Hiring an in house property manager?

Question

My wife and I are expecting our first child in June.  We have 65 rental units (single family, duplex, triplex, multi, commercial etc) and we both have full time jobs.  Currently, we self manage all of them and do the showings, leasings etc.  We could hire an outside property management company, but we have seen the local property management companies fees/contracts, and it would be quite cost prohibitive with this  many units.  We are considering hiring an in house property manager to handle day to day tenant interactions, showings, leasings, bookkeeping and probably other items that I haven't listed.  They'd be a W2 employee.   We'd certainly have to train them and guide them along the way, especially the first year or so, but our goal is to retain a long term W2 property manager.

Has anyone out there done this?  I scoured BP but mostly saw people hiring management companies, I was having a difficult time locating many posts about having an in house property manager.  Now that we have as many units as we do, the numbers do not seem to make sense for hiring a management company.  Losing 10 percent plus the first 1-2 months rent would crush profit margins, and the management really isn't that hard to do, I'm just looking to free up our time to raise our kid.  Has anyone had good/bad experiences with this?  What are some things that you found worked for training your in house property manager?  Was there a lot of turnover with having your own PM, or did you find that you were able to retain a long term employee?  Did you have better success with in house vs management company?  Are there any online courses for training property managers?  I'd very happily train this person, but a course can really cover a lot of ground quickly and introduce a lot of information to a new employee.

Thank you for you input,

Gabe

Jake Baker · Answer

Where are your properties located? I'm trying to gage how much revenue you are getting to see what makes sense on how much to hire out. We have a much smaller portfolio managed by a company and lament the fact that we are losing 15-20% of revenue to that. So I hear you!

For a portfolio this big, I would advise you to keep the bookkeeping separate from the property manager. You could hire a part-time bookkeeper to do the basic bookkeeping and accounts receivable/bill pay. Heck even just hiring out that could free up a lot of time for you just to focus on tenant communication while the bookkeeper collects rents and makes sure certain bills get paid.

Chris K. · Answer

@Joy Shaw

People do this all the time when they reach a certain scale. The main barrier is that having W-2 employees means you need to comply with all federal and state employment laws. This is a heavy administrative burden. You can outsource those burdens but that means you spend more money.

One other item to consider is that property management is a cost center versus a profit center. Not saying that is a dispositive factor. But typically, business owners are willing to deal with the above administrative headaches if each employee brings in enough revenue/profit to justify the costs. A somewhat crude rule of thumb I use is that each employee needs to bring at least three times the profit/savings of their total cost. In other words, let's say you find a property manager for $50k. They need to provide at least $150k of "value" for me to consider hiring them.

Most small real estate investors probably don't have a way to get $150k of value from a $50k employee. Now you could try to utilize that employee for other revenue-generating activities. For example, you could have the property manager also do some handyman work for other folks. But at that point, you are not really just an investor --- you are becoming a small business owner. That's fine but something you need to be realistic about.

At 65 units, it might be doable. But hard to say without knowing more details like geography. You also need to factor in things like real estate professional status to maximize your tax savings. You guys might be in a good spot to take full advantage of it. But it's something you guys should work with a qualified professional on.

Disclaimer: While I’m a licensed attorney, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

Jonah Hartsburg · Answer

Hi Joy! I like to think of management activities in terms of buckets. First, I see what requires boots-on-the-ground people, probably some showings, property visits, and maintenance. Then I look at what activities can be remote. These tend to be administrative tasks such as bookkeeping, leasing communication, application screening, tenant questions, renewals, property management software, utility coordination, billing, answering the phone line, etc. From there I can decide what I want to do, what I want to hire out, what tech can assist, and what remote work I can utilize VAs for. With 65 units, I wonder if management can be successfully achieved with a handyman, leasing agent, and a few VAs without having to go through the W2 process yet keeping the system under your control and oversight.

Joy Shaw · Answer

We're in central pennsylvania.  I could understand keeping the bookkeeping and property management separate.  We don't have a ton of turnover with tenants so our property management is typically pretty low key.  By hiring out a property manager, we'd be paying out thousands per month more than if we just hired a w2 property manager.  Even if we just did 10-15% of rent by using a 3rd party property manager, that amount of money could afford us at least 2 in house property managers.  With the number of units, it just doesn't seem to make sense to use a 3rd party.  I combed around on bigger pockets but haven't found many threads about having a property manager as an employee.  Is this an unusual idea or do people just not post about it?

Hiring an in house property manager?

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