How can you grow your property management business by opening new locations? A lot of listeners have called and written with this question, wanting to know how to be successful in a new market without having to acquire another property management company.
Jason Rose was highly recommended when I asked for help with this topic. He’s from Brisbane, Australia, and he’s joining us today to talk about what your company needs in order to succeed and grow in a new location.
Jason Rose and How to Grow
Jason has been in the property management industry for 32 years. His career began as an auctioneer, and as he became more experienced with real estate auctions, he learned a lot about the industry. Eventually, he left the auction house and joined a real estate company. He did traditional real estate sales for more than 12 years, and then became a property manager. One investor wanted the company to manage an investment property, and that part of the business grew. In 2004, they began using business development managers (BDMs) to grow, and in 2006, the sales part of the business was sold. Rental Express was born, and property management was the company’s focus.
Rental Express began with 350 doors in 2004, and Jason exited the business in 2015 with 5,102 doors.
During his last year, the company brought on 945 new doors thanks to the work of six BDMs.
When Jason and his partners were ready to exit, they were able to get a premium price for the company. Why? The business had been expertly developed. It was a lot more than a rent roll transition.
Why You Should Expand Into a New Location – and Why You Shouldn’t
Sometimes, business owners are driven by ego.
That’s not a good reason to expand your business into a new location. The bragging rights that come with having multiple sites and locations may be attractive, but it’s not enough to sustain you and help you succeed. Think instead about the why – the real why. Do you want to earn high six figures? That’s a why. Do you want to start saying yes to clients who ask you to manage properties that are 100 miles away? That’s another why.
Before you look at multiple locations, ask yourself these difficult questions:
- Are you a good business leader?
- Is your team prepared?
- Can you hand off some of your management duties?
When you have multiple locations, you need high quality people running the business. So, if you’re struggling to share management and leadership with other people in your company, don’t think about a new location just yet. Your success depends on the quality of the people around you. There are only so many hours in a day, and you wear a lot of hats in your growth phase, but you cannot run all your company’s locations by yourself.
You have to lead. Hand the management responsibilities off to other people so you have the capacity to go and look for other locations. And, don’t open up in a new market unless it fits into where you want to go.
After people, you need systems. Good systems drive good people. Before your conversation about opening a new location even starts, make sure you have those two things in place. If your business is somewhat profitable but you’re still figuring things out systems-wise, opening a new location isn’t going to bring you the discipline you need. It’s going to bring disaster.
Get your own house right first. Make sure your processes are scalable and reproducible.
There’s nothing wrong with focusing on just one location. If you have market capacity and there’s still more growth to be found in the market where you currently are, stick to that one location and make it profitable.
Financial Investments Required for a New Location
Jason suggests having $200,000 to put aside for the opening of a new location.
Look at your fixed costs, your budget, your cash flow, and your forecasting. Think about how you’ll survive if you open up a new shop and don’t bring in any new doors for six months. You need cash in the bank or access to capital. Gather the extra resources you’ll need to start again in a new place.
Think about this benchmark. You cannot buy a profitable property management company for $200,000. You could buy an agent’s portfolio, maybe. But, this investment in a new market can help you grow your company for a lot less money than it would cost to acquire a new company and give yourself a presence.
Here are some additional metrics Jason suggested:
- In year one, you’ll want to pick up at least 150 doors.
- By the end of year two, you’ll want to be at around 370 doors.
- In year three, get yourself to 500 units.
This is what the successful opening of a second location looks like.
Two Reasons a New Location Might Fail
Mistakes will be made, but what are the two major reasons that you could run into trouble?
First, not doing enough market research. You need to know the capacity of a new location. If it’s an area where most of the properties are owner-occupied, how will you find new business? Make sure the market is open to landlords and investors. Just liking an area isn’t a good reason to open an office there. You need to know you can take a large part of the market share and grow a profitable property management business. A market where everyone owns a home but only 20 percent of the properties are rentals will be tough.
Make sure there’s business in the market you’re targeting.
The second mistake that can easily be made is not knowing who your perfect client is. Look at your core business and determine the type of client you want. Who is that, and is that person in the city where you want to do business?
There’s plenty of data available on the markets you may be considering. Use it. Find out if the area is experiencing a lot of growth. Are new apartment buildings going up, or will you be working with condos or single-family homes? You need to know these things to get started. If the market is growing, your business can grow, too. If it’s well-established and nothing is happening, you may have a hard time introducing yourself as a service that no one there needs.
