Getting a property management firm or doing it yourself?

Question

When you buy a multi family building for first time or when your decide to grow your portfolio with second, third and so on multi family building. How do you do property management?

Do you do yourself, and if you do how:?

How should i choose property management firm?

Is it bad move to do it yourself?

What skill or experience i need to have to do it myself?

Is it worth it? Or its better to assign firm until  your rental portfolio start to grow and to open my own property management firm?

Sorry, too many questions :D

Craig Bellot · Answer

If your long-term goal is to invest in more properties it is worth it to invest in a solid property manager.  Most investors suffer from death by 1000 cuts trying to do it all.

Your time as an investor is infinitely better spent analyzing markets and deals.

You want to move up the 80/20 leverage curve from technician to investor/entrepreneur.

In Bridgeport, CT the cost is about 10% of rents collected which frees you from taking resident phone calls, coordinating maintenance, leasing vacancies, accounting P&L's, conducting inspections and making property bill payments.

David Dachtera · Answer

@Davey Davanoski,

Given the number and the nature of he questions you're asking, I'll encourage you to pursue some education first. Get a handle on the big picture. That will better equip you to decide what to do going forward.

Llewelyn A. · Answer

@Davey Davanoski

I agree with @Mary Mitchell

Self-Managing can be either easy or difficult, depending on the Investment.

I fully believe that the Franchises (such as McDonald's) have it CORRECT.... they force you to learn each aspect of the Operations which will improve your ability to be successful at it.

Once you understand the Operations enough, then you can employ @Craig Bellot nice chart! The one thing about the Chart I noticed right away was that the chart moves from "Personal" to "Investor" and if you think about it...... Starting out as an Investor will be REALLY RISKY because you have NO experience with what you are buying.

BUT, if you learned the business, understand the operations, then by the time you are ready to scale your business, you will know what you need in a property manager and to figure out if your property manager is doing a good job.

Otherwise, it make take you years or even decades to figure out why you can't really make your Investments work.

I feel the most essential advice I can give is to start out house hacking a multi-family building, even if it's just a two family.

When your family lives in the same building as your Renter, then you will NOT make the mistake of putting in BAD tenants.. or at least you BETTER NOT MAKE THAT MISTAKE!

Also, when the tenant knows the landlord lives in the building, they will be much more careful with things.

My history starts out with House Hacking 21 years ago (yes.... before there was a word called "House Hacking.").

I learned everything about Property Management in NYC and also what to stay away from (for instance, Rent Stabilized Apts).

I've learned my tenant Screening so well, that I have not had one single eviction in 17 years.

My last rental just had a new tenant with an 804 FICO Credit Score. That's because I learned how to Advertise and Negotiate for the very best tenants available in my market.

I have built up my skills and experience over the last 21 years that NY State granted my Real Estate Broker's License without having to be a Sales Agent, so I opened up my own Sales and Property Management Brokerage.

The gave me the ability to then buy a property and collect a $40k commission for the same property I just purchased (yes... $40k is only half the total commission and I was the Buyer Broker of my own PURCHASE... HOW SWEET!).

So you see, there is a LOT that you can do and learn in this business.

Once you understand the Operations, you will build a system around it and then you will be able to scale it. You may need to get licenses along the way or at least understand who to hire with the appropriate licenses.

Basically, I am saying that starting off as an Investor, putting your hopes into hiring the right people for the right investments is a plan, but much more risky than going slowly but surely, building up your skill set and experience along the way.

It's the same with every profession. Doctors go to Medical School, do an Internship and Residency program, then take the Boards and begin their profession.

Ultimately, you will reduce the risk of failure almost to ZERO if you treat building your Investment Portfolio like a Profession.

Mary M. · Answer

I think first question is: will you be living near your investment? Are you outgoing and have a generally good business head?   Self managing is not hard. But it takes a certain personality to do it well.

I would suggest going to a local rental owners/ multi family association landlord bootcamp and get a solid baseline education on the subject.  Then update your knowleage base yearly or bi annually.

I have found it to be VERY rewarding and educational. And until I own say 20+ units ( i have 10 3/2s now) i will self manage as I enjoy it and I also dont want to give control of my assets and my $$ to some random person.

Luke Miller · Answer

@Davey Davanoski If you want to scale and become a professional I would recommend not managing yourself.

Here's how I look for and vet PMs.

First is asking for recommendations, but i'd focus more on people actually operating the exact asset type that you're looking to purchase. Go to the broker that sold you the deal, go to other brokers (great way to network/break the ice). Get as many recommendations as you feel comfortable with.

Second, interview them all. It's an exhaustive process, but one that really needs attention. Here's my questions I ask. They are usually tweaked or added to, but it's a good start.

