What's up guys. This is a great episode of Mentorship Monday. Justin, what did you think?
Man, what a great episode. Natalie comes on and talks to us about property management companies.
We give her some really good advice. She's wrestling with starting a new company. We talk
about starting small and having organic growth or just swinging for the fences and going for
a huge multi-family property, as a property manager. We talk about the staff required,
the tools, systems, processes, everything they might need to build a management company.
And if you love what we do here at The DeRosa Group in the DeRosa videos,
make sure you smash that subscribe button so you can hear about all kinds of cool stuff
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We appreciate you and enjoy the vid. What has happened in YouTube. It's Matt
Faircloth. Welcome to the Mentorship Monday show. Let me bring in my partner in crime,
my brother from another mother, Justin Fraser. Who are we seeing here? Who do we
got for our Mentorship Monday program? Today, we have our good friend, Ms. Natalie
Schanne. Natalie, how are you today? Fantastic. So I just became a real estate
broker in Princeton, New Jersey. And I'm thinking about starting a property management company.
And I know you've run one, so what are your lessons learned from running
a property management company, specifically- [inaudible 00:01:09] You have a broker's license,
right? You're not... You don't- I got a broker's license.
Correct. You've had an agent's license for a while. So, you've got a broker's
license and you're considering starting a property management company. What are the lessons learned?
Interesting, interesting question. Thank you. Brief history for those who don't know, I ran a
hundred and, we got her up to about 115 units of management. Mostly, our stuff, like 85% our
properties, 15% other people's properties, that we did before we handed that entire portfolio off to
SlateHouse Group. And that enabled us to really focus on growth and everything like that.
Sell, it's a necessary business, meaning, for the foreseeable future,
no one's going to start managing all their own rentals themselves. Right? So yeah,
it has to... It is a business that will never go away. And these even like, management of HOAs
that companies do that, there's PMs for condo communities and things like that. So it is a
business that will always have customers. And the fees are negotiable, the money can be good.
Here's the downsides of PM that you need to be aware of. Right?
You're not going to make enough money to either, pay staff or to really be in the black for
yourself until you're in the multi-hundred unit range. Right? Because, you'll cross over like,
I don't know, 30, 40 doors and be like, "Oh, okay. I got to hire a bookkeeper." or, "Oh,
I got to hire an administrative assistant." And then you get to like, 40, 50, 60 doors like,
"Oh, I got to hire a maintenance tech." The more doors you bring in, which is more revenue for you,
that's great, the more hires you have to make to support those doors to create a PM company that
is... that's functioning well, that gets good ratings that people like, that gets
good referrals and everything like that. I've never started a management company,
but I've hired a lot of management companies. And I've fired a few too.
A good management company is very attentive, they have top quality staff. They know the market very,
very well and they provide great service. And so, if there is a gap in your area or wherever
you're looking to do this, for a service like that, then there could be an opportunity.
So, it's like any business, right? What does the market bear? Is there a need for this service and,
to Matt's point, yeah, there're rental properties all over. Are you
planning to do this around where you live, in central Jersey here? Okay. So obviously,
lots of rental markets here in New Jersey, lots of rental properties. You have some, I have some,
Matt has some. There's a demand for that. Then the next question is, is there a vacuum?
Is there a gap between what the current managers in the area are offering,
versus what you think you can offer? How are you different? What's missing here? Like I said,
what do I look for in very good quality management companies? Right? So if you want to be
the best management company in your area, in Princeton, New Jersey, central, New Jersey,
what kind of skills do you have to offer? What kind of people do you have to up work?
People, it's a people game, really. So is this Natalie that's doing all of this work or is this
Natalie building a business with some really great hires, that's going to do all of this work?
So, what are the keys to managing the expectations of your clients so it's a
win-win for everyone? Because in general, it seems like everyone hates their property manager-
Oh, yeah. ... after some period of time.
For right now, when you're talking about managers of scattered site, single families, multis, and
little triplexes and maybe a duplex here, quadraplex there, that kind of thing. Right?
That's what we're discussing. Right? In that scenario, you only talk to your
property manager when the tenant's pissed, the tenant moves out, tenants stop paying the rent,
something awful happens, or on your monthly check-in. And it's always going to be,
you didn't collect enough rent, you spent too much money, you spent too much whatever.
Conversation with property managers on that size are always a little bit of like, what can you do
better? Right? Now, here's an idea, right? Now, you can just tell me, no, and whatnot. You could
also go and start a... not a scattered site, single family, residential property, which,
your brokers license would... Your broker relationship would likely give you the means
to refer lots of leads to autumn and you could probably scale out pretty quick. But, the downside
of scattered site stuff is, you're going to be chasing your tail for a while. You're going to be
revenue, revenue, revenue, higher, higher, higher. Revenue [inaudible 00:05:21], higher, higher,
higher. Until you get... I mean, no joke, Natalie, until you get to like, three, 400 doors.
But, I know you have an analytical mind. I know you well enough. I think that you're a grinder,
so I think that you could figure it out. Right? I think you probably could do that. Now, here's the
other way you could do. You could go and start up... Justin, what if she started like up a
Hawthorne company. Right? A Denton Floyd, right? Denton Floyd and Hawthorne are two
companies that we work with in other States, and they only manage big, multi-family.
Here's two ways that they make... That they benefit. Right? Number one, other property
management companies that are on the small side, they charge a big, old management fee.
And then, underneath that management fee comes all their staff. So, their support staff, their
site manager, the property manager that's going to go [inaudible 00:06:11], beat the tenants to
submission to make them pay the rent. Right? All that is charged out as part of that big PM fee,
which could be anywhere between seven to 10%. On a multi-family, you don't charge seven to 10%.
