If you are thinking about starting a property management company, or looking to grow your existing business, you need to know that the right structure can really make a difference in positioning yourself for success. On today’s property management blog, we have asked Keith Becker to join us because he has a unique perspective on how a property management company can structure itself. When Keith joined DeDe’s Rentals over 20 years ago, the company looked a lot different than it does now. It started off with a departmental structure, and now it has a portfolio structure. Here’s the difference:
Departmental Structure
When you structure your property management business to be departmental, it means that you have a staff of people who specialize in one specific area of the property management business. Twenty years ago, DeDe’s Rentals managed half the properties they do today. There was a broker, a bookkeeper, an individual who handled all tenant relations and a maintenance administrator who scheduled and communicated all repair and maintenance needs.
In this departmental structure, one person or department is responsible for one specific area of all the properties you manage. Your accounting department takes care of collecting rent and paying receivables for all your properties. Your tenant expert will take care of all your tenant communication in every property. This means that you could have three or four different people involved in taking care of one property. If an owner calls with a question, different people will need to answer different questions.
Portfolio Structure
As more properties were acquired for management by DeDe’s Rentals, the company moved to a portfolio structure. This is a more professional structure, which means that each staff member or property manager is individually responsible for all aspects associated with one given property. Collecting rent, paying receivables, taking care of repairs, managing security deposits and marketing the property is all done by one person. That property manager is the single point of contact for the owner and the tenant associated with the property. In this type of structure, there is an opportunity for more efficiency from a customer’s perspective.
What is More Profitable?
As you can see, the major difference between the two structures is what the responsibilities of individual employees would actually be. If you’re starting a property management business, you may be wondering if one structure is more profitable than the other. One structure is not necessarily more profitable than the other. When you are first starting up, it can be more practical and sometimes easier to hire within a departmental structure. The company probably starts with you, and then maybe you hire an administrative assistant. You keep growing, so you hire a person to handle maintenance requests. As you grow, you continue to hire people for specific roles. If you start your property management company with a portfolio structure, you may be hiring people who require a license, depending on the state you are in. Once you are established, you might find it’s easier to continue expanding within a portfolio structure.
As an example, there is a member of the National Association of Residential Property Managers (NARPM) who refuses to grow beyond what he can handle himself. He has no employees, he has no portfolio or departmental structure, he manages everything himself, and he is extraordinarily profitable. That’s another way to do it.
You might be thinking about hiring property managers as 1099 employees instead of full-time employees and allowing them to build their own portfolio of properties within your company. This could expedite your growth, and you can put the responsibility of property management business growth on those independent contractors. It’s an interesting idea, but be careful with 1099 employees. This type of system would basically mean you are demanding results, and if you have any kind of accountability standards in place, you may blur the lines between how you identify contractors and employees. It’s a good topic to discuss with an experienced attorney.
Thank you to Keith Becker from DeDe’s Rentals for helping us to understand the difference between specific company structures. If you’re starting a property management company or looking for ways to re-structure yours for additional growth, contact us at Fourandhalf and we’ll share a few more ideas.
Follow-Up Articles That We Recommend:
- The Framework of a High-Performance Property Management Team
- Starting a Property Management Company: Pricing Structure
- All You Need to Know About Property Management Marketing in 2016
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