• How long have you been in business?
• Are you strictly third party or do you manage your own portfolio as well?
• What size of properties do you manage the most?
• What are your management fees for my size building? What is your leasing fee? How else are you compensated?
• What is your process for handling repair requests? How do tenants make requests? How quickly do you typically respond? Who does the work? What do you charge for the work?
• How do you collect rents? Who keeps the late fees?
• What are your management policies, i.e. when and how do you handle lease violations and evictions?
• How many evictions have you handled and what is the cost of a typical eviction?
• What is the expected vacancy and delinquency rate for this area? What about turnover ratio?
• What management software are you using?
• How do you handle the funds? Will you get a separate bank account?
• What areas will you not work in the city?
• What’s your favorite area in the city to work?
• How prevalent is RUBS? Is it an option for my property?
• In your estimation, what is the most affordable amenity I can add? Covered parking, reserved parking, pool, dog-park, etc.
• Can I have some references?

Third, verify this across a couple different platforms. Do that by verifying with other PMs (as you're interviewing multiple). You'll start to see some trends, it will give you a lot of credibility with the PM, and it will set the tone of your relationship with them - they'll know that you're business minded and these are the areas you'll be focusing on once your asset is in place.

Hope this helps. Let me know if you have questions.

Ken Breeze · Answer

Great advice from all the cool cats above. A balanced mix of continued learning and doing is, like anything in life, the best recipe.

My two cents would be: It depends on quite a few variables, some being your character, mindset, goals and where you are at on your journey.

Ultimately our goals are passive residual income, not active residual income. Thus outsourcing and leveraging other pros in their field to do the jobs you need to have done on a regular basis to run your ever-growing ship is key.

But if you're starting out small, and need or want to learn the ropes, you might decide to explore all the wicked and obscure headaches humans will cause you when owning and managing properties.

More often than not, when my team and I underwrite deal opportunities, we find that hiring a PM for MF properties under 50 units doesn't pan out. So someone in the partnership will need to do what needs to be done or pass on the deal. Above that, it becomes a line item in your excel sheet and now all you need to do is find a good PM. However, in that lies the true challenge ;-)

There are quite a few blogs and checklists here on BP to make sure what to look for in a PM which can also serve as a guide if you're doing it yourself or convince you to let it be. In any case, I'd make sure you or your PM have arrived in the 21st century of managing and scaling business Yes, there's this thing called the internet and some companies have invented amazing property management cloud software to make your life a ton easier and cheaper. We demand it from anyone we work with. From our tenants as well. No more "the check is in the mail" BS. Just look up a few companies and spend some time checking out all the cool things that can be automated for you.

In closing, using Kiyosaki's Cashflow Quadrant cross symbol as a model, you will generally want to focus and graduate from E to S to B and finally I quadrant as soon as you can.

Send me a colleague request and DM if you have any more questions. Cheers, Ken ;-)

Monique Rene Coates · Answer

I was on a condo board for a few years when I owned my own unit. It was close enough for me. I learned quite a bit about property managers & managing them.

Theo Hicks · Answer

I acquired 12 units a few years ago and tried to do the management myself. And I hated it. Placing those units under professional property management saved my from a ton of headaches and provided me with time to focus on other aspects of my business. As the cliche goes, work for the business not in the business.

Nancy DeSocio · Answer

Hi Davey,

You have a variety of responses here (as expected), and I'll add in a different flavor.  I self-manage one multi and just transitioned another multi to a property manager.  From here on, I'll probably have a PM for all of my future investments.

When you say "I am not even sure how does property management work" that's a good indication (in my opinion) that you should start off doing it yourself.  You'll figure out pretty quickly how to resolve issues, because you have to.  I've learned a ton by self-managing and still have only encountered a fraction of what could happen.  As frustrating and overwhelming as it can be sometimes,  the education has been invaluable.  And as someone else noted, once you've done it, you'll have a better idea of what you want in a PM.

Good luck on your journey!

Catherine Powers · Answer

Hi Davey,

We use a local 3rd party property management company to manage our rentals; however, we started off self-managing our properties (32 units at the time). I actually worked for a large apartment management company for a few years which allowed me to gain experience and observe best practices and systems that need to be in place for the business to run efficiently and successfully. I knew I wouldn't be able to achieve these efficiencies in house with the few units we owned. Thus, the main reasons for the change:

1. better serve our residents and prospects. Your residents should be a priority because without them, your property doesn't make money

2. gain access to more resources. The Property management company has an in-house management and maintenance team, 24-hour emergency maintenance call line, utilizes property management software which increases operational efficiency, screen applications, improve record keeping, work orders, tenant ledgers, leases, renewal, tracking etc. Maintaining good record keeping is essential especially when it comes time to sell a property or apply for financing.

-Lastly free up my time, reduce stress because I am no longer getting the maintenance calls, meeting prospects to show a property,  sending out late rent letters, renewal letters, filing evictions, going to magistrate court etc. Now I can focus more on investing and acquiring more properties

Before deciding to self-manage, you should:

Educate yourself on the basics of property management, best business practices, and fair housing laws. Consider your business structure and setting up an LLC. Consult your lawyer.

-Have an accounting system, marketing strategy, tenant screening process, maintenance team/contacts & system for tracking work orders (will you fix things yourself or will you need to hire a contractor), lease contract, etc. in place before you start.

Getting a property management firm or doing it yourself?

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