Here Are Your Keys to the Rent Estate Revolution.
Kevin Ortner runs the largest property management company in the country.
He has some things to say about where the industry is going and how property managers can move it in the right direction while growing their own businesses and increasing their own potential. On the Property Management Show, he shared some insight and dropped some numbers that might surprise you.
About Kevin Ortner
Kevin was a pilot, and moved to Arizona for a new job opportunity, but lost that job because the company went under. He had some rental properties and became the first franchisee of the now-famous Renters Warehouse. Today, he runs the company.
Kevin is the author of Rent Estate, a book that discusses the movement of owning rental property as a way to earn income and financial independence. It talks about important market trends. People who aren’t property owners yet are capitalizing on it just as much as people who already own and operate rental homes.
Why Kevin Wrote Rent Estate and Why it Matters
Kevin wrote the book for marketing purposes. He wanted to use this content to start conversations about real estate investing as a tool for retirement and to attract new clients. It was a way to position Renters Warehouse as a thought leader in the property management space.
In addition to his marketing and content goals, Kevin is passionate about the fact that owning long term residential real estate will create wealth, security, and legacy. Retirement is different today than it was decades ago. No one is going to give you a pension and a gold watch. Your 401K was supposed to replace the security of a pension, but it’s not quite working out the way it was intended.
So, rental investing is a great tool. It’s not always exciting or sexy. It’s not as fast-paced as flipping homes. But it is consistent and reliable. You can count on it. That’s the message Rent Estate is sharing.
The Purpose of It All
Before Kevin’s book was published, the term “rent estate” was just something that Kevin and his team threw around internally. The term refers to buying and keeping property, differentiating this strategy of long term, reliable wealth building from the concept of “real estate” – which is buying and selling. They have now trademarked the term. Kevin’s book, of the same name, demonstrates the power of rent estate and what it can do for people.
Kevin’s purpose in writing Rent Estate is to help other people create wealth through real estate. The book provides the reader with both the educational background needed to begin this journey and actionable steps for making it happen. The first part is the macro view of what’s happening and why real estate is becoming that vehicle for wealth creation. Then, the second part is a micro approach to how it’s done.
22 Million Rentals and 70% of Them are Self-Managed. Why?
Kevin wrote the literal book on rent estate, so it is no surprise that he has done his research. Renters Warehouse was a sponsor of The Iceberg Report, an insightful study into single family homes and properties up to four units. According to that report, there are 22 million rentals in the U.S that fit that property category. Only around 30 percent of those are professionally managed. That means a staggering 14.5 million properties are currently being self-managed.
If you’re wondering what keeps landlords from turning their homes over to professional management companies, Kevin has 3 answers for you:
1. Generational Slant
A lot of landlords now are in their fifties or even older. This generation is so used to the concept of “DIY”. They are very happy to learn how to do things by themselves in order to save a few bucks. It’s no surprise why they prefer to manage their own rentals as well.
That’s a big contrast to the younger generation that is very comfortable with outsourcing things.
Kevin thinks that over the next 10 or 20 years, rental properties will change hands between one generation to another. This generational shift will eventually put more properties into the hands of professional managers.
2. Communicating Value
People don’t understand the value that property managers bring. They understand the dollars they’ll pay, but not the services they’ll receive.
This boils down to educating owners and helping them realize that the time savings and expertise they get from hiring property managers are worth the cost.
3. Industry Reputation
This is the biggest one of the three. The industry as a whole has a trust barrier to get over.
Property managers used to sit on the sidelines while real estate professionals took the stage. In the early days, the industry had too many fly-by-night operators who had no training, no resources, and no technology. This led to poor service and it bred distrust from customers.
No one took it seriously as a profession until the real estate sales market collapsed in 2007, and property managers were the only real estate professionals able to make money.
Since then, there has been a big improvement on education, resources, and technology for property managers. Despite this, it has been a slow crawl towards a better reputation for the industry.
As a property manager in this day and age, it is your responsibility to be trustworthy, transparent, and educated. Show property owners and landlords that there are professional players in this field who demand and deliver excellence. That’s the only way to bridge the trust gap.
Speaking of trust, you may have noticed a big change in this realm over the last five years. Online reviews are shaking up the service industry and giving consumers the power to ruin a brand with a few simple clicks. People will trust an online review more than they’ll trust a referral from a friend. People are doing their own research and looking at review sites.
Reputation is More Important than Image
It is difficult to maintain a good online reputation as a property manager. Homeowners want one thing and tenants want another. Don’t let that challenge scare you. Managing your reputation is an important way to grow a business. We talked about industry reputation – yours needs to be that company on the front lines communicating trust and professionalism to online prospects.
There are so many conversion metrics, and the biggest is reputation. Consumers will look you up, and if you aren’t getting enough praise online, it won’t matter how well-presented your landing page is. No one will care how appetizing your special offer is. Reputation is key.
So when the tide comes in and the next generation of owners brings a growing demand for qualified property managers with stellar reputation, you want to be in front of it.
Prediction: 5 Million More Rentals in the Hands of Professionals in 5 Years
Alex, The Property Management Show host, made a bold prediction:
Over the next 5 years, more than 5 million rentals will come into the hands of professional property managers.
So, he predicts that the market share for professionally managed properties will jump from 35 percent to 55 percent. The generational shift will work itself out and the changes in the economy will really begin to matter. People from the younger generation don’t want to buy homes; they want to rent and have the freedom of mobility. That overall growth will be worth about 11 billion dollars annually for the lucky management companies who can grab those new contracts.
Kevin wasn’t ready to make a specific prediction of his own, but he acknowledged the large movement towards professional management. New rental properties will constantly be available. The trends are turning in favor of property managers, and the potential for that kind of growth is definitely there.
