When it comes to multifamily investment, you’ll come up with plenty of questions for your sponsor to answer. BAM founder and CEO, Ivan Barratt, encourages anyone thinking of investing to ask questions and he’s also filled a website with his own hard-earned knowledge. Today, we give you some real-life advice from our own Ivan Barratt, in today’s edition of the BAM Blog…
Property Management and Fees
When you’re looking for a property management firm to handle your investment, you might be surprised once you see their rate or think that they’re billing for everything. How do you know what’s standard, or what to look for when you’re new to the business?
Ivan notes that good property managers do charge upwards of 10% and beyond, with 10% being standard for a single-family through four unit property, plus leasing, renewal, and construction/management fees. Since these are smaller properties, for the property management company, it’s what Ivan calls a “game of nickels and dimes” and if that manager doesn’t watch out they’ll end up working for free.
He cautions to beware that in property management, as in most else: you get what you pay for. If you decide to save yourself some cash, rest assured these “bargain basement guys” will end up costing you one way or the other. Ivan notes that may mean they figure out they have to scale up and raise rates to build a good team or instead they may end up working harder and taking on too many properties. Neither one of these scenarios is ideal for you, the investor looking to find a solid property management company. The company raising rates will go from bargain to bigger bills, and the one working harder likely means that your service will suffer.
One important fact that Ivan always notes is that with more units under one roof, the economies definitely improve. According to Ivan, once you pass 100 units, you’ll gain the benefits of having on-site management and not having to worry about losing one resident – because you still have other current residents to absorb the immediate lost cash-flow. Meanwhile, if you own and rent a single-family property and lose your renter, that can be an immediate problem.
The BAM Bottom Line: Find a property management company that isn’t looking to be a bargain basement group, and remember you get what you pay for. If you hesitate at standard industry rates, you’ll end up paying sooner or later. With larger properties come better economies of scale.
Want to learn more about multifamily investing with advice, pro-tips, and more from Ivan Barratt? Head over to ivanbarratt.com, where you’ll find a free library of videos and blog articles featuring Ivan and his years of experience, insider info, and industry knowledge.