#202: Management Structure for Multifamily Properties

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Hey, guys, welcome back to Accelerated Real Estate Investor. Hey, it’s Josh, excited to be with you. It’s just me. Today, a quick solo cast talk about the differences between third party management and in-house property management. That’s why we’re going to be discussing today. And in this episode, I’m going to compare the differences and fees, costs, mentality, psychology and structure of in-house management. Where you own the property manager yourself and stand up your own team versus outsourcing third-party management to a big third-party management company, I think you’re going to like this comparison and the structure and the benefits of each. So go out and take a listen to the next episode of Accelerated Real Estate Investor. Thanks for being here. Here we go. 

So, you guys, welcome back. Hey, it’s Josh, welcome back to Accelerated Real Estate Investor. And in this episode, what I want to do is talk to you a little bit more about management structure within your multifamily properties. And the structure between the owner operator, the asset manager, property manager, maintenance manager, maintenance tech, leasing agent, capex manager, you’ve probably heard all these things. By the way, if you’re catching this on a solo cast in iTunes or on a podcast, make sure you go to YouTube because that there is a video portion of this video that I’m going to share on YouTube. So make sure you subscribe in wherever you get your podcasts. Also subscribe on YouTube so you never miss an episode. This is going to be released both in audio and video format, so it’ll be available on YouTube. So here we go. One of the questions that you might be asking yourself is, well, what team do I need to build when I scale and grow my real estate investing business, especially if you’re doing multifamily and lots of units within. Thirty-five hundred units, three hundred-million-dollar portfolio, some of those deals we own, three percent of some of them we own. Ninety nine percent of some of them are joint venture partners where we own 20 percent of the deal, some of them we syndicate and we own 80 percent of the deal. So it’s a big portfolio, full transparency. I don’t own it all myself, but I am the majority owner. I own a huge portfolio, huge chunk of it, and we’re excited about it. So one of the things we’ve been doing in our business is thinking through like management structure. Do we do in-house management or third-party management? Because when you’re buying a lot of multifamily properties and apartments like the the whole business of finding deals and raising money is almost like its own business. And then property management is almost its own business. And then capital improvements is again, almost like its own business. Think about it. One of these last deals that I bought was a three-million-dollar deal is going to be worth five point two million, OK, this is on fifty two lake property that we bought in May, and that deal is going to be worth about two million dollar’s worth of equity, about one hundred fifty thousand dollars a year in cash flow and about four hundred thousand dollars in cash out reify proceeds. But what did I basically do when I bought the building? I bought the business. When you buy a building, you buy the business. So now the question becomes, do you want to do in-house management or out of house management? And so let’s talk about, if you do out of house management or third party management, you could hire various property managers. We have a local property manager called REM. They manage one of our buildings. We have lots of buildings in the south. I’ve partnered up with good friends of mine, including Tim Brocks and Demitry and Shane Carter and George Brayou. These are guys that have done a lot of deals with and we’ve used various property managers, including Asset Living and Trinity Multifamily. Next week I’m doing an interview with Lincoln Lincoln, the second biggest property manager in the country. They’re flying out there, bring in four or five people to meet us face to face and to possibly take over our portfolio in Cleveland. And so we’ve got all these different property management groups. Right. So. Let’s talk about third party management for a second and the structure, so here I am and my team, my partners, Glenn and Tyler we’re the owner. You are the owner of the building. You raised the money. You bought the asset. You found the asset. You closed on it. You own it. One of the things we like about third party management is the fact that if you have third party management, big property management company, maybe they they manage one hundred thousand doors and you own 500 doors or you own a thousand or so, you know, in two thousand doors. In the grand scheme of things, you are actually a very small client. OK, you own one hundred thousand doors, you own five hundred units that put you in put things in perspective that every business is scalable. OK, but underneath you as the owner operator, when you work with third party management below you, you essentially have an asset manager or a regional vice president, a regional manager. Below you is this asset manager/regional manager. So if you work with a large third party management company. They’re going to have a regional or an asset manager that maybe lives in your market, they physically live in your area and they’re managing thousands of units in your market, let’s call it the mid-Atlantic market, the Midwest market, the Ohio market, whatever it is. But that asset manager and regional manager now is responsible for all the property managers. OK, so all the property managers. Are now working under them. Well, now you are going to have the next level of management under the asset manager or the regional underneath them is the property manager. That’s the person that’s going to manage your building. Could be fifty units, could be two hundred units, could be five hundred units. Whatever it is. That property managers were responsible for the day-to-day management of the building, which includes leasing and includes property management like evictions, three-day notices, taking care of maintenance, leasing up new units, make r turnovers, any of the regular maintenance that happens at the property, things like that. OK, so property manager now oversees the leasing agent. Property manager oversees the maintenance manager. 

