Choosing between two Property Management opportunities

[Michael Tan]

I'm new to BiggerPockets, based in California, and looking to do some out of state BRRRR investing in Lafayette, Indiana (my hometown). I am currently in the process of building an on-the-ground team and am debating between different options.

Option one is a property management company. Their top clients are also OOS investors from California, they manage about 350 units, 170 properties, with 50-55 clients and as far as I can call on the website are staffed around the 10-15 person range. 

Some of the pros: among all the PM companies I reached out (lazily, through email or web forms), they were the only company that responded, and did some in a timely manner (I reached out over the extended weekend, they called first thing Tuesday). I’ve heard and read that many people have poor experiences with PM companies, particularly with communication, but don’t realize it at first. So while I understand simply responding to an inquiry doesn’t constitute too much merit on its own, it *does* funnily enough separate them from their competition. Furthermore, this company comes recommended by a fellow investor in the area who I’ve spoken to and developed a rapport with. 

The cons in my mind are ratio of clients (and properties) to staff. I’m not quite sure what “normal” would be for a PM company, but it seems like managing 50-55 clients and 150+ properties doesn’t give much time for the company to help with MY future properties. Of course, the bright side of this ratio is the (perhaps illegitimate) assumption that they must have efficient systems in place to deal with that number of properties.

Option 2 is a fellow BP member (I won’t call him out but he was nice enough to offer using his name) who self manages properties in the area. One of his bigger selling points was his policy on not allowing owners to defer maintenance costs.

So, considerations... I value the ability to have a closer relationship with my PM (leaning towards option 2 on this one) and am skeptical that the PM company might be hard to keep close communication lines with.

My line of thinking is that since there will be a lower property to person ratio going with Option 2, more time and care can be spent actually performing the responsibilities required of a PM for my property. On the other hand, experience and systems of scale are definitely big selling points of the PM company. What should I be valuing most here?

Another bigger consideration is fees. Option 2 would be a much cheaper option, no numbers were discussed but we discussed no payment during vacancies, no fees for turnovers or renewals, and monthly fee would be a fixed fee or a percentage of rent that we agree on.

Option 1 involves much more extensive fees. I want to know if these fees are exorbitantly high as well since I’ve seen some deal analysis and see regularly 8-10% being the norm. The PM company charges 12% of rent, up until 3+ units when the fee decreases. I think by 4 units the fee goes down to 9%. The three point drop provides good incentive to stay with the company, but 12% feels... significant. In addition to paying 12%, there is also a $3/mo advertising fee, $100 fee on renewals and new leases, $100 “startup” fee, and a $10/mo bank fee. Maintenance is charged at $45/hr.

I’d like some feedback on:

1) The important considerations when choosing between these two options.

And

2) Is the rates charged by management company reasonable?

I have The Book on Managing Rental Properties but haven’t gotten started on it yet, what other books or resource might help me gain clarity on the considerations above?