Let’s Make This Interesting…
Alex, so confident in his prediction, promised to pay for Kevin’s dinner if he’s wrong. But if he’s right – Kevin agreed to pony up for a meal. And, Kevin says that’s one meal he won’t mind paying for. He’d love to see that kind of opportunity for property managers in five years. Everyone wins.
So if the property management industry is on an upward trend, what can property managers do to make sure they get a piece of the action?
Creative Marketing and Drive for Growth
A lot of resources went into Rent Estate as a marketing tool. But, Kevin didn’t stop there. He believes not enough property management companies are spending what they need to spend on marketing and advertising.
Referrals are great, but if you want to grow, you need to be prepared to pay for business.
Did you catch that?
Referrals are great, but if you want to grow, you need to be prepared to pay for business.
Kevin did everything from Pay-Per-Click to SEO. Lately, his team has really benefited from content marketing. They put up great, evergreen content that continues to build value and can be endlessly repurposed to serve their marketing needs many times over. This includes educational blog posts and videos that rank for long tail searches, alongside paid advertisements.
You have to invest if you want to grow. You have to be creative and stand out. Referrals and relationships are great and important. But they are not as efficient. They are not going to help you grow rapidly. A lot of property managers have trouble getting over their hurdles, whether it’s 500 doors or 1,000. Marketing investment is key.
A Shocking Statistic: Spend 25 Percent on Marketing
Renters Warehouse has an average lifetime customer value of five years, and Kevin uses this as a foundation for making key decisions. When it comes to marketing, he believes in spending big to win big.
If you want to grow your business and make more money, put 25 percent of your topline revenue into marketing.
If you want to maintain your current level of business, put 10 percent of your topline revenue into marketing.
That sounds aggressive, but Kevin doesn’t dial it down. Renters Warehouse used to spend 30 percent of their topline revenue to spur business growth. They don’t need to spend that much now, but they didn’t hesitate to invest that much in the beginning.
That’s how you become the largest property management company in the United States.
Growth through Acquisition
Renters Warehouse also buys companies. They look for smaller businesses that can introduce them into new markets. Revenue per door matters, and so does the quality of the portfolio. Many of the businesses don’t have a lot of cash flow when Renters Warehouse buys the contracts.
They pay top dollar for companies that have a fee structure already aligned with what Renters Warehouse does. Every company is a little different, but there are industry standards that need to be met. Tenant placement fees are usually more varied than the management fees.
Other criteria are reviewed, such as where the portfolios are located and the quality of the assets. The goal is to build a good book of business. Kevin wants to see a track record of keeping clients on board and a similar fee structure.
At Renters Warehouse, the management fees are lower than most but the tenant placement fee is a full month’s rent. Sometimes this causes friction, but not a lot of attrition. They honor contracts when they buy them, and slowly integrate their own pricing model.
The Beauty of a Simple Pricing Model
Most Renters Warehouse management fees are $89 or $99 per month, depending on location. The flat fee structure was a way to stand out and turn the industry upside down.
It’s getting better, but a decade ago, people would pay a management fee and then be nickeled and dimed to death. Renters Warehouse wanted to be simple, no-fuss, and transparent. The goal was to get big and grow volume. That helped them create efficiencies through technology and scale. They aren’t worried about leaving money on the table. The flat fee works for them, and they’re sticking with it.
Apart from their simple pricing model, Kevin also shared another key to their success — tenants.
Tenants Are Your Business Partners
Get to know your tenants. They are your business partners.
If this sounds crazy, Kevin wants to emphasize that to have a good business, you need to keep your clients around longer and have a property that’s easier to operate. So (and this shouldn’t be controversial), treat your tenants like people. Treating them like a transaction creates a negative experience. Reward your tenants for loyalty and on-time rental payments. Don’t make them a rental payment and nothing else.
Renters Warehouse is a big company that manages more than 20,000 homes across the country. But, they have a live leasing agent show every property. You won’t find any lockboxes on their homes. It’s part of getting to know the tenants. They live the methodology of Rent Estate. The human experience is a luxury, and if you’re going to charge a full month’s rent for tenant placement services, you need to be there to connect with the tenants.
Mistreating tenants can also hurt you when they become landlords. Tenants aren’t tenants forever. They will buy into the Rent Estate revolution, and when they do – you want them to hire you.
Marketing Tip of the Day:
Mine your tenant database and set up your business by getting tenants to love you and buy investment property with you.
Advice to Growing Property Management Entrepreneurs: Just Start
Everyone goes to the same seminars and learning events, but a lot of the people you see there have not closed a deal yet. If you want to know how to get started, it’s simple – just start. It won’t be perfect and it won’t go according to plan. But, you’ll learn along the way.
The nice thing about a decision is you can always change your mind.
Make it happen.
Focus on your people and your tenants. Everyone is watching investors and homeowners and that’s good. But, remember your tenants. They will help you grow and they will make you more successful.
Renters Warehouse will be at the PM Grow Summit, and hopefully you’ll be there, too. In the meantime, give Rent Estate a read. If you have any questions about Kevin and his work, please contact us at Fourandhalf. We’d be happy to tell you more about this interview and how to develop a marketing budget that’s designed for growth.
A Note from Our Sponsor – The PM Grow Summit
There was no graduate-level growth conference for entrepreneurial property managers, so we decided to create one. With Jordan Muela of Lead Simple, we have put together a conference that’s a must for property managers who want to grow and contribute to growth within the whole industry. Last year, more than half the people attending managed 500 properties or more. These are the professionals you want to be around with. When you attend our conference, all you need to worry about is learning. We’ll take care of everything else from dinner to drinks to entertainment.
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PM Grow Summit 2018 will be from January 31st to February 2nd. Visit http://pmgrowsummit.com/ for more information or to get your tickets. See you there!