Property Management on house question; lessons learned?
I have commercial assets around $45-50m. Mostly retail strip centers in and within 4 hours of Kansas City. 

95% of the leases are NNN and thus include Property Mgmt fees (being charged 3-5% collected rent). 

It’s gotten to a point the property mgmt company gets paid more then I cashflow on a few places…. So I’m thinking, why not just do my own property management under a different LLC. Keep mgmt fees the same so no increase in NNN but keep the money myself

Any problems or lessons learned doing this in-house?  Working on insurance de quotes now. I have Yardi Breeze ready to roll out.
[{"id": "invdfho", "text": "Have you thought about switching and/or renegotiating the management fee?  \n\nSelf-managed properties work, but also having an agent on your behalf is helpful, especially for leasing, budgeting, and reconciliations. Additionally, it takes a personality to manage the tenants/disputes.", "replies": [{"id": "invdqfe", "text": "I have thought about it\u2026. On the flipside, I spent about 300 to 350,000 a year on property management. My thought was to hire someone at 80 to 100,000, give them 5 to 10% of their net income as a motivator. And still take home upwards of 150,000 additional.", "replies": [{"id": "inve5gp", "text": "My gut reaction is that a 3-5% management fee on the net income is high. Interested tho if anyone has other takes.", "replies": [{"id": "inveba6", "text": "3 to 5% of collected rent, not NOI. I have three different management companies and they\u2019re all about the same fee structure.", "replies": [{"id": "invp541", "text": "Usually management fees are measured on EGI. 3% would be on the higher end for most properties. It depends on how much work the management company has to do though.", "replies": [], "depth": 5}], "depth": 4}, {"id": "invklgl", "text": "3-5% is typical in Midwestern markets for strip retail.  Usually the higher the rents, the lower the mgmt fee. I start my underwriting at 5% MGMT fee when doing a proposal to sellers, then will tweak it down to 3% to try to juice the NOI if the seller needs more than where I suggest the deal will close at. 3% is min in my underwriting, and even then, it\u2019s not a given MGMT companies will be excited to take on a center in my experience, to do it for 3%", "replies": [], "depth": 4}, {"id": "inxeran", "text": "In my area 3-5% is pretty reasonable. It seems like OP has a substantial portfolio, while 100k is a good salary I am not convinced that one person could take care of everything by themselves. The company he is currently paying probably has a whole team working on it (bookkeepers, project management, leasing assistance, tenant relations etc.)\n\n\nSource: I work for a small management company with a portfolio of buildings. We have a small team and sometimes it is still hard to catch everything. Especially if one or two of your associates catches Covid. If you have emergency problems at more than one site it can be tricky to cover everything.", "replies": [{"id": "inxwl5o", "text": "This. 100% not the one person job op thinks it is, and the suggestion of 'paying a guy 100k' shows a naive view on what actually goes into mgmt", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "invv634", "text": "I know several offices that pay all of their overhead of management fees.  I\u2019d go with that option.", "replies": [], "depth": 3}, {"id": "invxypb", "text": "100% do this. With that much in property management fees on your own assets it makes sense. If you hire someone good for a little more they may even build it out for you. Wouldn\u2019t be hard to then manage surrounding properties and take advantage of market data.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "invfvrl", "text": "Can they do a lower fee and pass through the payroll to the tenants?  Leases allow that?  Can you pass through the entire PM Fee?\n\nThat way, the the 3PPM cos make their money, but the deal isn\u2019t paying for it. You get more cash flow.", "replies": [], "depth": 1}, {"id": "invka2w", "text": "How long have the property managers been on those properties? Does one company or one manager handle most of them? If so just see about hiring the guy who already does all the work. You will need payroll set up, and benefits and unemployment insurance ect, maybe you have all that with your own company but maybe not.", "replies": [], "depth": 1}, {"id": "invu6bl", "text": "Totally doable.  Just account for all your costs, such as payroll, PM software?, office rent? Travel costs for your employee(s) to visit properties, etc.. and see if you think you\u2019re further ahead.\nManaging staff brings another type of issues sometimes.  Having a PM company you can simply replace has advantages.", "replies": [], "depth": 1}, {"id": "invudgk", "text": "How many tenants do you have and what is the total sq.ft. of your properties?", "replies": [{"id": "invusmc", "text": "80-90 tenants; 475,000 sq feet", "replies": [{"id": "inw1m0s", "text": "That seems like a reasonable size to consider doing your own property management. \nYou likely can lower fees by doing your own property management and hiring on an experienced property manager and maintenance staff to cover the buildings. Another option is network with other building owners and see if they would be interested in investing in a joint venture to start a property management company or sign up other buildings to your management company to get a larger amount of building under management. One of the incentives of starting a joint management business could be billing out maintenance staff at close to cost vs inflated fees. I could see maybe getting management cost down to 2.5% or 2%. But this probably isn't factoring in your personal time as filling in the role as Regional manager/CEO of the property management.