You charge three, you charge four. Right? Somewhere in there. But, all the staff gets
charged out on top of that. So the three to four is all profit, until you start hiring regional
managers. But, in the beginning, you would be the regional manager. You would sit in that seat. And
then, the grind is, you may starve for a little while and pay a lot of money for marketing and
pay a lot of money to try and real a fish in. And you find somebody that's got like, I don't know,
what do you think Justin? Like 80, 90, 100 unit apartment complex to give you a shot to say,
"Where's your track record?" "I got nothing. You just got to trust me." And then you go and take on
that apartment complex and manage that. Right? I think that's why you see a lot of these
companies do grow from the smaller to the larger, because I think that very first-
But [inaudible 00:07:09] the bridge... You can't climb the bridge.
... client is going to be... Right? Yeah.
No, I agree. If you can figure that out, if that is the challenge of the year,
to figure out how to get that first hundred unit client, I think you would be successful. Because,
for the owner, it doesn't make sense to hire a management company with staff
until you're around a hundred units. That might be a little less up here in New Jersey because
rents are going to be higher. So maybe it's 80, maybe it's 60. But, I don't necessarily want to
hire Natalie's new management company who's going to pay a leasing agent and a maintenance guy to
sit on my property, if I don't have enough money to pay them. But to Matt's point, yeah. The fees
are less, percentage-wise, but now you've got more doors. And you've got more revenue coming in and
the payrolls are already [crosstalk 00:07:50]. But she'll be profitable out of the gate. If
somebody came in and said, "Okay, I'll give you a shot, Natalie-"
Yeah. "... to come manage my a hundred unit apartment
complex." And now it's, "Okay, great. I'm going to charge you 3% PM fee plus payroll." So,
her staffing goes on them- Yep.
... on the owner. Yep.
And the 3% is all profit to Natalie's organization and a hundred and apartment building is going to
spin off in New Jersey, maybe 120, 130,000 in rent. 3% of that, that's not bad.
Yeah. Not a bad month. That's your first deal. Right?
Right. That's good money. And [crosstalk 00:08:20]
I feel like it's incredibly hard to break in doing that though.
Correct. So, you could end up doing nothing. And I think that it would probably be like a marketing
and a hustle and a networking game. Or, you start out slow and you grind it out. But I've seen...
And maybe that's the easier way to go and it's like, you could be managing...
You could be collecting February rents if you wanted to. Those are two different ways, is to go
super big and maybe starve for a little while and not have any clients, but do marketing and network
and try and find the right people. And then, boom. And maybe it turns... Maybe you'd take on... down
one apartment building. But that would vary... That domino, if you do right by that owner, that
would turn into 15, by the next year. But, it's a whole different animal and you need a mentor.
And I know a few that run big, multi-family companies like that for PM, that you're not going
to be competing with in Jersey. So- So-
Go ahead. I want to interject. I don't know how Natalie
feels about all of this, but, if that is your goal, if you want to go for big, big properties,
I still think that you need to... you have to build processes. You have to build people,
bookkeeping- Either way.
... reporting, structure, all that. I know. But it's probably easier, quicker to start doing that
on a one, a two, a four unit property. Start... At least with your own portfolio. And then build
some friends. You're well-connected in the local REIA group, right? Start to build a connection
and a process there, to at least have some track record. So when you do swing for the fences,
you've got something to point to and say, "Yeah. Look, we've been so successful here,
but our goal has always been to get over here." So, I have to run to go pick up my kids. But, I
want you guys to talk about, how did the economies of scale work? Like, when you had your internal
handyman crews, how many properties did each... were people able to handle
when you're hiring the- I can tell you.
... property management company? It's... Maintenance tech can handle somewhere
between 80 to 120 doors. And below 80, you should just sub the work out. The leasing agent, Justin,
tends to do somewhere between like 110 to 150 units, is what you want for a leasing agent.
[inaudible 00:10:22] that everybody would need to make about starting a PM company. And that
could be the title for this is, should I Start a Property Management Company. Should you go
small and try and grind up as fast as you can, hustle and grind it and process and systems and
procedures as hard as you can? Or, should you go big immediately and try and catch lightning in a
bottle? But then, once you do a few of those, then you could go like this, pretty quickly,
if you do the right thing. Yeah.
What are your thoughts? Two good choices. I know most
people go small and grow it, but why not trying to swing for the fences and build that business-
Yeah. ... and be ready to go? Why not? I love it.
I have yet to see anybody successfully transition from singles and scattered sites all over the
place units, over to big multi. I've yet- It takes time. [inaudible 00:11:09]
Yeah. We've hired a
few. We have a few now, that have done it, but it takes 15 years. Right? [crosstalk 00:11:16].
The companies we're using right now- Yeah. Yeah, our company in Kentucky started
with singles, duplexes, quads of their own. They did?
Yes, sir. I didn't
know that. Okay. I didn't- 20 plus years ago, but it takes time.
Yeah, yeah. Right. Right? It's not like
it was 20 years ago. It's a long time. I don't think they do that stuff. I don't think
they'll touch that now. I think that, that's- Nope, nope. And they've even sold off their
own because they don't handle the properties of that scale. It just
doesn't make sense at that scale. Well, it's not the end of the world,
the transition out of it. And that's what I did, as a PM.
Yeah. As an owner too,
as we're slowly selling our stuff- Mm-hmm (affirmative).
... that's under like 30 doors, where we're letting a lot of it go, just because we want to
focus as a company. So... All right. Good. Well, Hey guys, I hope this was of value. I know Natalie
had to jump for a family matter, but, I hope this is of value for the rest of the folks watching.
All right. Thanks for watching guys and
have a great and profitable week. Have a great a profitable week.