How to buy 100+ units with on-site management?

Question

Hello all,

I'd like to grow my portfolio by larger chunks, but am unsure how on-site management is handeled. Right now, I own just under 90 units on multiple parcels, ranging from 8 units to 25 units per parcel and have 3rd party, off-site management.

I want to buy a larger property (e.g., 1 parcel with 100+ units), but am unsure how it works when there is in-place, on-site management. From the apartments I recall living in, there’s usually a leasing office with a staff of 2-4+ employees. When purchased, do you inherit the staff or is the staff just a 3rd party management company with staffing on-site? If you do inherit the staff, who is in charge of managing the staff?

In other words, how to do you scale and take advantage of in-place, on site management?

Tony Nguyen · Answer

@Mike Dymski - That clears up a lot. So you’re saying the 4 employees in the leasing office work on-site for a 3rd party property management company who has their corporate office off-site. This would then mean they have a manager/boss who oversees their daily activities if I’m reading this correctly. Thank you for your input.@Michael Bishop - I’m approaching this with worst-case scenario meaning I don’t want to rely on my current property management team to be able to handle an additional 100 unit chunk at one time. I wanted to see what options exists when buying a large parcel and you don’t have your own property management company. For example, if I buy in another market such as Austin, TX, I have zero contacts out there so I’d have to rely on worst-case scenario. From what you’re saying, if I was to replace the current management, it seems like I would have to find a new off-site apartment community management company who can place employees on-site, right? Thanks for your advice, very valuable perspective on why replacing management is important to improve NOI.@Jeff Greenberg - At a 3-6% PM fee, plus their salaries, are you typically seeing a 10% all-in cost for PM? Thank you for your input Jeff!

Jeff Greenberg · Answer

That is one of the primary reasons to get into 75+ deals is the ability to afford on site management. As @Mike Dymski stated, the onsite office and maintenance employees work for the management company, but the property(you) pay their salaries and benefits. This is on top of the 3-6% PM fee that you pay for their overseeing the management of your property. There are also many other things that your PM company does such as bookkeeping, staff training, cap ex supervision, staff replacement if needed, additional staff if needed for special projects, liaison with the owner, etc.

Tony Nguyen · Answer

Thank you, this makes a lot of sense. I'll start with 3rd party and go from there, thanks @Percy!

Percy N. · Answer

@Tony Nguyen, yes, for a 100+ unit property I would start with an established PM who knows the market, has established relationships, processes, resources, and systems in place. You still need to be careful about who you select as PM and that it is a good fit for your type of property and aligned with your goals for ownership.Once you get to a point that you have or exceed the capabilities of the PM company, you can consider taking this on yourself but keep in mind it takes a lot of resources behind the scenes (accounting, technology, vendor mgt, etc) not just an onsite leasing and property maintenance.Good luck with your journey.

Mike Dymski · Answer

There are 3rd party management companies who specialize in apartment communities. The on-site staff are management company employees but you pay for their salaries, plus a 4-5% management fee. You will likely find on-site professional apartment management companies to be significantly better than the off-site management model.

Tony Nguyen · Answer

@Percy N. - Thanks for the response! For the first large property, was your advice here to hire a 3rd party management firm, learn their in's and outs for the first couple years, then duplicate their model myself to ultimately self-manage with my own staff? @Andrew Campbell - Great advice, thank you. So is your suggestion here to hire and stick with 3rd party groups or hire the employees/staff in-house? @Matt Nusbaum - I’m a year too late thanks to Covid-19, sorry about that! I’ll PM you.

Matt Nusbaum · Answer

Hey @Tony Nguyen - All good points made here already. You'll want to vet out the PM company you plan to use before you purchase a property. Then they'll assist you through the process of onsite management. I also see you're out of Orlando... let's meet up at some point!

Amy A. · Answer

@Mike Dymski I'm trying to revive this thread and hope you and anybody else who sees this can help. In what ways have you found on-site management (and I assume maintenance) to be better? Also, what is the GOI required to afford on-site management/maintenance? My goal is to eventually purchase a property that is large enough to support on-site management, maybe in SC, NC, TX, AZ. Thank you.

Andrew Campbell · Answer

@Tony NguyenI agree with all of the advice here. Going with a 3rd party is a great way to start--its a strategy we employ. Couple of things to add: 1) Make sure the management company you hire has a track record in your business model. If you are buying value add deals with a big reposition for example, you want a company that has executed that strategy before. There is a big difference between managing a stabilized Class A asset and a Class C asset undergoing a reposition and lease-up. Find one that is an expert in your business plan. 2) Your chosen management company will usually interview all of the existing employees on site that are interested in staying at the property. The advantage is you'll have some people that are familiar with the property if they pass the interview screen. For our most recent deal, we kept 3 of the existing employees, who now work for our management company. Good luck!

Tony Nguyen · Answer

@Percy N. - Thank you for the info. I'm actually looking to hire 3rd party PM because I wouldn't have the capacity. In addition, it is because I'm aiming for on-site management instead of off-site.