Welcome back to The Property Management Show. If you joined us on Part 1 of this podcast with Ray Hespen, you learned about why it’s important for property management business owners to pay attention to churn. You need to do more than pay attention – you need to measure it.
We’re back to talk about how you can prevent owners from leaving in the first place.
Measuring Owner Churn
If you’re not measuring your churn, you don’t know how big of a problem it is.
Owners have different goals. Whatever your business goal is, owner churn should be a KPI. It impacts your growth and profit. We cannot think of a single property management strategy that would not need a metric measuring churn.
So, who should measure it?
That depends on how your property management company is structured. Ray says that whoever is responsible for owner engagement after the sale should ultimately track owner churn.
All Churn is Not Created Equal
You need an ideal customer profile. This is something that gets talked about a lot. Who is your perfect client?
Churn from anyone who does not fit that profile is likely okay. Churn from perfect clients is not okay.
It’s important to keep track of who you’re losing and who you’re keeping. You need a scorecard to show you whether you’re losing those perfect clients or others that you took on knowing they weren’t a perfect client. Then, you’ll need to decide how much you’re willing to invest to recover the clients you lose. It may be worth it to recover the perfect clients.
Resident Satisfaction and Owner Churn
In Part 1 of the podcast, we talked about two things that impacted owner churn:
- Maintenance visits to the property (more visits = better retention)
- Staying below the 12 percent maintenance costs threshold
The third thing is resident satisfaction. There’s a direct correlation between lease renewals and owner renewals.
This makes sense and it matches the maintenance indicator. Residents who are not satisfied with maintenance will not stay in a property. When lease churn is higher, owners will reconsider their property management relationship.
Sometimes, property managers worry about providing great service to residents because they don’t want owners to believe that it’s at their expense. That’s crazy. Owners should want you to treat their residents well.
When you retain tenants, owners save money. When a resident leaves a property, here are some of the things that happen:
- The property manager has to do an inspection.
- The property manager has to organize repairs and replacements.
- The property manager has to find a new tenant quickly to avoid a long vacancy.
And all those costs are passed to the owner.
Retaining a resident for five years requires resident satisfaction. It’s worth it to you as a property manager because it helps you keep your owners.
Keeping Churn Low: A Dashboard
If you want to keep your property management company’s churn low, you know you have to measure it first. Then, you have to think about these three specifics. There is probably a way in your accounting software to capture this data.
- Which owners are at risk of being above that 12 percent maintenance cost vs. rental income threshold? Know who they are. Give them the white glove treatment and take good care of them.
- Focus on resident satisfaction. Look at the things you can control and correct any issues quickly. The average rental unit has an average of four service issues a year. Be attentive.
- Measure the percentage of owners who opt into preventative maintenance services. Drive that number higher because we know that the more maintenance visits you make, the more likely you are to retain clients.
These are the metrics you need when you’re fighting against churn.
Get the numbers and then make a plan. Tell your property managers that you want the number of owners enrolled in preventative maintenance services to be 30 percent higher by the end of the year (this is an example). You’ll find it addresses all three of the points that we made about why property owners leave their management company.
You get only one shot at an investor. We can’t invent new investors for you to chase down. Make it count and keep them as long as you can. If you can implement programs that reflect what we know, you can see some changes in your owner churn numbers.
When Should Churn Make You Feel Okay?
If you lose an owner and you know that you did everything you could to keep them, let that owner go in peace. When you can look at their account and see:
- High resident satisfaction.
- Lots of maintenance oversight.
- They’re well below the 12 percent threshold.
You know there’s nothing you could have done to keep them. Their departure was totally outside of your control. It has nothing to do with what you’re doing for them.
Zero churn is not realistic.
Not everything is in your control. You cannot save every single owner, so focus on the factors that you can control with the owners who can be kept.
Consider this scenario: an owner dies and the trust decides to auction off the property. That’s going to be some churn and there’s no sense in trying to fight against it. You won’t convince the family’s trust to stay with you. You’ll waste your time and resources. Set goals and targets that are reasonable.
According to Ray, PropertyMeld keeps about 90 percent of their clients, while the industry standard in software is to try and hit 80 percent. Saving everyone is not a good use of resources. Be strategic.
Property managers need to establish a healthy amount of churn.
What Else Does the Data Say?
Other interesting data points have Ray and PropertyMeld digging a little deeper into some areas of property management and owner churn:
- Sticker shock with internal maintenance teams. When an in-house maintenance team costs more than what an outside vendor would cost, there’s a higher risk of churn. If your internal maintenance team is performing for less, you have an advantage. Are you driving down the costs for your clients or not? This is something to look at.
- Repair estimates. Really high estimates upset owners. Even if the work isn’t performed – getting that estimate puts them off. When you hand your owner a very high estimate for work they may have requested, it’s going to start chipping away at their confidence in what you can deliver, and eventually, they’ll leave.
- Invoice costs are rising. We talked about ghost repairs early in 2020. Since then, HVAC invoices are up 118 percent. Plumbing invoices are up 60 percent. That’s just over two years.
This could be a battleground in the future. Owners seem to be stomaching the costs right now, but there’s no telling where the next year or two will take us, and this is a crazy real estate market.
Property Management Company To-Do List
You have some new knowledge and insight into your churn numbers and what may be driving them. So, what are your next steps for your company?
We have them for you:
- Find your churn number, know that it can be better, and move it.
- Start tracking what you need to know. Pull it out of your accounting software. Whatever the number happens to be, make a decision to hold onto 10 percent more owners.
- Go big with preventative maintenance.
- Watch for your clients who are closing in on that 12 percent number.
- Focus on tenant retention.
Don’t do one. Do all of them.
PropertyMeld is presently beta testing a PropertyCare Plus plan which builds a catalogue of services for owners. They can choose what they want, whether it’s annual HVAC clean up, gutter cleaning, semi-annual inspections, etc.
Preventative maintenance, we know now, is critical. It’s also a logistical nightmare for property managers. Ray and his team are taking a stab at making it easier.
These insights can help you hold onto more owners. If you’d like to talk about them or anything related to your property management marketing plan, please contact us at Fourandhalf.
Contact us at Fourandhalf with any questions you have about our conversation with Daniel Craig of ProfitCoach.