How Profitable Is Property Management?

[Bill Gulley]

I received a question about profitabilty of being a PM. I thought about it. I've had PMs at times 10% of rents. I'm thinking around here average rents are probably $500, that's $50 bucks plus first months rent.

$1100 a year. Seems you'd need 50 units for a living, 55k gross.

Then start looking at expenses,

Fill in the blanks.....

Advertising
Auto Exp
Office Rents
Office Supplies
Office Fixtures/Equip.
Legal Exp
License and Cont. Education
Membership Fees MLS

Assuming you need a license, Realtor fees and education requirements are there.

Where is the break even?

But here is the other aspect, how long does it take to get 50 units under management? Any guess?

You could pick off one complex and get that, but assume all the bigger owners have a staff/employees and you pick up no more than 5 units (sfd) at a time.

Where is you guess in time wise in getting a PM business going?

The PMs I know have been around for decades, 1,000+ units, I watched them grow, but it seems it would have been long and slow going.

[David Beard]

This subject always comes up with predictable replies. "Who are these idiots working for practically nothing, incurring all these headaches and slaving round the clock for peanuts. I'd never do it, but glad there are some idiots out there that do."

By contrast, the companies I see that seem to have the best thing going are multi-faceted with multiple profit centers that gel together.

• PM Fees
• Lease Up Fees
• Maintenance crew markup for turns and non-licensed maint work
• Rehabbing newly acquired rental properties for investors
• Sales commissions buying/selling properties for investors
• In great position to find great deals in acquiring their own rentals, essentially managing these at cost
• Using crews and contacts to sell turnkey rentals, and possibly even retail flipping.

These activities all work well together and fully exploit the PM's position in the middle of a web of investors.

Just looking at the PM mgmt fees and leasing fees is way too narrow, as any half way intelligent business person will quickly expand it to something much more substantial. They will also effectively utilize the labor of others and systematize/automate all processes.

It is at least a business that will have rapidly growing demand in the coming years that will be less cyclical than some other aspects of RE that depends on adequate inventory, price cycle, economic cycles, etc. But no doubt the business I described above has quite a few employees and all the associated issues of a sizable operation, versus the near-solo operator making good money in a transaction-based fix-and-flip or commercial brokering business. At the end of the day, you have to enjoy it.