Elevate Operations, Systems, and Talent on both Pre and Post Sale Sides of the Business, or Become Irrelevant
On November 9th, 2016, we gathered a group of industry leaders on this podcast live at the NARPM National Conference in Hawaii.
Our aim was to decode the future industry trends and help property management entrepreneurs develop strategic plans to take advantage of industry opportunities.
- Industry consolidation
- Competitive advantages of smaller independent companies
- Tasks for the CEO of a property management company
- Building a company culture
- Property management technology
Today, we’ve gathered the same group of people on The Property Management Show to update our vision for 2018 and beyond.
Andy Propst is the CEO of HomeRiver, one of the largest privately-owned property management platform companies with operations in 15 states. He’s the past national president of NARPM, an international speaker, and one of the most respected thought leaders in the property management industry. He also speaks fluent Russian and made a movie about his experience as a missionary in Russia in the late 1990s called The Saratov Approach.
Michael Monteiro is the CEO of Buildium, and has spent the last decade turning Buildium from a home-grown software solution that was created out of individual frustration to one of the largest property management software companies in the world. Over 12,500 property managers are using Buildium, and Michael is going to help decode the future of the industry.
Jordan Muela is the CEO of LeadSimple, the first and only true CRM and sales process solution for the property management space. He’s the co-founder of PM Grow Summit, which is the fastest growing annual conference for top-level property management entrepreneurs. Jordan is also the co-founder and CEO of Profit Coach, and he authored the only property management financial benchmarking study of its kind, which demystifies profitability.
Alex Osenenko, your host, is the CEO of Fourandhalf, a marketing company helping to solve growth for property management clients. Fourandhalf has grown over the last six years to 32 team members who are absolutely committed to their craft. Alex is a co-founder of PM Grow Summit and his latest venture has been the creation of the OnePartner Platform, which combines the latest conversion and SEO science into a website that drives quality leads for property managers on the front end, and a business performance dashboard on the back end, tracking actionable marketing and sales KPIs. The OnePartner team converts that data into decisions, driving a constantly improving process.
With these four leaders talking about the property management industry, there are tens of thousands of hours of experience that can help your business fine-tune its pre-sale and post-sale operations.
The Property Management Industry View for 2018: Accidental Landlords Cycle Out, Investors Cycle In
In 2016, when this group first got together, there was still a large number of reluctant and accidental landlords, and their expectations of price and value varied based on their individual experiences. Today, the market has crested to the top of the cycle parabola, and economic uncertainty keeps amateur investors and accidental landlords mostly on the sidelines. The largest pool of prospective clients to emerge are sophisticated and disciplined investors, who demand transparency and results.
Who is knocking on the door, and do those prospective owners match your perfect client profile?
The Effect of Less Inventory
One difference today is inventory. When accidental landlords were the predominant clients, there was a lot of inventory that couldn’t sell. Today, all those single family homes that used to be rental properties are now being sold. Inventory is going down, but demand for single family rentals is going up.
Single family homes are in demand among renters, but they aren’t coming onto the market fast enough. There’s a shortage in the construction industry. One out of every three construction jobs is unfilled. Fewer young people are going into construction, and the industry still hasn’t recovered from the last recession, when a lot of migrant workers went home and never returned. Without the inventory, demand will continue to outstrip supply.
Investors are buying outside their Markets
A lot of investors are buying outside of their markets, and they need professional property management. These are investors that may have managed on their own locally, but in their markets, cap rates are down in the 3 or 4 percent range. To increase ROI, they’re moving into other markets that can provide that 7 or 8 cap. Coastal investors buying property in Memphis or Kansas City will need professional management services.
There’s also a generational shift. A lot of the landlords and owners come from a generation of people who do things on their own. If your father wanted a clean car, he’d probably spend two hours on a Saturday washing his car. Today, you aren’t going to go out and wash your car. You’ll spend five minutes in an automated car wash.
This translates to property management. Younger investors and owners will not want to do the work on their own; they’ll be more willing to pay for the services of a professional.
