Multifamily vs Single Family: Myth or Fact - Which Has Lower Management Fees?

For my first few years investing in multifamily real estate, I took it as fact that multifamily real estate has much cheaper management fees than single family.

Just look at the fees!

For a management company to manage a single family home, it's usually 10% of the deal's gross income.

For a management company to manage a 100 unit apartment building, it's 3%!

What a difference right?

Well hang on.

What aren't we seeing?

As I learned multifamily accounting at a deeper level, there was a section that you don't see on single family. That is payroll.

To operate a 100 unit apartment complex efficiently, you need an onsite staff member for leasing and either a full or part time maintenance person. If full time, these salaries will be around $60,000 each depending on the market.

Now is there a benefit to having two onsite staff members compared to none with single family?

Absolutely!

These staff members are overseen by the property management company and it takes the vast majority of your entire active role in the deal. You're left with only having to oversee the management company, making decisions and not much more. It allows you to scale your business at a much faster rate. This is why you may hear that operating a large 100+ unit apartment complex requires less work on your part than owning a single family home.

Conclusion:

Management cost percentages on single family and multifamily are very similar when you account for the payroll expenses involved in a multifamily deal.

The percentages you get are roughly the same, but you do get much more of a service when it comes to multifamily.

With multifamily investing on large apartment complexes, you're really creating a scalable business. Yes there will be work involved in many aspects of it, but the personal day to day operations are not near as much as in single family investing.