Building a Property Management Company

Hi Monkeys,

Question for the RE pros in here - what do you think about building a residential property management company as a way to break into the industry? I figure I could start with single family homes, townhomes, and condos, and then eventually manage multi-family buildings. The recurring management fees would cover my expenses and give me predictable income, and then I could use the rest of my time chasing my own investment deals (rentals, multi-family) with my and outside investor money.

Good plan? Am I missing something here? Would I be better off working in acquisitions at a REIT / REPE firm and then doing my own deals on nights and weekends?

Advice appreciated! Thank you.

 

Have you had any experience in real estate thus far? What do you enjoy more - the operations/management side, or the investment/analysis side?

This isn't an RE pro question. You need to decide what role you desire.

FYI - property management will not help you break into REPE/REIT acquisitons, nor will you help any time your first few years to do personal deals on nights or weekends.

 

I definitely enjoy the investment / analysis side more, but recognize there's value in knowing both. It's less about "breaking in" to the industry, and more about how I want to work in the industry. I think I would rather be out there with my own firm doing my own deals than analyzing deals for someone else to make money and just collecting a bonus.

 

Get ready for the biggest headaches of your life. Property management is the worst.

Commercial Real Estate Developer
 
Best Response
VodkaRedBull:

I keep hearing that... but it can't be THAT bad right? Firms like CBRE, JLL, etc. do property management for clients and TS, Hines, etc. do it for their own assets.

Those companies employ property managers so they can charge a fee, yes. The head of CBRE or Hines would shoot himself and his family if he had to be a property manager. Running a management company, like a Greystar, would be a great career. Unfortunately, if you're building what amounts to a startup property management company, you need to know what a property manager does and get experience doing it. That experience will make you similarly suicidal/homicidal.

I had a job with a family office that was only 1/4 property management. My residents were all well off graduate students too, so not a scumbag in the lot. Regardless, I'm surprised my girlfriend and I are still alive to this day.

Commercial Real Estate Developer
 

What do you think property managers do?

Buildings get filled with tenants and these tenants hopefully pay high rents. These tenants need a point of contact with their landlord for when things go wrong, regardless if it is a hotel, multifamily, retail, office, or industrial property; property managers are that contact. It is not glorious.

If after looking more into PM roles, you're still interested, I would recommend following this path: property management--> asset management --> acquisitions --> do your own deals.

 

My family has a property management company which I had worked for since I was 14, I really disliked it and feel it didn't benefit anything towards working in REPE...except for maybe the odd contact or two. If you do decide to go down that route then the best you can do is just try make the most of it, and as someone has said before, try break into Asset Management and then into acquisitions. Property management is soul draining stuff.

 

I have a friend who does something similar. But he has no interest in moving into REIT or REPE or any kind of finance. He's a smart guy, just not interested in finance or working for someone else. That said, as a residential agent he absolutely kills it. Just from his sales alone he clears 6 figures a month, and he has a management business as well. So he manages about 100 properties, and that's his steady paycheck that he lives off of, and then all of his sales commissions go towards small multi family properties, a couple of small strip centers, and then hes got a medical building or two and a 15 or 20 unit apt complex. All of that produces income also. So, consider, if you're actually successful in property management, and enjoy the work(don't know why but...), you can do VERY well for yourself without needing to work for some huge REIT or whatever.

 

Wait, you want to begin your RE career by starting (as in founding) a property management business?

If you have the capital to start hiring, buying vans, equipment, etc, why wouldn't you start by buying a property or something and hiring the management company? The capital could be utilized much more efficiently, and after some time, say 2-5 more properties, the returns you will have realized would allow you to probably start a separate mgmt company that can then be baked into your operating budgets.

If you do not have this capital, I would recommend you look at the budgets of property management companies. Many of them run on thin margins. If you're starting it with no experience in RE, you will not fully understand exactly what your clients are doing. Mistakes will really throw you off BC of the already thin margins. May make sense to try and get a job in the industry, do this on the side, until your client list/experience level is at the point where you can continue to bring the company to scale.

 

I would be able to start this company with very little capital investment (JV with an established RE brokerage), and I'm pretty sure most property managers contract things like maintenance and repairs, at least until they reach scale (no vans or equipment initially).

To clarify, this venture wouldn't be about breaking in to a REIT or REPE fund (if I wanted to do that now, I could), but its more about the learning experience of building a business and having the autonomy / cash flow to be self employed, and pursue deals on my own.

