Owners, Start Your New Firms

I spent last week in Texas, ultimately at the Texas Multifamily Summit in Austin.  It was a great experience.  As I moderated the panel, it was surprising how fast the trend of multifamily property owners creating their own firms was spreading.  The panel included Richard Fishman, founder of ValCap Group in Dallas and Jason Cohen of the JoCo Partners, of Austin.

Our panel started with an informal poll of the audience, a group of about 40 multifamily owners and developers.  It appeared that 90 percent of the audience had already created their firms but were looking to streamline their internal operations and learn best practices.  We discussed the motivations, risks and benefits of creating your own firm.  Richard Fishman, of ValCap Group shared his experiences in first outsourcing some back office functions to India and then switching to our firm, based in Las Vegas.

We’ve had numerous requests for the presentation slides.  So here is the link to download the slides.

One of the questions are what are the financial benefits of creating my own management firm? Is there a financial benefit to having my own firm?

The answer was best illustrated with a few slides in a direct comparison. Below are two case studies of owners, one with eight properties and 2,000 units and another with ten properties and 400 units in a high-rent market like New York.

  • Ten properties, 2,000 units – This Midwest-based owner paid a three percent management fee that amounted to $63,000 per month.   She chose to hire a VP of Operations, who with benefits cost $11,800 per month. She outsourced accounting and HR to Ascent and the marketing and advertising to a real estate marketing firm. The total cost of outsourcing was $31,000 per month, creating a savings of about 51 percent (see Table One).
  • High-rent, small properties – This owner with 800 high-rent units (20 properties) spent $61,000 per month in management fees, with the management company taking four percent of total rental income. They were able to hire a VP of Operations at $150,000 per year ($12,500 per month plus benefits), outsource their accounting and marketing for better service to their properties at a total annual savings of $334,000 or 46 percent. (see Table Two).

The one thing I see is that most of our clients don’t change solely for financial reasons. Most make the change because something else wasn’t right. They are frustrated that reports aren’t right or on time or there is some other indication that the interests of the management firm weren’t aligned with the owner’s goals.

As a partner in one of the industry’s larger outsourced accounting firms, I help clients make that decision every day.  It isn’t for everyone.  We’ve seen two companies go back to third-party management in the last year.

If you would like to discuss why or why not, please give me a call at 702-467-0789.  I’d love to take your tough questions and share real world examples t0 help you any way I can.

 

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