyze cost vs. benefit of hiring help (whether it is employee or outsourced).

Another factor to keep in mind is to look at whether today's need will also exist tomorrow. It is very difficult as well as expensive to hire/train people because you need help through a very busy time, only to find out that tomorrow when you are caught up you have little for them to do. That is when labor costs skyrocket.

I have analyzed my business over several years, good and bad years, and know where my labor cost should be in relation to overall sales. I watch that number like a hawk. My business has some seasonal fluctuations too, so I keep that in mind as people come and go. In a prior business, I hired how many people I thought I should have. When things got slow, I found them busy work. That didn't work out very well for me. This business, I push production. Every dollar I spend in labor needs to produce income greater than the cost OR be absolutely necessary to support the people that produce income. I tend not to hire until I have an overwhelming need for more help.

Looking back at the original post, you state that you have the funds to hire 5 people.  Stop right there!  Those funds (and more) will vaporize if you don't have the need for 5 people.  It is very rare that I hire more than 1 person at a time.  Training somebody is a cost all by itself.  Hiring 5 people without at least that many to train them is a difficult challenge.  You will get very little productivity out of them as you run yourself in circles trying to figure out how to get productivity out of them.  Slow and steady.  When you find you think you need 2 people to help you, hire one.  Choose carefully and keep working with just one until you find you think you need 2 or even 3 more people, then hire another one.  While doing this, look at the numbers to make sure that what you are making today and what you forecast you will make tomorrow will support the extra expense.  Don't look at the fact that you just made a lot of money and now you can afford to spend it.  Dangerous move.

I have fallen into the trap where past success makes me want to hire people to try to keep doing good things and become even more successful.  Business doesn't work that way.  Have the need there first, then react.

One last quick thought - machines are cheaper than people.  That is a harsh reality of today's world.  It is cheaper to hire a select person(s) and give them the right tools to perform their job at peak productivity than it is to hire many people and bull your way through a job.  The reason for that is that when that job is done, that tool/machine/vehicle can sit on the shelf or in the parking lot or in the warehouse and cost very little to just sit there waiting for the next job.  On the flip side of that, hiring extra people because you don't have the right tools for productivity and make up for it in shear manpower leads to extra mouths to feed when the job is done and you are waiting to start the next job.  They still want paychecks in between projects and unless you have no heart at all, you will tend to give them "busy" work in between projects simply out of loyalty to them and their families.

Outsourcing can help mitigate some of the above issues, but it can have similar challenges.

Good luck!

Sean O'Dowd · Answer

It seems like the two most common positions that potential employees could fill would be book keeper, and a property manager who manages the day-to-day of the property.

What about an agent/marketing person? Personally, I think if you are in the 100+ unit range we are talking about, you likely will have frequent vacancies. A dedicated employee whose job is to show potential tenants the units, run background checks, and then figure out ways to market the units when not showing them, would be a vital position to have. Is this a reasonable assumption, or am I overestimated the amount of work in this area?

Wilson Churchill · Answer

Thanks for the input. I'm genuinely interested in getting more ideas in this area, as I am planning to eventually hire someone to assist with management. As an accountant, the bookkeeping and tax are a non-issue for me. And I would prefer to keep the accounting in-house in order to prevent fraud. Real estate is what prompted me to choose accounting, actually, so that I would better understand my own business and financing. My main concern would be having someone to show the properties for me, as I imagine I will have constant vacancies at that point, and driving around would be the majority of time wasted.

Chris Winterhalter · Answer

@Wilson Churchill

I'm definitely not trying to be combative, my opinion might be different from many others...however my insight comes from owning more than 100 units & having employees.  Which in no way makes me an expert, but it has taught me MANY lessons (some time consuming & expensive)...which is the only thing I'm trying to convey.

