Ep 103: Property management – the X factor

Property management is the biggest thing that is misunderstood by so many folks in real estate, especially beginners. Starting out, you can be the property manager at your unit. This is usually a small part-time job to stop in sometime and check on the facility. At scale, property management becomes a larger expense and a full-on business in and of itself.

As we’ve grown our real estate portfolio, we’ve added 25 properties and 15 employees. Our property management team does everything to manage the property so that the owner and investors can sit back and collect checks. This makes the property passive for investors, and all they have to do is check their email once a month and get their tax returns.

If you see a $1M listing on Loopnet, you might see a monthly fee of $800 for property management. Big players see 5% of the property’s gross revenue tied to property management as they offer after-hours call service, on-site labor, branding fees, and other features that make the management truly passive. These guys are big, and they spend big, but they lease units and drive revenue better than anybody in the business.

At a certain scale, a deal needs to work for three different parties: the investor that just wants to get a check, the general partner, and the management arm. The management needs to be able to charge enough fees to cover the manpower and headache of property management while turning a profit. Many private equity firms operate in-house because it provides a competitive advantage. We know that we can beat our competitors because of our operations. We answer the phone, we keep the place clean, we hire well and affordably, and we establish strong vendor relationships. This all gives us a leg up over our competition.

Serious self-management at scale is the key for a lot of real estate pros. If you don’t drive revenue year on year, you’re leaving millions of dollars on the table. Most investors are passive and want to stay passive, so you need to deliver on operating.

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I started the Sweaty Startup in December of 2018 because I believe the Shark Tank and Tech Crunch culture is ruining the real spirit of low-risk entrepreneurship.