Thank you to @Joe Martella @Greg Weik @Kenny Dahill,
It's nice to have a place to ask questions. We have grown in the 3 years from 7 units to over 50. We are scaling very quickly and it is a lot of fun but my concept of risk, costs, and management, in general, has definitely matured. I like to be a little involved. I enjoy acquisition and demo. We like value ads. Not much experience with new builds. As a bigger unit count, the issues we have making each unit cash flow is in some ways easier, but the amount needed in a Cap Ex fund/Taxes/etc... is on a different scale entirely. I used to just bankroll unexpected or even significant maintenance expenses with my primary job, but that is no longer a viable long-term strategy. I am trying to ensure we continue to have success as defined by cash flowing at a specific min per door and continue acquisitions over time. We (my PM) and I have discussed a change in structure over time and before we started but did not define it exactly. Would not have guessed we would grow quite this fast. I was paying 15% plus a first-month rent a placement when we had 2 units and we have changed this to a lower rate now after discussion as we have hit our first benchmark. So I think we are in a good place for sure at this time and input from people like you has helped me understand the broader market. As we grow this may change again and I wanted to get a sense of the creativity in contracts others had in PM. I want to incentivize him and grow the company. He is a true partner.
My PM is AWESOME. He has made a lot happen and he is as committed as I am to success in every dimension. We communicate well. He is a good friend and he is worth every penny that I pay him. I attribute a lot of our success to our great working relationship. As we grow, I wanted to understand comparable agreements and how they may (or may not) change at scale with others. There may be a time when I want to consider full-time employment, our own internal property mgt for others property which we do not own, group purchase agreements with investors, a "volume discount" from his group for high volume PM, or just even try to understand what others are doing in order to ensure we stay competitive and continue to grow. My objective is not to cut a small cost and alienate him, but actually to find ways to ensure mutual success. Ie If as a company we add another 40 doors, then a % gets cut by a specific amount. This way I am giving him something, an extra 25-50 doors, and he is giving me something, a small break in mgt fees. I don't want to pull the rug or change anything fundamentally actually. I want him to have a better deal with me than anyone else in the end. Would like to work with him and others to do flip and incentivize beyond the traditional arrangements of construction to cut them into any profits too actually.
As I continue to scale we want to be able to move to other areas as well. We have land awaiting construction. We have contracted purchases with flips to follow. We have other business interests which are expanding as well. We have 1, 2, 3, 4, 8, 9, and 16 unit properties and want to continue to grow for the next 15 years. I usually have about 25% in the properties and am not afraid to leverage, but will do less leveraging moving to 50% cash purchases moving forward and 75%-100% cash only within 10 years.
@Joe Martella sounds like your life without a PM is good for you. Thanks for laying out your program on this and other posts. I appreciate that you understand my interest in asking simple(ish) questions. Sounds like 10% is a reasonable goal amount if we get to the scale that I want. I have seen 8-15% in a variety of arrangements all across the map at this point. We are using Avail at this time with good success. As we scale integrating more closely with QuickBooks and other PM software may be required, but at under 50 units, it has been great for me.
@Greg Weik I appreciate the perspective. Certainly, there is work per door. My thought is as we grow it will likely be towards fewer roofs and fewer addresses. I think this will lessen some of the work by consolidating the drive and contact time. A fixed amount per tenant placement might be a good idea for me to consider as well as a possible cap on mgt (or fixed per door mgt even - based on the average rents of our units). Your arrangement sounds like something I want to work towards. Certainly, we could back into similar numbers in different ways, but finding a predictable amount and an easy method is of interest to me. If I buy in Denver (I am not ruling it out) certainly would give you a call! We are still growing in our area but if that stagnates I am not opposed to long-distance relationships if needed. This is exactly the kind of head-to-head numbers I wanted to see without asking everybody in my area to compare notes necessarily.
@Kenny Dahill As of right now we have negotiated it lower commiserate with a goal number of units. The shape of the average property was a bit rough when he started and together we have addressed many of those challenges. Our newer purchases were either better properties or complete guts, so that has been helpful to get us on the right foot moving forward. You bring up good points regarding quality. I think we will always have an evolving mix trending towards B properties average (with a few A and C here and there at the end of the day). As I grow certainly gravitating to new complexes is part of the plans. We have cut our teeth buying smaller older and/or rougher properties and making them start. The rents have followed and our reputation has improved as well. The existing PM has been a key to this as my more direct involvement approach, which I did not have when we were smaller. I like your co-mgt throughts and your site. I feel like I am there now and do not have time to increase co-mgt, but probably the opposite moving out of that role. Our tenants do pay on time generally but we have a few stinkers! Good thought re bonus. That is the creativity and itead I get from this site and networking. Thank you!