Referrals from Current Clients
Remember, your existing client base is an incredible way to grow your business, even in another market. Jason sent out a survey to current clients, saying they were looking to expand the business, and did they have any suggestions on where to open another location?
This is brilliant. If those clients are considering properties in other areas, they’ll tell you. If they already have properties in other areas, they’ll tell you. These clients will know people who have properties in other locations. So, while external market research is important – internal market research is also critical.
Ask your clients which locations make sense.
Don’t forget referral partners like mortgage brokers, titles officers, real estate sales people, and contractors. They will know where there’s investment activity. Use all of the spheres of influence you can access to get that market research conducted.
Focus on Your Property Management Value Propositions
You might feel the need to do some intensive research about your competitors in the new market, but there are better ways to use your time. It’s easy to go online and find out who is there already. You’ll want to know what their fee schedule looks like so you don’t go much higher in a marketplace where you’re not known.
That’s all you really need to know about the competition. Your focus should be on your own value as a property manager and what you can do to help your prospective clients.
For example, Jason’s company innovated the way funds were distributed to clients. In Australia, it was pretty standard for owners to get paid at the end of every month. A couple of years ago, Jason began paying owners mid-month and at the end of the month. This got the cash to their clients quicker, and it saved those clients money. They saved on mortgage interest and were thrilled to have two disbursements every month.
Another example of focusing on value is renting out properties faster. Jason’s company took an average of seven days to find a great tenant, instead of three weeks, which was pretty standard for other companies. That extra vacancy cost adds up.
When you can enter a new market with value propositions like these, you won’t have to worry about your competitors. Concentrate on what you can control.
Physical Property Management Offices and Virtual Offices: How to Set Up Shop
Jason said that if he was starting from scratch in a new location, he would start marketing in the area before he opened an office. That will create traction. Any new business that comes in can be referred to local property managers. Then, you can build a good relationship locally.
That’s one way. Another way is to rely heavily on technology. With mobility and the cloud, you don’t necessarily have to have a physical office. When your back end support is in place, you can have your people working from home. Tenants can sign leases through DocuSign and if you need to meet with someone in person, you get together for coffee. Lockboxes are easy to use for showings.
Unless you have a lot of cash, opening a physical office before you have any business in a particular location will be difficult. You’ll need to be creative. Plenty of remote workspace is also available in most cities. Rent a desk for a short term if necessary. Automate your processes, and you can be sure the work gets done from anywhere.
When you’re opening a new location, you need to start with two employees: a property manager and a BDM.
Both of those positions can get a lot done virtually. Sales people like to meet face to face, but it’s possible to meet at an owner’s property instead of in a physical office.
What you have to do and where you have to do it also depends on your ideal client. A landlord who wants to see you in person every week and drives past his property every other day because he only lives a few streets away is going to be a high-maintenance client. Is that who you want to work with? Probably not.
Your ideal client will likely trust you to do what’s best for the property and for your business.
Think about your retirement plan. You don’t call your asset manager and tell him what mix of stocks are the best for you, and then call the following week to change it all up. Instead, you just let the money come out of your check, and the professionals handle the portfolio. You don’t have to do anything. Investment properties should be treated the same way, and a good client is one who understands that.
Property Management Marketing in Your New Location
As you know, over 70 percent of the rental properties in the U.S. are self-managed. Your marketing needs to start with research and data – knowing where those properties are and who those landlords are in your new market.
Next, build relationships. Talk to the real estate agents who don’t do property management. That will bring you some new business early. Nurture those relationships and get other professionals involved like mortgage brokers and title people. You want to be their preferred property management provider, and you’ll generate some leads straightaway.
The simple philosophy that Jason adopted was that if he could have 20 partners referring 20 management contracts, that’s 400 doors.
It’s basic math.
Your digital marketing will need to be targeted. There’s a lot to gain from pay-per-click advertising that reaches investors. Social media is a great place to find new leads, too.
Be specific with who you’re marketing to and where they are.
Remember that opening a new location needs to be a business decision, not an emotional one. Make sure the numbers stack up for market share and profitability. It has to be sustainable because it’s going to take more time than you think it is.
Reach out to Jason on Facebook or LinkedIn, and remember – Fourandhalf has opened its own new location! You can find us in Perth, Australia. Check us out there at Fourandhalf.com.au, and contact us if you have any thoughts on this week’s podcast.