This is a market that demands flexibility from property management business owners. With properties selling off, you might need to focus on sales.
You might need to think differently about churn in your business.
You may need to meet ancillary needs in your local market. Flexibility and adaptability will protect you from irrelevance.
If your management company is losing doors and you’re not already doing maintenance, rehab, and construction work, now is the time to start thinking about those services. You can grow even as you lose doors.
What do Sophisticated and Intentional Investors Require?
With the loss of the accidental landlord as your primary client, your business must meet the needs of sophisticated and intentional investors. These are people who want to do everything on their phones. These are people who will expect more from their property manager in terms of speed, service, and technology.
They want data.
They want online financials.
They want constant access to their information.
That raises the bar for what property managers need to deliver.
The property management industry in general can be slow at times. Speedy delivery of information and service to both tenants and owners has become critical. Speed is a new currency that property managers need to adapt to and offer.
Tenants and residents want a consumer grade experience because of the way they’re living. With Lyft and other apps, they’re conditioned to expect simplicity and responsiveness. If you can meet this need and double down on service, you’ll see your business growth respond.
Remember that companies outside of the property management industry are setting your customer’s expectations. As soon as you put your hands on something, you have to commit yourself to an exceptional user experience. That’s not going away; it’s a long term trend.
A full stack experience is required for all of your customers.
Consolidations and Acquisitions: Valuing Your Company and Succession Planning
Acquiring property management companies was a hot topic in 2016. Today, it’s extremely geographical.
According to Andy, many of the management companies interested in getting out of the business or joining HomeRiver are on the east and west coasts. The real estate markets there are hot, and the number of doors to be managed is dwindling. They are far more motivated than property managers in the south and the Midwest. There aren’t as many property managers there – 80 percent of the property management industry is on the coast. In the Midwest and southern markets, there’s not a lot of interest in consolidating or leaving the local market. They aren’t losing quite as many doors.
Technology impacts succession planning and consolidation. Before these tech platforms, it was harder to consolidate in disparate locations, but with modern platforms, management firms with owners that are ready to retire or exit the industry will be able to join companies like HomeRiver.
The market is still healthy. Property management companies are still being acquired, people are interested in selling and succession. This integration is good for the industry, even if there’s a bit of panic within coastal markets.
Remember that vacancy rates are lower than normal nationwide, and there’s a huge demand for rentals. The industry cannot provide housing fast enough, and in many properties, 30 or 40 applications are coming in as soon as the home is on the market.
Competitive Advantage: How Can Independent Operators Grow and Win Big?
If an independent management company doesn’t want to sell the business, but they want to grow and build their brand, how can it be done?
Alex thinks these companies win big by driving local market knowledge through deep, long-form content creation, and networking. Small blog content isn’t enough today. You need to dive a little deeper with radio shows, podcasts, and other differentiators. This is something that Duke Dodson with Dodson Property Management does really well. Check out his podcast in Richmond, Virginia. He’s talking about politicians, famous local disk jockeys, and a lot of good, local stuff. That’s one way to differentiate.
This isn’t unique to property management. Real estate sales face the same type of shift. Brokers aren’t going away, but the nature of what brokers do is going to change. Authentic, local knowledge has a ton of value, and a small, independent operator can stand out by knowing the local market better than anyone else.
Building deep, local relationships with people in your market can help your business. Establishing an online presence is great, but the people actually out making things happen in your market are the people you want to meet.
Get out from under your desk and tell them how well you know your market. Find a way to work together and grow your business.
The differentiating factor can be the degree to which you treat what you are doing as a fully functional business, and not just an income stream. Recurring revenue is the blessing and curse of this industry. Your future will depend on your ability to do different things like operationalize the sales and marketing function of your business.
Do you know your customer acquisition cost and your lifetime customer value? Someone in your market is doing that math. Either it’s going to be you or your competition.
Focus on Niche Skills and Services
You also have to build something special. Do what no one else does.
