To answer the original question, when 80-90% of prospects are starting their search online, there's absolutely room for all the competition. Pay attention to which sites are working well for you in each region, as the ILSs are often the first sites to appear in Google searches, especially for the more general terms.
As for pay-for-performance, the math can work if that's the only source that the prospect used to find you. However, from our research (conducted with SatisFacts), most prospects searching online use multiple sources (including search engines, ILSs, review sites, property sites, friends' recommendations and more) when evaluating communities. Paying per lead (or per lease) is fine, but you can't assume that 100% of the lead should be attributed to that source, even if they're the one that found you the lead.
If you're considering pay-for-performance, make sure you're taking additional steps to try to track the prospect throughout the sales funnel. Lead attribution will never be a perfect science, but at least you'll get a better sense of all the different places where you're potentially reaching the prospect.