What’s the reason multi family investors do their own management?
For my portfolio of 56 units, I’ve always used a property management company charging 6%. A lot of multi family investors I meet in person and online seem to be doing their management in-house. I don’t understand the reasoning for this. 

I’ve ran the numbers many times, the cost to hire in house is always more expensive and requires more effort. 

I currently pay around $37k a year to a management company which requires very little of my input. Hiring a property manager directly working for me would cost about the same, then I would need to pay for a bookkeeper, office space, hardware/software, insurance, transporting costs, assistant manager in case property manager takes time off. 

The list of costs and hassles go on and on. What’s the reason someone would choose to do in house management rather than hiring a company?
[{"id": "fmzzpft", "text": "Property management companies are generally terrible across the board and they have very little incentive to do more than put forth the absolute minimum effort.", "replies": [{"id": "fn006lt", "text": "Agreed. I have been exposed to quite a few property management companies and half are trash and the others are thieves. Eg toilet install 180 toilet 300 =480. My guy 25 dollars an hour toilet 110 water saver 135. We in house manage 66 units. We save enormous amounts of money.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fn00oz2", "text": "As a realtor in Orlando I have truly never seen an absolute 10/10 prop management company. And I would say most provide horrible to mediocre service. Many of them are just one guy in a large management company who never answers there phones and like being in control rather then working for the customer. If I had your portfolio and had the time, I would run it mostly myself and hire people hourly to do any maintenance work or housekeeping upkeep. If you don\u2019t have the time then I totally get it.", "replies": [{"id": "fn08b0d", "text": "Side question: what are you seeing in the Orlando market in terms of inventory and pricing for real estate? How has COVID affected the market?", "replies": [{"id": "fn08q20", "text": "It\u2019s definitely,  everyone\u2019s trying to act like it isn\u2019t but it for sure. I mean, people with money are still buying because they want good deals. Investors are still approaching but with caution. Inventory in Orlando has always been so low with a lot of buyers, so it\u2019s always been a good sellers market. But now a buyer with money has a lot of leverage. Overall though, slower, but still moving somewhat.", "replies": [{"id": "fn14yg6", "text": "what type of discounts are you seeing compared to pre-COVID?", "replies": [{"id": "fn3dx3g", "text": "I would say maybe 5-10%. I mean really all depends on so many factors. How long the house is on the market, the price point, if the buyer is cash or financed and if financed how strong is his or her finances.", "replies": [{"id": "fn3w19e", "text": "Got it. Yea that seems like a very light discount, likely bc it will take at least a few months for the full effects of the past month to be felt. For example, most lenders are offering 3 month's loan forbearance. Then it will take another 6-9 months for those homes to be foreclosed on.", "replies": [{"id": "fn3ypuy", "text": "Loan forbearance is a scam in my opinion. If you can make your mortgage payment even so slightly it\u2019s worth doing. Forbearance adds so many fees", "replies": [{"id": "fn3z011", "text": "It's hard to say a blanket statement about forbearance bc every lender has different policies. But yes, in general, it's not worth it, especially if you can make the payments. The only instances where you should consider it: 1. lender is not accruing interest during forbearance and lender is not reporting to credit agencies or 2. you genuinely cannot make the payments.\n\nOtherwise, once the forbearance period is up, you might get screwed if interest has been accruing and a lump sum payment is due.", "replies": [], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "fn0xouk", "text": "Orlando is getting slaughtered right now and most banks won\u2019t lend on any Multifamily deals in the MSA. Las Vegas, Orlando and and Houston are all pretty frozen markets right now in terms of lending.", "replies": [{"id": "fn15ooz", "text": "Sounds like a great opportunity for all-cash buyers", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fn01aqu", "text": "I think you are taking in house a little too far. It depends in number of units of course, but many people I know that have 30-50 unit are doing it themselves. And by themselves, I dont mean hiring their own manager. They are literally doing it. Many along side working a full time job. And at most hiring someone part time to do showings, and hiring out the maintenance work of course.", "replies": [], "depth": 1}, {"id": "fn01lsu", "text": "Once you have economies of scale, depending on your market and class it starts around 80+ units you will be able to afford a property manager and maintenance man for the property and then your costs will drop significantly.", "replies": [], "depth": 1}, {"id": "fn020uk", "text": "Wanting to cut the cost esp smaller size units.", "replies": [], "depth": 1}, {"id": "fn02bbu", "text": "No one cares as much as you do about your own property. It\u2019s about protecting your bottom line and your overall investment.", "replies": [{"id": "fn0lyrc", "text": "That exact sentiment is what I try to hold myself to as a PM. Care about the property like it was your own. The only thing I can do better than a property owner is knowing the market in my mind. Everything else has to be done perfect to meet the minimum of what the owner would do because if it were my property I would want everything done the best it can be.", "replies": [{"id": "fn0pcnu", "text": "That\u2019s very reassuring to read. One of our businesses is PM on a large scale.", "replies": [{"id": "fn3ujaz", "text": "I'm just a small PM. One man operation doing about 23 tenants 80k SQFT of commercial retail for 3 different owners, but it let's me be hands on with everything and make sure things are done right.