When should you bring management in-house?

Life is full of complicated questions, but if you own real estate there is a question that is guaranteed to keep you up at night: Should you bring property management in-house and, if so, when? As real estate investors evaluate ways to streamline operations and potentially cut costs, bringing property management in-house is an attractive option. However, this decision comes with important considerations that require in-depth and thoughtful evaluation. Here are key factors to weigh before making the transition.

1. What problem(s) are you trying to solve?

While it may seem like an obvious factor, property owners don’t always consider what specific problems they are trying to solve. When I’ve spoken to firms who are considering bringing management in-house, it is often a result of frustration rather than vision. In other words, they don’t want to, but feel they need to. That’s usually not a good reason to take on an entirely new business unit. If you find yourself frustrated, my recommendation is to reach out to schedule a meeting with your property management representative or start looking for another management firm to handle your operations. I’ve listed some thoughts below that I consider good reasons to start building out your own management platform.

• You want more control over outcomes and higher accountability to your investors when it comes to property performance.

• You have a passion for leading people, providing jobs, and building a team where you can develop the culture.

• You feel you have a competitive advantage (expertise, connections, proximity, etc) over third party managers in the markets where you are invested.

2. Cost Analysis

One of the popular reasons for considering in-house property management is cost savings. Outsourcing property management typically involves fees that can range from 3% to 8% of the monthly rental income, depending on the size of the property. By managing the property internally, you could potentially eliminate these fees. However, it's crucial to account for the hidden costs of in-house management, such as salaries, benefits, and training for your staff. Conduct a detailed cost-benefit analysis to determine if the potential savings outweigh the expenses. The largest expense, typically not accounted for, is time and bandwidth of your team. Bringing management in-house is a massive up front operation that doesn’t slow down once onboarding is completed. Be careful not to go from an investment firm who also offers in-house management to a management company who happens to have investments.

3. Expertise, Resources, and Compliance

Property management is a specialized field requiring a blend of knowledge of maintenance coordination, tenant relations, legal compliance, and financial reporting. Assess whether you have, or can recruit, the necessary expertise to handle these responsibilities effectively. In-house management demands knowledge of landlord-tenant laws, maintenance best practices, and conflict resolution skills. Ensure your team is equipped with the resources and training needed to manage these tasks effectively.

Understanding legal and regulatory requirements is a critical aspect of property management. This includes ensuring compliance with fair housing laws, local ordinances, and safety regulations. An in-house team needs to stay updated on these regulations to avoid costly legal issues. Assess whether your team has the capacity to handle this aspect of property management or if you’ll need to consult with legal experts regularly.

4. Customer Satisfaction

Property management companies often have established procedures and customer service protocols. Bringing management in-house means you’ll need to develop and implement your own systems to maintain high levels of service to your residents. Evaluate your ability to handle tenant inquiries, complaints, and maintenance requests promptly and effectively. Many investment firms don’t understand the amount of resident interaction that third party management companies have on a daily basis. Not having adequate resources in place to handle the influx of engagement can be a recipe for disaster, causing reputation damage that may take years to recover from.

5. Technology and Tools

Modern property management often relies on technology for tasks such as rent collection, maintenance requests, and financial reporting. Ensure that you have access to the necessary software and tools to manage these processes efficiently. Investing in technology can streamline operations, but it also represents an additional cost and requires staff training.

In summary, bringing property management in-house can offer cost savings and greater control, but it requires a careful assessment of your resources, expertise, and commitment. Weigh these factors carefully to determine if in-house management aligns with your goals and capabilities.

There is no right answer to which is better, third party or in-house. The reality is, it completely depends on your vision and goals. In my experience, third party management allows investors to scale their business and maintain focus on their core services while in-house management allows for greater control of outcomes, as long as you know that those outcomes come with a lot of additional effort and planning.