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Do Guarantees Work?
Chuck Hattemer of Poplar Homes is on The Property Management Show today, talking about the property management guarantees his company implemented more than six years ago, and how they’ve helped him build a better property management business.
The Idea behind Making Guarantees a Marketing Strategy
Chuck and his business partner have been running Poplar Homes since 2014. When they started the company, they quickly noticed how much anxiety there was around income stability for real estate investors. A lot of the landlords they were marketing to relied on timely rent payments to pay their mortgage, insurance, and maintenance. They heard horror stories around evictions.
There was a situation in which Chuck and his partner had to help a new owner with an eviction. The tenant had managed to completely steal someone’s identity and moved into a home with an $8,000 per month rent payment. After the eviction process had begun, they went into the home to make sure the tenant had moved out.
Ever since that experience, Poplar Homes has gone above and beyond what is necessary to make sure properties are secure and owners feel safe with their investments. The owners involved in that eviction became immediate advocates for their property managers, and it demonstrated to Chuck that if property managers can take care of the root of that uncertainty that so many owners and investors feel, it could become part of their process.
That was the beginning of the guarantee program: income stability and evictions.
It’s a perfect example of turning a common pain point into a unique sales proposition.
Rent Guarantee and Eviction Guarantee: How They Work
Chuck’s company implemented these guarantees before they were common:
- Rent is guaranteed to arrive to the landlord by the third business day of every month.
- Evictions, if necessary, are covered for up to $15,000 of legal fees.
To implement these guarantees, risk assessment is necessary. But the results have been pretty clear. Most customers surveyed name these guarantees as the reason they chose to work with Poplar Homes.
While a lot of companies throw guarantees around when they’re marketing their services, for Chuck it works because this service aligns with their brand. Their mission is to be a partner with the property owner throughout their real estate journey. All the other services you provide have to be solid before you can start making guarantees.
Check out the Poplar Homes website, and you’ll see that their guarantees are front and center. The storyline throughout the website content is that their services are guaranteed. This messaging mentality is also part of who they are, and why they’re so successful with this unique point of service.
Chuck says it’s about reaching their audience. The majority of single-family rentals are managed independently. By having guarantees, they’ve been able to reach into that audience of DIY owners and show them a new style of property management that they can trust. They’re guaranteeing the residents they place, which helps them address some of the negative emotions that a lot of landlords still hold when it comes to property management.
Implementing Technology to Support Property Management Guarantees
A lot of property management companies have begun guaranteeing rent no matter what. That’s dangerous and difficult to sustain. Chuck does not guarantee rent during vacancy periods, for example. There’s too much risk there.
Instead, their rent guarantee is pretty specific to what owners really want: timely payments. It’s hard to imagine how they can promise that rent will be deposited by the third business day of the month. What about grace periods and processing times?
They’ve built the technology to support that guarantee.
The payment processing hurdle is easily managed because rent is due on the first of the month, and late fees are charged if it comes in after that. They’ve we’ve built the tech payment processing and grace periods on rents. We work with 12 month leases built a payment system that’s directly integrated with their bank. Renters can set up automatic payments, recurring payments, and even split payments if there’s a roommate situation.
On-time and online rental payments are incentivized. When tenants pay online, they earn other benefits. With 80 percent of their residents setting up recurring payments in their system, rent is almost always paid on time. After the money is collected, the payment system is on top of what the bank uses, allowing for same-day ACH payments. The money moves faster and takes one day instead of three to seven days, which is typical with most property management software.
Another process that supports the rent payment guarantee is tenant screening. They automatically screen incoming residents on credit and financial criteria. The system weights all of that, and there’s a lot less risk in these guarantees.
If you’re a property manager using third party software, you can still offer a rent guarantee, but it may be difficult to guarantee that is’ paid by a certain date.
Incentives to Increase On-Time Rent Payments
You can’t guarantee rent if rent doesn’t come in on time. Chuck provides tenants with incentives to pay online and on time. They’re working on a program to report rent payments to credit bureaus, which helps renters build their credit. That’s one upcoming incentive.
