How We Select Property Management and Why It Matters to You

Property management is the execution layer of any real estate investment. The best business plan fails if execution is poor. The strongest market disappoints if the property is not run well.

Here is how we select property management and why it matters to your investment.

In House vs Third Party

Some sponsors operate their own property management. Some use third party. There are arguments for both.

In house gives you more control, more accountability, and better economics at scale. The challenge is building the infrastructure to do it well.

Third party gives you specialization, market presence, and existing systems. The challenge is alignment. The third party manager often has many clients with competing priorities.

The Vertical Integration Decision

Top Tier moved to vertical integration deliberately. We operate our own property management because we believe the alignment matters more than the cost savings of outsourcing.

When the property manager works for us, their incentives are 100 percent aligned with the investment thesis. When they work for a third party, their incentives are aligned with that firm's broader portfolio.

Selecting Third Party Managers

If you do go third party, the selection matters. Reputation in the market. Years operating in the submarket. Property type specialization. Reporting infrastructure.

Smaller properties get less attention from large management firms. They become B-tier clients. The 30 unit building loses out to the 300 unit building when the management firm has to allocate attention.

Either pick a smaller firm where you are a meaningful client or build your own.

Performance Metrics

Whatever the structure, property management performance has to be measured. Leasing velocity. Renewal rates. Days on market. Collection rates. Maintenance response times. Resident satisfaction.

Each metric has a target. Each target gets reviewed monthly. Property managers who consistently miss targets get changed.

The Fee Structure

Typical property management fees range from 3 to 8 percent of collected revenue. Smaller properties pay higher percentages. Larger properties pay lower.

Some managers also charge leasing commissions, renewal fees, and other ancillary charges. The all-in cost can be meaningfully higher than the headline percentage.

Compare apples to apples when evaluating sponsors. The all-in property management cost should be in line with industry standards.

Why This Matters to LPs

Property management performance determines NOI. NOI determines distributions. Distributions determine your return.

A great property managed poorly returns 6 percent. A great property managed well returns 14 percent. Same building. Different outcome. The variable is execution.

When you invest with a sponsor, you are betting on their ability to execute through property management. Understand who is doing it and how they are accountable.

Questions to Ask

Who manages the property. Are they in house or third party. What is the fee structure. What are the performance metrics. How often are they reviewed. How are property managers held accountable.

If the sponsor has answers for all of these, they are running a real operation. If they handwave on these questions, the property management is going to be inconsistent.