Your market needs something that isn’t currently being provided by property management companies. The first company to figure it out and offer it to clients will grow as fast as they want to.
Think about specializing in something. Maybe it’s single family homes or student housing or short term and vacation rentals. Maybe it’s high end condo rentals. Specializing can help you differentiate. People can be reluctant to do that because they don’t want to narrow the size of their market.
That market is narrowing anyway.
When you focus and get really good at something, you can differentiate yourself and grow. This transcends property management and applies to any industry.
Buildium focuses on rental management, for example. Douglas Skipworth has carved out an impressive niche in a market that works. He grew by finding properties, rehabbing them, and then selling them. Once they sell, he manages those homes. Do that 3,000 times, and you’ve got some explosive growth.
The Role of the CEO: What is in Your Job Description?
Fred Wilson said the CEO should focus on three things:
- Develop the overall vision of the company and communicate that vision to all stakeholders.
- Recruit and hire the best talent.
- Make sure there is enough cash in the bank.
But, can anyone accomplish all those things?
Setting that organizational clarity is important. Establish and communicate where you are going as a business in the next three to five years. The Table Group, which publishes some of the best books on business and leadership, says that organizational health is critical. You need clarity on key questions like:
- Why do we exist?
- What do we believe?
- How will we grow?
Answer those basic but essential questions. It’s your job as CEO.
For a lot of property management owners, being CEO is not a full time job. If you work with a small team of 10 or 20 people, you have other work to do. There’s day to day responsibilities and business development that falls on your desk, in addition to your CEO duties. Look at technology and consider systemizing everything you can. Work with partners so you can operate more like a CEO.
Operations and Systemizing your Processes and Partners
Driving the systemization of processes and partners is an essential role of any CEO. Take an internal focus, outsource what you can, and focus on transparency so you can position your company as trustworthy. If a CEO is thinking about pricing and all of your fees are posted and published, you don’t have to have that conversation with new clients.
Figure out your operations. You can delegate parts of your business to other people so you can do all the things a CEO should be doing. It’s hard to figure out where your business is going to be when you’re still posting listings and collecting rent.
Distractions come with a huge cost. CEOs need to get ahead of distractions that make you busy but not productive. Your whole day cannot be spent responding to things. Property management is one of the busiest industries in the world, and the distractions cost hundreds of thousands of dollars.
Culture as a Natural Progression of Business Growth
Culture starts with the best people aligned behind a single purpose. Procuring good people and building a team is an essential role of any leader. It starts with clarity on what’s important to your company, and how you expect people to behave.
Michael once relied on intuition when he was hiring. But as Buildium grew, assessing candidates required a scorecard with outcomes and competencies. Do the foundational work before you begin to build a team.
A lot of a company’s culture has to do with external facing customer commitments. What do you want to achieve for the customer? That can transcend any hiring process. Whatever your cultural commitments, you need proof of them – otherwise, it’s just a philosophical idea.
Good people cost money. To compete with other companies who are also hiring good people, you can outsource and systemize. If you move tactical operations to near shore or offshore, and invest the money you save there into your strategic, local talent, you’ll have a tremendous advantage.
Organizing and structuring your team into squads can also help with advancement and opportunity, creating a positive culture. Check out the podcast with Adam Hooley for more guidance on that. Remember that the best people are expensive.
It’s also expensive when you lose good people. This is similar to your customer acquisitions. You know how much it costs to acquire a customer, so you want to retain them. Retain your good employees as well. Every property manager should measure employee happiness. You can do it online with a tool like Google Forms or the Gallup Employee Index. If you don’t measure how happy your team is with your company culture, it’s hard to improve.
Purpose, money, and fun. If you can provide those three things, you will have all the talent you need, and a culture that serves your company’s mission.
This was a different conversation than the one in 2016, and we plan to gather the group together every 12 or 18 months to take the pulse of the property management industry.
If you have any questions about what you’ve read, be sure to contact Alex at Fourandhalf.