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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. 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. Sure, we rely on the expertise of the property managers when it comes to things such as market rents, 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

What exactly does this look like? Well, one of the biggest benefits of multifamily investing is economies of scale. Most of you understand this concept on an individual property level, but there are also economies of scale at the regional level. For instance, with only one property in any given area, 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. Doing so reduces the payroll by a significant amount. This concept can also be applied to the leasing staff. You can have a full-time leasing agent floater that moves between properties. 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. 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.

Managing The Managers

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. 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. They manage the asset using the means and processes their company has put into place. 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. 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. He is armed with the knowledge, experience, and 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. He holds them accountable and works through HR issues on a deeper scale so 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. Our ultimate goal is to excel further than anyone has excelled before, so we can achieve greater success for you, our investor.