Eleven units at 9,200 a month. Do I manage it myself?

Question

This is my first building over four units. Everything I own now is duplexes and a triplex and I do all of it myself, which mostly means answering my phone at dinner and knowing which plumber picks up.

The 11-unit is different enough that I'm stuck. Rents are 9,200 a month gross. A local company quoted me 8 percent of collections plus one month's rent as a leasing fee on turns, so call it about 740 a month plus roughly 3,000 a year in leasing if I turn four units. That's around 12,000 a year off the top of a building whose in-place NOI I have at about 58,000.

The case for doing it myself is that 12,000 is real money and I already know how to do the work at small scale. The case for hiring is that this thing is valued on its income, so I want clean books, real rent rolls, and someone who does notices correctly in my state without me guessing. Also I have a day job.

What I genuinely don't know is whether the first commercial-tier building is the one where you learn operations hands-on, or the one where you buy the operator and learn by watching.

chriswalton8 · Accepted Answer

One thing worth knowing before you decide on the money: the fee you save by self-managing usually doesn't show up in the value.

When a lender's appraiser or a future buyer underwrites your building, they generally plug in a market management fee whether you pay it or not, because the next owner will have to. So if you self-manage and hand over a P&L with no management line, expect it added back as an expense. Your NOI on paper is roughly the same either way. What you're really doing is paying yourself 12,000 a year for the labor, in cash, with no valuation effect. Confirm how your specific lender treats it, in writing, before you build a pro forma on it.

That reframes the question. It isn't a value-add lever. It's a job you're deciding whether to take. So price your own time honestly. If 12,000 a year for evenings and weekends is a wage you'd accept, self-manage. If it isn't, hire.

The other half is books. Buildings in this range get bought and refinanced off the trailing twelve, so whoever manages needs to produce a clean monthly statement, a real rent roll, and deposits that tie to the bank. Plenty of owners do that fine. Plenty of small management companies do it badly. Ask any company you interview for a sample owner statement and a sample rent roll from a building of similar size before you sign.

nicole_adeyemi · Answer

The part I'd separate out is turns versus everything else. Day to day at 11 units is not much, a few calls a month and a vendor list. Leasing is the piece that eats you, because it's showings at times you don't control and it happens in clusters.

I've seen people go hybrid on buildings this size, self-manage the maintenance and pay a leasing-only fee per unit filled. Not every company will do it, but ask. It's a cheaper way to find out which half of the job you actually hate.

carlos_nunez · Answer

Sable's right about the addback, that's how every appraisal I've seen on a small commercial building handled it.

The thing that tipped me on a 9-unit was notices. I got a nonpayment filing kicked because my notice period was wrong for the state, and that mistake cost me more than a year of management fees. If you self-manage, get the notice forms and timelines from an attorney in your state once and keep them. That's not a thing to learn by trial.

ehernandez74 · Answer

Question for you thicket, because I'm circling something similar. How far away is it? Mine would be 50 minutes each way and that alone probably answers it for me.

And if you do hire, what's the exit? I keep reading that the fee is easy and firing the company is the hard part, since they hold the tenant relationships, the keys, and sometimes the security deposits. Does your agreement have a 30 day termination without cause, and does it say how deposits transfer? I'd want to see that clause before I'd want to see the fee schedule.

monica_tran3 · Answer

Service business owner here, and I'd hire. Answering the phone yourself is cheap until the week it isn't.

Eleven units at 9,200 a month. Do I manage it myself?

5 replies