You are here

When to Add Staff and When to Outsource

Independent Rental Owners
July 2018

For Independent Rental Owners, the decision to add staff depends on job function, availability of contractors and personal preference.

For small business owners, one the toughest decisions to make is when to hire people. Adding staff can mean that the owner has “made it” successfully in their business, and bringing on employees can help to take the pressure off. But there are also risks, liability insurance costs. But if things do not go well, these employees might have to be fired or laid off.

Making the decision more challenging is that there is not one clear example or scenario about when to hire. Consider these theories, shared by several independent rental owners.

Dan Lieberman, President of Berkeley, Calif., -based Milestone Properties and the author of “The Effective Landlord,” says that one person can comfortably handle eight buildings with 20 to 50 apartment homes. After that, they need help.

“When I started my management company, it was me and accounting,” Lieberman says. “I hired my first portfolio manager when we grew to 12 communities. Then, my portfolio grew to 25 properties. Ultimately, I had three people who were running them.”

Lieberman admits that it is not a one-size-fits-all proposition. When he took over a new community, he often used a “floating manager” who acted as our temporary site manager for new acquisitions and oversaw maintenance at the new property.

“When we took on a new property, the first month or two are intensive months,” Lieberman says. “We had to put our systems in place, figure out who actually lived there, deal with delinquent residents and handle deferred maintenance among other things.  For that, we had a floating manager.”

Lisa Pelloni, CEO of AdaLease Property Management, in Summerville, S.C., owns 90 apartments and manages another 900 with 25 employees. Over time, she has learned that it pays to bring some operations functions in-house. Others, such as HR, she still outsources.

“We used to sub-out our accounting function,” Pelloni says. “At 600 units, we brought in a bookkeeper to produce our financials.”

Atlanta-based Legacy Community Housing Corp.’s Brent Sobol, at first hired contractors to handle accounting functions on a pay-by-hour basis.

“It was not a great solution because they were not always available when I needed them,” Sobol says. “If you have over 200 units, you want to start thinking about hiring a full-time accountant.”

Sobel says managing human resource functions is difficult.

“HR is the biggest challenge for IROs,” he says. “You can outsource it, but [the contractors] pretty much only know HR law. They are one-dimensional. They do not have any background in property management. So, they will not be able to teach someone how to give great customer service, or enter work orders into software platforms or encourage residents to post a positive review. These are the kinds of things I need my employees to do.”

“If a company wants to grow, it is important to have a plan for scaling up. Joe and Stephanie Bryson, Stellar Equity Management in Katy, Texas, developed a role-based chart that included all positions in their organization.

As the Brysons grow their company, they purposely try to relieve their work burden. For instance, they recently hired a financial and administration manager to lighten the workload on Stephanie so she could focus on larger strategic issues. After that, they plan to bring in a regional manager to relieve more burden.

Some small owners are not trying to build large organizations. John Ridgway, President of Celtic Realty Advisors, based in Spring, Texas, purposely keeps his organization small. He says that he is not interested in running a portfolio of more than 1,000 apartment homes. Outside of his onsite staff, his only hire is a part-time office manager. Having that person in place allows him to run his business remotely.

“With 1,000 units, I can run my portfolio from my dining room either at my house or in my motor home,” he says. “If I grew bigger, the reporting becomes burdensome. I would have to hire employees in property accounting and reporting and then I’d need to find a place where they can work. That would add salary and the need for more office space.”

Others warn that it is possible to rely too much on outside help. Sobol thinks that small owners have a greater chance of success if they manage their properties with a hands-on approach.

“The get-rich-quick model touted by real estate gurus says using a management company is a better use of your time,” he says. “That is fine, when things are going well. But when things are not going well, you are going to see the difference between an engaged manager and one who is not.”