Chris Winterhalter · Answer

@Wilson Churchill

I think you missed my point.  Answering the phone is just a small part of the business.  Plus with only 100 units (spread apart) you wouldn't hit full efficiency.  So having a $10-12/hr employee wouldn't really be on the table.  Let's say you have a $15/hr employee that can handle the property management, leasing, maintenance coordination.  Well that's above 30k without overtime, work comp, payroll tax etc.  And it takes time to find the right, most qualified, hard working & capable $15/hr person for that position.  Let's say you find that super star $15/hr employee.  You still need a bookkeeper (& a good one).  You could hire a part-time bookkeeper for only 100 units.  You're still not necessarily ahead of the game vs. hiring a really good PM group.  There are other fees to account for though, leasing fees, app fees, maintenance mark up etc.  It depends on your goals but if you don't want to build a management company or create a job (or part time job) for yourself then I would carefully consider hiring a PM group.  At a certain number of units it might make sense to bring it in house (or maybe not).  I do think that knowledge & control of the management side are extremely important, but it depends on what you want to build.  Some of the most successful owners & syndicators are management companies.

Also 100 units spread out (even in the same area) is much different from a 100 unit complex.  A 100 unit complex can afford a full time PM/leasing employee.

Fee structure is different as well.  PM groups that manage larger properties charge 3-5% of gross collected income.  But on-site payroll is ran through at the property level.  So that on-site manager, leasing agent, maintenance person etc would be penciled into the budget.  The 3-5% would be for accounting, oversight of employees, management, forecasting etc.  Well worth it in my opinion.

Wilson Churchill · Answer

Bookkeeping for 100 units should not be difficult. If I were to hire an outside bookkeeper, they would simply enter the monthly transactions into their software. The time required to do daily bookkeeping should be less than one hour per day. The payroll for an employee can be done through your local big bank, such as BOA, etc. You simply submit the number of hours the employee worked and they can direct deposit their pay into their account and issue electronic forms. I have friends that have tax employees and handle it this way rather than doing their own payroll.

Wilson Churchill · Answer

Do you believe that the numbers I posted were accurate? I would like to see what you believe the actual costs of hiring an assistant would be versus paying 10% gross rents to someone else to answer the phones.

Chris Winterhalter · Answer

@Wilson Churchill

As stated above by others, the amount which you can afford to pay doesn't dictate the number of employees you should have.  Plus you are undercutting the actual cost of having an employee.  Go beyond initial & on-going compliance, you have work comp, CGL (above & beyond your property), payroll taxes, processing, training, oversight, setting up systems, etc.  It adds up very quickly & can be very time consuming.  Add in handling your own bookkeeping work & you've created yourself a full-time job with just 100 units.  Depending on how you run your business accounting on 100 units can be very tedious to keep track of, 100 rent payments, dozens of vendors & expenses, vendor compliance, end of year compliance etc.

I'm not saying self managing is the wrong route to go however the direct benefit will be control and educational development not cost savings.  Cost savings will come down the line once the operation is set up, running smoothly, & you've hit that sweet spot for the number of units you have under management.

Wilson Churchill · Answer

Wouldn't it depend on how much you would pay a management company vs. an assistant? For 100 units, lets assume an average rent of 700 per month, so gross rents per month are 70,000. A management company might charge 6 - 10% +. Let's be conservative and say 6%, so monthly fees, not including other charges, would be 4200, which is about 50k per year. You could hire a couple of employees for that amount and maintain direct control over how things are managed.

In my case, I can easily do my own accounting, so I would just need someone to answer the phones, show homes, and schedule maintenance.

Chris Winterhalter · Answer

@Sean O'Dowd

@Adam Johnson has some great insight on this matter.

I will add, 100 units doesn't need 5 employees, unless you are running the maintenance/construction & management side with all employees.  Which is very cost prohibitive & inefficient with only 100 units.

My property management company has about 200 units under management with two employees + contract maintenance/construction vendors.  I would say they could handle 300-500 units with three-four employees max.  Now property class, property type & size will require different needs however you get the idea.

On the property management/investment side at a basic level you need these positions:

-Bookkeeper/Compliance/Comptroller etc

-Property Manager

-Acquisition/Disposition/Leasing

If you develop or have a large construction side then you could add a construction management position, but this can contracted out without adding the payroll.

Like mentioned payroll can bleed your cash reserves, so be very careful, & be ready to constantly feed the beast when you do add payroll.

What should the first 5 employees you hire be?

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