It sounds like the property management work is pretty shitty though, which I would have to do at least until I got enough properties under management (~50) to hire a full time property manager under me.

 

Think about it. Ppl only call property managers when shit goes wrong. Imagine a job where you hope the phone never rings

 

Honestly, don't let us dissuade you from being an entrepreneur. I'm not trying to shit all over your plan or anything - I just want you to know what you're getting into. Property management is stressful, unfulfilling, time consuming, and somewhat soul crushing. That doesn't mean you shouldn't do it.

Commercial Real Estate Developer
 

I appreciate the feedback. I understand everything on this forum should be taken with a grain of salt, but its helpful to read the extreme responses that WSOers like to provide. The other big unanswered question is how this move could affect my business school chances (targeting HSW), but I wouldn't expect this sub-forum to know the most about that (it's so unique combined with my profile, that I'm probably best off just talking directly with Ad coms about it). Still, always open to hear thoughts.

Best case, I take 2-3 years building up a solid portfolio of properties to manage, hire a few full time property managers to run the business, and then collect semi-passive income from the business while I'm in business school. Or sell before / during business school (recurring revenue businesses are easier to price and sell).

 
VodkaRedBull:
Best case, I take 2-3 years building up a solid portfolio of properties to manage, hire a few full time property managers to run the business, and then collect semi-passive income from the business while I'm in business school. Or sell before / during business school (recurring revenue businesses are easier to price and sell).

The posts crapping all over property management as a business are a bit over the top, and you could certainly build a great business managing others' property, particularly once you achieve a certain scale. That said, a post like this makes me fairly certain that everyone warning you that property management entails a lot of headaches is steering you in the right direction. If it was that easy why would anyone pay a property management company? Shit happens all. the. time. You can't just hire a couple people and then set it and forget it.

 
scott hartnell:

Don't listen to these soft 'financial analysts' that never screwed in a lightbulb, you can make a lot of money if you're competent believe me

I would think so too. The person above talking about how capital is more "efficiently allocated" toward a physical property than toward a property management business: why is that a given? It costs nothing to add a property management client and bring in fees. If it's an apartment complex, you bill the leasing agent's time to the property. And what is this about buying vans? Who's buying vans?
 
scott hartnell:

Don't listen to these soft 'financial analysts' that never screwed in a lightbulb, you can make a lot of money if you're competent believe me

This too. I pay someone a lot of money to screw in my light-bulbs and they're still bloody incompetent!

On a serious note though, property management is pure operations which means you'll spend a lot of precious time and energy arranging for lifts to be fixed, carpets to be cleaned, and putting out all sorts of fires. Not to mention the heartache you'll go through signing-on and retaining clients .

Anyway, the important thing is to do whatever you find yourself doing well.

 

I started a property management company and from my experience it is easiest to manage your own assets first. Think about your property management and investment side separately. Either way, someone has to manage your investment properties so it might as well be yourself. Once you have somewhat of an infrastructure in place, it becomes a lot easier to sell and get new clients. You can point to buildings/units you currently manage and show that you have at least some experience.

If I am an investor, why would I hire some no name startup when there's tons of established prop mgt companies with system in place? Think of ways to answer that question.

 

I'm not sure how seriously to take OP, but I will play devil’s advocate and say that there is a lot of opportunity for a smart person to make big money by starting a property management company.

3rd party property management has always been popular in MF and big innovation is happening in SFR. But you need to think beyond leasing a quadplex to your local college lax team, then getting a handyman to patch the drywall after those idiots punch holes in it. That is totally miserable shit.

You need to think of ways to add value that most mom and pop managers can’t. Can you develop a tech-enabled solution to optimize property maintenance (smart apt/home devices, app to route maintenance men, etc)? Could you hire your college students and start a call center that drives leasing?

Additionally, there are a bunch of higher value-add services I would want to offer in addition to traditional property mgmt. Examples of these are: property accounting, REO asset mgmt, 3rd party valuation services, pre/post rehab budgeting and inspections. You can even do a capital markets component from the SFR side in terms of matching property owners with financing sources such FirstKey and B2R, as many rental homes are not optimally financed.

 

As far as how to compete with existing property mgmt businesses, offer your first 90 days free (or something like that, maybe that's too extreme) and start collecting properties

 

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