IMN Panel Recap: The Pros & Cons of Starting your own Management Company

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I recently visited Atlanta, Georgia to moderate a panel at the 6th Annual Middle-Market Multifamily Forum Southeast on the pros and cons of starting your own management company. I was joined on the panel by ACRE CEO Melanie Gersper, ILM Capital and WE Communities CFO Mark Moore and Providence Investments CEO John Mejia.

As we began addressing our audience of multifamily owners and developers, we initiated the discussion by explaining the benefits and challenges of owning your own property management firm. The panelists identified three reoccurring advantages, including control, access to expertise and information and financial growth.

“Starting my own firm in 2012 allowed me to take control of my life and career,” said Mejia. “Since then, I have managed over 4,000 units and almost $600 million in assets under my own leadership and personal strategies. Becoming my own boss has allowed me to not only add value to my own career, but to others as well.”

Each panelist went on to mention the leisure of taking control of their careers and the access to expertise and information that comes along with it. Through my years of experience, I have come to realize that this industry is unique in the way that owners and developers are consistently sharing knowledge and expertise to help others within our community succeed.

“When I first entered this industry, I had little multifamily experience as an overqualified pilot and was faced with many challenges, including thinking big, overcoming fears, raising capital and so on,” said Mejia. “One thing I never had to worry about was a lack of resources. I was welcomed with an abundance of insight and assistance to help me get on my feet, and within my first six months I was able to purchase an 800-unit property.”

Panelists agreed that along with having industry resources there to help you succeed if you put in the effort to find them, another advantage that comes with starting your own firm are the financial liberties and growth. While most of our clients don’t make the jump solely for financial reasons, it is a huge factor if you properly streamline your operations.

As your business begins to expand and take on new clients, the overhead expenses and internal operations will also start to see exponential growth and demand. Panelists discussed how outsourcing their back office and accounting allowed them to focus on client and employee services to optimize performance.

“Managing properties can be challenging, but with the right accounting team it eases operations by making everything more manageable,” said Mejia. “Through trial and error, I found that outsourcing through Ascent Multifamily Accounting has allowed me to focus my time on business development, growth and acquiring assets, rather than day-to-day reporting and accounting.”

This is best illustrated through the below case studies, 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 multifamily owner paid the typical three percent management fee which 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.

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.

Panelists concluded the discussion by touching base on which tasks can be effectively outsourced. The majority agreed that from personal experience with Ascent, human resources, payroll and benefits, marketing, accounting and financial services are practical for outsourcing.

As a partner in one of the industry’s larger outsourced accounting firms, this is something I help clients decide every day. While outsourcing is not always a perfect fit for everyone, it could make sense for those whose mutual interests and professional goals aren’t aligning with a third-party property management company.

“An outsourced business model is streamlined, practical and efficient,” said Mejia. “Ascent has been the best thing that has happened to my business. I have more time to ensure our clients are prioritized and operations are exceeding expectations.”

For more information on how you can start your own property management firm with Ascent’s help, please give me a call at 702-467-0789.

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