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Maintenance manager handles maintenance toilets. Leaks clogs, faucets, kitchens, HVAC boilers, all that type of stuff, and then beneath the maintenance manager is the maintenance tech. The maintenance tech is just a regular grunt, probably makes 15 to 18 bucks an hour. That does trouble. Trouble cause trouble tickets. OK, so what I like about bringing in third party management is we’ll typically pay between three to five percent management fee, three to five percent management fee, and that is their profit. On top of that, you pay all the payroll, so you have the payroll for the property manager, payroll for the maintenance manager, payroll for leasing agent payroll know, maybe commissions for the leasing agent and then payroll for the maintenance tech. OK, so what I like about third party management is they bring in their group. The property manager finds maintenance manager, maintenance manager finds the maintenance techs, property manager finds the leasing agent. So when you buy the building, if you’re focused on acquisitions and raising capital and you’re also focused on your capital improvements or your construction. OK, your major renovations, hiring a third-party manager allows you to stand up that whole business that you don’t need to babysit every day. You’re sitting at the top of the pyramid, you manage the asset manager or the regional below you, and you make sure that they manage the property managers, the property managers, manage the maintenance managers, manage managers, maintenance techs. And also, the property manager also manages the leasing agent, so you could stand that whole thing up, maybe pay about fifty thousand dollars for a property manager, about thirty-five to forty thousand dollars for a maintenance manager, and about thirty-five to forty thousand dollars for a maintenance tech and a leasing agents, typically to make one half of the first month’s rent in a commission for placing a new tenant. And then one hundred and twenty-five to one hundred fifty dollars for renewals. So think about this for a minute. If I have a hundred units, a hundred units that my leasing agent leases up that are brand new leases, one hundred, times, let’s say my average rent is four hundred bucks. OK, that’s forty thousand dollars a year. Let’s say our average rent is twelve hundred bucks, so that’s half of that is six hundred dollars that’s sixty thousand dollars a year, one hundred times six hundred sixty thousand dollars a year. So really, the breaking point for most leasing agents is one hundred units if they’re going to lease less than three or less than one hundred units. It’s just worth it to pay the leasing agent commission if they’re leasing more than one hundred units. Then you might be better off paying them a salary with a small bonus. OK, so very important that you when you’re outsourcing property management, it’s great to have that asset managers, regional sitting above your property manager because you’re basically getting that asset manager. And that’s the person who’s ultimately responsible to report back to their corporate office. That they’re having good results, so they report back to their corporate office, but they also report to you that the property is being managed right. OK, so I love having the asset manager or regional who’s essentially working on your account they’re cracking the whip on the property manager. The property is cracking the whip on the leasing agent and the maintenance manager. OK, so that’s one of the reasons why we’re like third party management, because if we’re standing up acquisitions, we’re standing up raising capital and we’re standing up our capital improvements, which includes unit turns and roofs and windows and dog parks and ceiling and stripping driveways, any kind of major landscaping or hardscape that we do at the property, any new signage, new workout rooms, like a new pool, that’s all-capital expenditures or capital improvements. That’s a business by itself. Property management is a business by itself. Finding and raising capital is a deal by itself. And I kept telling myself over the last couple of months, I’ve got I feel like I’m I’m starting. Five new businesses all at the same time. OK, I don’t want to do that right. And so we’ve had all these properties we owned for years, but every time we stand up, another two hundred units, our models built off a two hundred units. Every time we stand up and buy 200 units, we’ve got to stand up a new property manager. So I feel like I’m starting a new business. So instead of that right, consider third party management. So there you have it. I hope you enjoyed that comparison, my thought process, my reasoning, you know, as I think through third party management versus in-house management for every new two hundred units that we stand up in, another property manager, maintenance tax, leasing agents, capital manager, maintenance manager. I hope you enjoyed that episode. If you did, make sure you subscribe so you never miss another episode of Accelerated Real Estate Investor. Leave us a rating, leave us to review. Share this all over social media. Help us, you know, share the message of accelerated real estate investor, help us build the community. Also, if you’re interested and you feel like, you know, I’d love to do this, but I need some coaching, go visit JoshCantwellcoaching.com and apply to be one of our coaching students. Also, if you’re interested or mastermind group, we have a great mastermind group that we’ve stood up. It’s called the boardroom mastermind. You can apply at SRECMastermind.com/RSVP. You can RSVP there. So if you’re a new to intermediate investor, you probably need coaching. If you’re an intermediate to advanced investor, you need to collaborate and share ideas with other intermediate to advanced investors. And that’s the group that we have. So check those out. Don’t forget to subscribe. Thank you so much for being here again on Accelerated Real Estate Investor. We’ll see you next time. Take care. 

