property management economies of scale is the focus of this guide for passive real estate investors. First, it highlights the main idea behind the topic. It also outlines the risks and questions worth reviewing. As a result, you can approach the discussion with a clearer framework.
What to know about property management economies of scale
Core ideas for property management economies of scale
A Shared Vision
As operators of large multifamily assets, we rely on third-party property managers to execute our vision. It is important that the property management company shares our vision. In addition, if they have their own vision for how things should operate. Then the two parties will constantly be at odds with one another—which is not healthy.
Risks and tradeoffs
Sure, we rely on the expertise of the property managers when it comes to things such as market rents. In addition, tenant interaction, and day-to-day operations. However, we want everyone on the team to always be forward-thinking. We want everyone to be thinking of better, more efficient, and more innovative ways of operating.
Method of Scale
Questions to ask
What exactly does this look like? Well, one of the biggest benefits of multifamily investing is economies of scale. In addition, most of you understand this concept on an individual property level. There are also economies of scale at the regional level. For instance, with only one property in any given area. In addition, you would have one supervisor and one tech at that property.
If we have three properties in the same city and the same submarket. We can have the same third-party property manager look after all three properties—which means we can have one mobile maintenance supervisor manage all three techs. In addition, doing so reduces the payroll by a significant amount. This concept can also be applied to the leasing staff.
Practical next steps
You can have a full-time leasing agent floater that moves between properties. In addition, this makes them part-time on each property’s books but gives them a full-time schedule. You can also use this method of scale to negotiate with a smaller local landscaper. Having three commercial properties with one landscaping company gives you more negotiating power than if you had only one.
In addition, the smaller company needs your business more and will be more willing to work on pricing. You can duplicate this is so many areas. The list is endless… valet trash, pool service, cleaning service, the list goes on.
Core ideas for property management economies of scale
Managing The Managers
Moreover, so, while we utilize the services of third-party management, we hold to an extreme ownership mentality where ultimately. We are responsible if a property management company is not performing well. In addition, most companies are not going to think outside the box when managing your assets. This is not their fault; it is just the nature of what they do.
Risks and tradeoffs
They manage the asset using the means and processes their company has put into place. In addition, it is important, however, that we, as owners, are managing the manager. There may be systems and processes that our management company uses that we have never used before and vice versa.
The goal is to take the best of both worlds and come out with a well-oiled machine. In addition, because maximizing the benefits of economies of scale (without degradation in service levels) is key to lowering costs and keeping profits healthy. This is why we brought in Brian Bornhorst as our asset manager. Brian oversees the managers, giving them a single point of contact.
Questions to ask
In addition, he is armed with the knowledge, experience. Has a winning track record of uncovering cost reduction opportunities that most people might not think of or even be aware of. Brian is tuned into the PassiveInvesting.com big picture vision which he communicates to each of the property managers. In addition, he holds them accountable and works through HR issues on a deeper scale.
We as partners can focus on the overall growth and success of the business. We are always looking for better more innovative ways that no one has thought of before. In addition, our ultimate goal is to excel further than anyone has excelled before. We can achieve greater success for you, our investor.
Key takeaways for property management economies of scale
- Start with the goal and timeline that fit your wider financial plan.
- Next, review the assumptions, risks, fees, and possible outcomes.
- Finally, compare the opportunity with other ways to use your capital.
Put property management economies of scale in context
Practical next steps
Every investment decision depends on the investor, the deal, and the market. Therefore, use the ideas above as a starting point for deeper due diligence. Review source documents, ask direct questions, and seek qualified advice when needed. For more guidance, explore our passive real estate investing education.
A clear review of property management economies of scale
property management economies of scale deserves a clear and practical review. These short checks can support a more informed decision.
- Start with a clear goal.
- Next, define the time horizon.
- Review each key assumption.
- Compare the likely outcomes.
- Test a less favorable case.
- Ask who controls each decision.
- Confirm the fees and incentives.
- Study the market and the deal.
- Check the supporting documents.
- Look for clear communication.
- Compare other choices.
- Keep the full plan in view.
- Write down the main risks.
- Review the source of returns.
- Check the exit assumptions.
- Understand the tax questions.
- Consider the need for liquidity.
- Match the choice to your goals.
- Ask direct follow-up questions.
- Confirm the reporting process.
- Review the operating plan.
- Check the team’s experience.
- Compare the best and worst cases.
- Keep expectations realistic.
- Use qualified advice when needed.
- Document the final decision.
- Review the decision over time.
- Watch for changing conditions.
- Stay focused on the long term.
- Finally, act with a clear reason.