Another is a program they call Street Cred.
This is a home savings program where every month that rent is paid on time, a credit is earned. Tenants can build these credits up over time so that if they want to buy a house in the future and they use Poplar Homes as their agent, they’ll be able to redeem that credit as cash back.
Recently, a renter moved from San Francisco to Pittsburg and got $8,000 cash back after purchasing a home with Chuck’s team. This was after renting for only two years.
This concept incentivizes tenants to pay on time and it also tells their renters that they do sales. A lot of property management companies who do real estate sales could do a better job of informing everyone they work with that they also do home sales.
Sales should generate leads on both the owner side and the tenant side.
Return on Investment: What is there to Gain with Guarantees?
The ROI can be measured in a higher sales conversion rate. More leads are converted when they come in through the website because these guarantees give people a sense of wanting to know more. This is a nonstandard service. So, the sales conversion rate has increased and there’s a lot more brand loyalty.
The conversion rate, after the guarantees were first launched, was more than 50 percent.
Property management is a sticky business, but the customer retention rate at Poplar Homes is pretty solid. These guarantees have built trust and extended the lifetime value of every customer.
When the pandemic hit, there was a pause on these guarantees because of the eviction moratorium. But, customers knew they would return eventually. Even early in the pandemic, there was a 97 percent rent collection rate with Chuck’s tenants. His clients stuck around even though there was more income instability.
What Types of Owners are Attracted to Guarantees?
Chuck identifies The Far Away Frieda as the owner profile most likely to benefit from a guarantee.
These owners often have a geographically dispersed portfolio. They’re investing further from where they live. Investors don’t have a lot of standard practices when they have rental properties all over the country, so this structure gives them a solution. There’s a higher risk of surprises, and the pain is amplified when you have 10 single-family homes in different locations instead of one rental home close to home. They appreciate and look for less risk when they’re choosing property managers.
The largest group of owners in Chuck’s portfolio are those who never used a property manager before. They will also be drawn to the guarantees because they go against everything that those owners expect from traditional property managers. These are accidental landlords or investors with one or two properties. They don’t have a lot of cash and wiggle room to float their mortgage payments, so they like hearing that their income is guaranteed and they won’t have to pay for evictions.
There’s always a chance that fake landlords will try to game this system. But, it’s easy to catch fairly quickly, especially with the technology and the process that’s in place.
How Property Managers Can Create Their Own Guarantees
Chuck implemented the guarantee program within the first year of business. It was a pivotal experience in helping Poplar Homes stand out from the competition.
His most important piece of advice is to know your risk model.
- First, make sure you have a reasonable guarantee that you can use over a long period of time.
- Find the risk factors you can control, such as tenant screening.
- De-risk your own guarantee so you know what you can actually deliver and what would only require backtracking.
- Explore insurance options. In the last few years, companies have begun offering insurance that you can attach to your property management agreement or leases which essentially helps you insure against these guarantee.
Where might new guarantees start showing up?
The next big pain point and area of uncertainty is maintenance. There can be surprise issues that come up, and that creates a lot of anxiety for owners.
Poplar Homes has started rolling out a 360 service, which includes a maintenance credit each year. It even helps landlords invest in improving their property at the end of each year when they’re renewing the contract.
Like the other guarantees, this profile fits the hands-off owners who want to de-risk their investment and have their real estate asset perform more like a stock, where they don’t have to worry about surprise costs.
Wrapping maintenance into that inclusive fee is something Chuck and his team are testing in California and Washington. They want to explore how they can build on that going forward, especially with labor costs for maintenance going up.
The eviction guarantee was paused during the moratorium, but business was not impacted too much. The team reached out to each client to let them know that they couldn’t continue to offer that guarantee because of the moratorium. Some owners were upset, but most were understanding. They’re still getting great day to day service, especially during the pandemic. Property managers were taking care of payment plan, evaluating the impact of COVID on leasing and ensuring maintenance was done safely. Such uncertainty made professional property management even more important.
If you’d like to talk more about guarantees and how to implement this in your own property management business, get in touch with Chuck or contact us at Fourandhalf.