In this episode of The Nick Huber Show, I want to talk about property management. This isn’t necessarily real estate for beginners, but with that being said, it is something that you need to keep in mind when asking yourself “how to get started in real estate.” It is misunderstood by so many folks, especially beginners, that when looking at a property listing that’s for sale on LoopNet or through another local broker, the first thing you go to is how it’s underwritten – the little details line by line. You look for an answering service, any employees who stop in to check on your facility, etc. That is often what happens when it comes to property management. Now if I’m being completely honest, I recommend starting out with you being that part-time employee, and you being that answering service, and as you grow, you learn how to hire the right kind of employees. As you build out your real estate portfolio, naturally you’ll learn the importance of property management.
This sounds wild and different, but since this is a podcast for real estate investors I’m going to tell you a little bit about what I’ve learned as we’ve grown our own real estate portfolio. We’ve added 25 properties, 680,000 sq ft, and built a management company with 15 employees, so the difference between the way a small-town owner underwrites management and the way the big players underwrite management is very clear – it’s is not a part-time phone answering service and a guy who goes out to the facility. True Property Management is a full-time business and job in itself. It’s set up this way so that the owner, investors, and the people who own the piece of real estate simply sit back and collect checks. That’s scalable big business right there.
You see people who scrimp and save their pennies on property management by answering tenant calls, texts, collecting the rent themselves, and they go out to the property on Christmas Day because the boiler breaks down. Then there’s the other people who are the type of investors that have a full-on inclusive management company with executives, a team, or an entire system that is outsourced all together, leaving their only job at this point to read their emails and chase additional deals.
Now what most people don’t realize about real estate is that a deal needs to work for three parties once you hit a certain scale. It’s inevitable at a certain point with growth. First is the investor, the second person is the general partner or the GP, that’s me, and then the last piece that is often overlooked in a business is the management company. You could outsource to third-party management, that’s one way to do it. But what most of us do – Moses Kagan, Chris Powers, myself – we operate in-house because we have realized that this gives us a competitive advantage. I am a good operator. I know what I can do to drive revenue. I know how lean I can operate a facility. My secret sauce is in my operations, and that is the way it works for almost all successful real estate investors. The X factor on any deal is your management plan. How well can you manage to keep costs low? How well can you bring in new tenants? How well can you do SEO? All these play a major role in giving my company the advantage.
With all that being said, serious self-management at scale is the key for many real estate investors, and lucky for you, I’m gonna tell you some good news: property management companies are lazy! You’re better off taking operations in-house. Not only that, but most real estate investors are extremely passive which is why they seek out these lazy property management companies. The owners who are wealthy are the ones operating. There is so much potential in real estate, but there is almost so much waste because they don’t innovate, which is extremely advantageous for you.
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Three Key Takeaways:
- When starting out in real estate you may have to start out managing a piece of property yourself. However, that is extremely limited and at some point you’re going to need to scale your business.
- There’s a difference between small-town investors and the big business mentality and it all comes down to how you handle property management.
- Property management companies are extremely lazy, and it is much leaner of an operation if you can bring property management in-house, hiring the right people to do what these property management companies won’t simply because of their laziness.
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