I’ve read 30 books or so on real estate. A majority of these books teach how to get started with no money. Almost all of them say the same thing: Find someone with money, provide them with value and take 50% of the deal.
I don’t think many people have a problem investing money with someone who found the deal, set up the banking relationship, and manages the asset. It happens all the time and is the number one strategy for how to get started in real estate..
Now break it down and take a closer look at what you would pay for each of those tasks. The average wholesale house in Houston costs around 120k. For wholesale deals the average fee is roughly 12k. So we can assume that about 10% of that 50% split is for finding the deal.
Banking mortgage brokers charge about 1% of loan value for their services. That’s not very significant. Agents who put together deals make on average about 3%. Let’s round these services up to 5%.
So far when broken out we’ve bundled these services into about 15%-20% of the 50%. Where is the rest of the value earned? ? I would argue at least 10% of that is discernment. Selecting the right deals consistently. People pay for that kind of knowledge. We have about 20-25% remaining in our value breakdown.
The rest of that value comes from that asset performing over time. In many large apartment syndications the general partners will take 20-30% plus fees.
If you are an investor you are very likely willing to pay up to 50% of your deal for the services above.
A good property manager provides you with monthly statements, keeps your units full, and let’s you know about any major issues. A great property manager helps you analyze markets and deals, dive deep into data to maximize returns, introduces you to valuable people you need on your team, and most importantly helps you grow your portfolio.
Why is it then that there has been a glut of bottom of the barrel low value property managers? Because the services provided aren’t doing the only thing that matters: providing value to maximize the investing performance of the portfolio. They are betting that you are willing to save a few bucks in the short term, because you won't see the $1000s you leave on the table in the long term. It’s a good bet.
And why don’t these property managers get higher fees and provide more value?
Because it is very hard to do well.
You actually need to have invested in deals, put together deals, understand the market, and have professional knowledge. The world of utilizing software to the detriment of relationships and hiring VAs to be property managers who have never even been to the United States are over.
Running your property is like running a business. If I tell you there are two businesses. One has a CEO with 15 years of experience with a track record of success and the other business has the cheapest CEO they could find. Which business would you assume is doing better? The quality one right? Why are you looking for someone who is just ok to manage your assets?
Real estate is a competitive game with real stakes. Not everyone wins. You need to partner with someone who can actually provide you with the services you need that knows how to maximize your portfolio performance. Here are just a few things we do as a company that a budget property manager isn’t going to provide:
Our team grew up in Houston and surrounding communities. We have a deep knowledge of this market and love this market. You aren’t going to see us expanding outside the state of Texas to other cities we know nothing about. We know what level of service needs to be provided. We are partners with our owners. At the end of the day our services MUST pay for themselves several times over. Otherwise I don’t want to be in the business.
Let me know if we can help.