\n\nThe question is if you want to get into the business of managing staff and vetting your own contractors. One of the benefits of bigger property management companies (1 million+ SF under management) is doing some big project that is using or vertting contractors more frequently to have a list of good contractors and more leverage in getting them to fix things or risk being blacklisted for future jobs.\n\nYou may get burned by some bad contractors initially once you realize they are the cheapest quote for a reason.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "invup13", "text": "Property management is a full time job. You will spend evenings, weekends, and holidays dealing with bullshit. You will spend your weeks dealing with bullshit. There is a reason burnout is high in the business.\n\nIf you are confident in being able to hire someone with significant experience that can take the work on, be available all the time, and manage your liability without a larger organization behind them, I have seen in house work.\n\nI have also seen people go in-house, and within a year or so lose half their tenants and find themselves in multiple lawsuits.\n\nI think it\u2019s completely about your level of experience in property management and how much your time is worth.", "replies": [], "depth": 1}, {"id": "invv3by", "text": "How many properties in total ?", "replies": [{"id": "invva79", "text": "9", "replies": [], "depth": 2}], "depth": 1}, {"id": "inw02lo", "text": "Not much to do on retail - assume you\u2019re hiring out leasing agents anyway. Just set up good vendors to do snow removal, landscaping etc. if shit is going wrong in the suites, your tenants will let you know.", "replies": [], "depth": 1}, {"id": "inw44ze", "text": "You've amassed what sounds like a solid portfolio.  At this stage of the economic cycle, don't risk it.", "replies": [], "depth": 1}, {"id": "inwdsjq", "text": "As an owner (multi family residential) I went the opposite way - I started self managing and at about 100 units I hired property management companies.  \n \nIt\u2019s not cheap but I realized after 6 months I was sleeping through the night because I could have my phone on \u201csilent\u201d after 8pm, I haven\u2019t had to cut vacations short and I can properly \u201cswitch off\u201d when I need to.  \n\nI saw the $100k/ year I am paying out as a cheap to buy my life back.  \n\nAlso, I realized that I\u2019m a better builder/developer than property manager - my attention to detail is great during construction but gets needlessly expensive afterwards. The companies I hired are doing a better job than I was.\n\nMy quality of life has improved a lot since I made the change and I have more time to devote to the things I\u2019m better at.\n\nJust my personal experience.", "replies": [{"id": "inxwabz", "text": "This guys a fraud", "replies": [], "depth": 2}, {"id": "iny1ahl", "text": "Have you ever heard of the concept of feedback analysis? \n\nIf you have- spot on. \n\nIf you haven\u2019t- it\u2019s basically what you did and extremely effective?", "replies": [], "depth": 2}], "depth": 1}, {"id": "inxppf1", "text": "DM me if you like, I have strips in wichita and Lawrence.  I self manage almost everything and have used Rentec and appfolio. Getting a software that you\u2019re comfortable with is probably the most important, onboarding everyone will be the most time consuming but once it\u2019s done it\u2019s pretty easy. I have had good luck getting tenants to set up for auto pay, some national tenants won\u2019t but will ACH. The only issue I ever have right now is with loan max.", "replies": [], "depth": 1}, {"id": "inxv9fm", "text": "Just curious are you partner in these assets or main owner of these assets? What does your group think about hiring doing what you mentioned with the 150k + 3% net?", "replies": [], "depth": 1}, {"id": "inxw5zr", "text": "This post doesn\u2019t make sense to me. \n\n#1 - Property management fees usually range between 3-8% of GR, especially in a mkt like KC. So 3% seems pretty below market to me. I know it\u2019s super competitive out there right now but idk if I\u2019d trust a 3% PM to manage 50 mill in assets\u2026. \n\n#2 - property management fees can be deducted on your 1040. So this is good for cash flow????????\n\n\n#3 - you\u2019re just going to start up your own management company w no experience managing, let alone 50 mill in assets? You\u2019re going to take care of all the day to day shit at the centers including monthly bills and collecting rents and taking care of all the service contracts and negotiating builds outs w contractors if there\u2019s LL TI and HVACs and all the other stupid shit basically tomorrow? \n\n#4 - you\u2019re serious?", "replies": [], "depth": 1}, {"id": "inybyg7", "text": "That\u2019s amazingly high gross rent compared to California. Taking as $350k PM cost as 3% of gross rent = $11.5 mil off of $50 mil assets for a 23% return. I guess it\u2019s time to look in the Midwest for CRE investments!", "replies": [], "depth": 1}]