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You were just listening to the Accelerated Real Estate Investor podcast with Josh Cantwell. If you enjoyed this episode and learned something new, help us build the A.I. community by leaving a review and five-star rating on our iTunes podcast channel. Also, don’t forget to subscribe so you never miss another episode. To see passive investing opportunities, visit FreelandVentures.com/passive. To start your journey toward the lifestyle you’ve always dreamed of with multifamily apartments, apply for one-on-one coaching with Josh at www.JoshCantwellCoaching.com.

When investing in a multifamily property, it can feel like starting several new businesses. From finding the deals and raising the money, to property management, to capital improvements; each of these can feel like a separate business venture. Finding a third-party property manager might be a good solution to take some tasks off your plate. Today I’m talking a little bit about the difference between third-party management and in-house management: differences in fees, costs, mentality, psychology, and structure.

You may want to position yourself at the top of the pyramid and not deal with the day-to-day issues of property management. When you go with a third-party management, you are the owner. You raised the money, you found and bought the asset, you closed on it. It’s yours. When you hire a third-party manager, especially a large regional manager, they will likely have a property manager that physically lives in your market; this is the person that is going to manage your building, including things like leases, evictions, and maintenance, etc. Under the property manager, you’ll have the maintenance manager who manages all the maintenance issues. Beneath them is the maintenance tech, who handles all maintenance calls and the day-to-day of maintenance. One of the huge benefits of a property manager is that they bring in their own people. They hire all the employees and manage them. Why is this beneficial? You can focus on acquisitions, raising capital, and any improvements. You don’t have to worry about the day-to-day issues and focus on the bigger picture of growing your portfolio.

When you manage in-house, you fill many of the roles discussed above. You are the one handling leases and evictions as well as dealing with maintenance issues (or managing someone who does). This can be a lot, especially when you are wanting to pursue other things, like acquiring more investments and capital improvements.

The bottom line is there are many benefits to hiring a third-party management company versus handling it in-house. It can buy back more time for you to focus on the ventures you really want to be pursuing.

What’s Inside:

  • The time benefits of hiring a third-party manager.
  • Why you want to be at the top of the pyramid when it comes to your investments.
  • All the things hiring a third-party manager can take off your plate.

Mentioned in this episode​

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