\n\n I've been a manager in other industries with 30 people or so below me and some people care about the work they do for a paycheck and other don't. Such is life.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fn052ll", "text": "For us, we generally buy multi-family properties that require a value add and have below market rents. We work with an equity partner that funds most of the mezzanine capital (downs + rehab + capital reserves) while we handle the management and charge a fee to the \"project\". Taking on management responsibility serves several purposes. First, it allows us to really really get to know the asset and the tenants inside and out. Who is a problem or trouble maker. Who erects HAM radio towers and knocks out people's internet. Who pays on time, etc. Secondly, it give the main cash investor confidence that we are aligned on improving cash flow at the property (our management fee is a % of gross rents). Lastly, we have 5 partners and 3 of them are multi-family property management experts. Managing the properties is inside our wheel house and it is a differentiator when we are competing for money against other investors. We don't plan on managing the asset for it's entire life, but, in the first year or so, cash flows can often times be thin enough for the management fee to be worth paying to ourselves.", "replies": [{"id": "fn07bjy", "text": "&gt;Who erects HAM radio towers and knocks out people's internet.\n\nThis sounds like a good story!", "replies": [{"id": "fn0vc70", "text": "Tenant has a HAM radio hobby and says he can't take the towers down because of a pre-existing health condition. Unfortunately, they knock out the rest of the building's internet. Told him either has to take them down, leave, or help us syndicate the HAM radio talk show of our dreams /s", "replies": [{"id": "fn0zyw5", "text": "&gt; Told him either has to take them down, leave, or help us syndicate the HAM radio talk show of our dreams /s \n\nOld school podcasts.  Now I'm wondering if I can discriminate on tenants based on whether or not they have a Ham Radio Operators license.  This is hilarious to me, my friends all have Ham Radio licenses, and they bring their short wave antenne(s) when we go camping, and I've bought properties with towers, but never had someone add one while owning.  \n\n\nI guess I should review my leases and make sure it's forbidden.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fn05v2n", "text": "Alot of people slowly transition to in house. You risk this management company shutting down and now you are holding the bag. Iv'e seen many Management comp. sub lease and lie about fake invoices. I even got a story in Chicago where the management company let a family member move into a 500k condo with no credit check or background. She couldn't pay and the owner move to evict but the management company drag their feet and he was force to sell by the Condo board. One women I knew had some space in a bad hood, took 2 years to  find out that management was leasing places way higher then they were showing her. They even gave her fake check stubs on behalf of the renter. She thought they were renting for 750-1100 a month, the management was renting for 900-1300 and still charged her the 7%.", "replies": [], "depth": 1}, {"id": "fn05zgq", "text": "Most PM companies have to overload themselves with several hundred units and only a few staff, so your 50-something units gets a lick and a promise because they're busy. Then there's repairs/capex, which is the biggest direct financial issue - they don't benefit from saving you money on repairs, it's too much hassle for a PM to get 3 bids, so you pay next to retail and get nickel dimed.\n\nNow I use a PM on my 60 units, but it's a small local outfit who isn't greedy and cares about quality. It's rare but findable.", "replies": [], "depth": 1}, {"id": "fn088wu", "text": "Wow, lots of hate on PM companies.  \n\n\nWhen you get into a large property: 50+ a good PM company is going to make sure you have your own P/T Leasing agent, and a P/T Maintenance guy.  You have to level up your PM to someone who has management experience of this size. You outgrow that smaller asset focused PM, and move into bigger PM companies.  And they charge much lower rates.  I have a FT Manager, and 2 FT Maintenance people.  They are on my payroll.  When I was shopping around for a PM I was getting quotes at 2% of GSI, and all they do is handle advertising, legal, and capex projects. My rents are so low, that meeting their minimums actually pushed their rate to almost 10%, this is a large value-add play and when I get the rents and occupancy to where they need to be, I'll bring in the PM company and leverage them to take all that headache off my plate.  \n\n\nLong term, I'm training the Manager to deal with the value-add components, as I see them as fitting in as an asset as I continue to add more properties, and will act as a District Manager as I grow.", "replies": [], "depth": 1}, {"id": "fn08u4h", "text": "I'm the opposite. I currently use three different property management companies and don't regret it one bit. I will gladly continue paying their % fee to not deal with everything they have to deal with for me. \n\nI'm not a hands-off owner though. I'm more of a CEO who sets the strategy, but let's them run with it, monitors them and gets involved when tweaks need to be made. I'm typically at my properties on a weekly basis and also have a weekly call with the PM companies.", "replies": [], "depth": 1}, {"id": "fn0fvzq", "text": "It's not primarily to save management fees, it's to improve performance.  No one will care about your property like you will, and property management pays so little that PMs have incentives to get as many units under management as possible and then do whatever is easiest (to allow them to get more).  \n\nHolding out for higher rents vs. wanting to fill units as quickly as possible.  More stringent tenant screening.  Choosing whom to use and how to handle repairs/maintenance.  Knowing about issues sooner, planning ahead for things.  \n\ne.g. a property with old plumbing has a toilet supply line leak.  PMs will dispatch maintenance, charge you for the maintenance + markup (or at whatever their rate is if in-house), then 2 months later when the other bathroom does the same thing they'll repeat the process.  Now you've had an annoyed/inconvenienced tenant twice.  You (or a good PM, but they are hard to find) would have all of the old stuff replaced on the first visit and let the tenant know you were proactive, so this irritating experience gets spun into one that's at least partially positive, and you've gained some cost savings doing it in one trip).", "replies": [], "depth": 1}, {"id": "fn0w1j6", "text": "You have a better market than I do. In NJ, we're paying 10% of gross rents for PM which only includes processing rent payments, paying bills, and taking maintenance requests. Showings and new renters are a separate 1 month's rent fee. Evictions are done by a market rate attorney. Not to mention the markup they have to do any repairs. Many times a PM is the difference between being black and being in the red. PM is just too damn expensive especially compared to the cap rates we have here. \n\nFor Example, say you have a 10 unit $1MM property with a 7% cap without PM and a 10% vacancy rate.\n\n70k annual income with 150k in gross rents\n\nPM Expenses will be 15k plus. 15k a year just to pay bills, collect rent and call maintenance? That's ridiculous.", "replies": [{"id": "fn1qf66", "text": "&gt;10 unit $1MM property with a 7% cap without PM\n\nThere is no such thing.  Cap rates are based on NOI . NOI is net of operating expenses.  Property managenent is an operating expense.", "replies": [{"id": "fn1zg06", "text": "I understand that. I excluded PM for ease of calculation. In either case, PM Costing 1.5% of property value makes it not worth it for midsized REI. Almost all the investors in NJ that I personally know that have over 10 to 100 units self manage.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fn0xpq2", "text": "Probably should be somewhere else, I apologize. Any recommendations on good eviction attorney in the New York area. Just one 3 family, live in landlord. Tenant hasn\u2019t paid for months before the pandemic stated. Tried to be accommodating /understanding, excuse after excuse -  because they have been good for 5 years but really I just wasted a whole bunch of time. Believe me I know I\u2019m the asshole and with what\u2019s happening I\u2019m screwed worse now but can\u2019t even find a decent attorney. Again, been looking before this started.", "replies": [], "depth": 1}, {"id": "fn0yyql", "text": "what's your total rent roll?", "replies": [], "depth": 1}, {"id": "fn123ss", "text": "The real reason is unsophisticated investors don\u2019t budget the cost of PM into their deals so they can\u2019t afford it. Everyone in the past few years has overpaid to get deals closed.", "replies": [], "depth": 1}, {"id": "fn1o7bp", "text": "In order to build out a true management company you need a lot of scale - like think 15-20k unit scale. At that point you need to hire a ton of back office people and internal management to do it, and while costs are lower for the fee (~3-3.5%) you need a lot of top line revenue to make it economic. A lot of the software systems you need (yardi, yieldstar, etc) are also really expensive so you need a large unit base to cover the cost. \n\nAt a smaller scale I suppose you could do it but your human capital cost will be high - the more PMs you have the more oversight you need - and you also need to hire asset managers who understand the investment objectives. It\u2019s honestly a lot easier at smaller scale to not have your own opco and just hire out. Also as you scale up from 85 units to like 1,000 units you\u2019ll start to see a cost break from professional management firms. \n\nGenerally the opco business isn\u2019t really a revenue generator - it\u2019s a way to manage stuff better to drive your Cash on Cash or exit NOI for flips or whatever your business plan is. The only other benefit (which can\u2019t be understated) is that you have power over your own human capital - Bozuto or Greystar can\u2019t just pluck a good fee managed PM from your portfolio and put them at one of their owned properties. Fee based PM isn\u2019t a good revenue generator, nor is it if you bring it in house, you\u2019re just picking up the benefit of a lot more control.", "replies": [], "depth": 1}]