The current economic climate is a double-edged sword for property management companies. On the one hand, we are seeing increasingly high demand for rental property as people look to downsize and move away from homeownership. On the other hand, with reduced job security and income levels, tenants may find themselves unable to pay rent or in search of lower cost housing options. This means that property managers must be prepared to weather any economic storms on the horizon – but how? Kim Meredith-Hampton & Scott Hampton have some ideas about how best to recession-proof your property management business.
Lessons Learned from Past Recessions
Kim and Scott are no strangers to economic downturn. Their company survived the Great Recession of 2007 to 2009. Before the recession hit, Hampton & Hampton had a large portfolio of rental properties, mostly brand new homes, managed on behalf of various investors. These investors were able to obtain financing from banks with little difficulty. So they were able tobuy homes they couldn’t afford.
The company did not realize the risk of this until tenants began calling with foreclosure notices on their rental properties. Kim and Scott soon discovered that many of their clients had not made mortgage payments for months and were only collecting rent. The banks were approving everybody for everything, and they had unknowingly taken on clients who were in over their heads.
As a result, the company had to adapt quickly. They implemented new procedures, such as checking if owners were in foreclosure before taking on their properties and creating a foreclosure disclosure for tenants. This disclosure would inform the renter that the owner of the house they are renting is in danger of being foreclosed on by a bank. This helps people know if their home could be taken away from them and lets them plan ahead for this possibility.
Eventually, the company was hired to handle foreclosed properties for banks. They would offer tenants cash to vacate the property. This was a win-win for everyone involved – the tenants received a payout to help them move out, and the banks were able to avoid costly and time-consuming eviction proceedings.
Strategies for a Recession-Proof Property Management Business
There’s more than one way to create a recession-proof business. As a matter of fact, it’s a good idea to implement multiple different strategies to keep yourself from getting stuck if one proves ineffective. Let’s look at a few of the ways you can make your property management company more recession-resistant.
Diversify Your Portfolio of Properties
Diversifying your portfolio means investing in different types of properties, such as residential, commercial, and industrial. If you have all your properties invested in one sector, an economic recession that impacts that sector could have a significant impact on your overall income. However, if you have properties in different sectors, the impact of the recession is spread out, reducing the overall risk. Different types of properties may also appeal to different markets, allowing you to access a wider range of tenants or buyers.
Cut Costs Without Sacrificing Quality
As a property manager, you’re always looking for ways to reduce costs without sacrificing the quality of your properties. In today’s economic climate, it’s more important than ever to find ways to save money while still providing a high level of service to your tenants. Here are some strategies that you can use to achieve this:
By investing in energy-efficient appliances, lighting, and HVAC systems, you can reduce your energy consumption and save on utility bills. This will also improve the comfort and convenience of your residents, which leads to higher tenant satisfaction.
Regular maintenance is essential to keeping your properties in good condition. However, by focusing on preventative maintenance, you can catch issues before they become costly repairs. For example, scheduling regular inspections of your properties to identify small issues before they turn into major problems that require expensive repairs.
Kim and Scott are always ready to try new things. When hedge funds started getting into real estate, the property management industry began to ramp up quickly. At the time, there wasn’t a lot of great technology available. By being flexible, they were able to discover new systems and improve the efficiency of their team. Ultimately, this is what enabled Kim and Scott to step out of the nitty-gritty, day-to-day operations and work on growing the business.
Technology can be a cost-effective way to improve efficiency and reduce costs. For example, using property management software for leasing, accounting, maintenance, etc, can help you streamline your operations and reduce administrative costs. Smart technology, such as smart thermostats and lighting, can also help you save on energy costs.
Focus on Tenant Retention
Vacancies can be costly, so it’s essential to focus on tenant retention. By providing excellent customer service and responding promptly to tenant requests and complaints, you can increase satisfaction and reduce turnover. This can help you save on marketing and advertising to attract new renters.
Be Proactive in Communication with Owners and Tenants
Effective communication is an essential component of successful property management. Being proactive in your communication with both property owners and renters can help you build strong relationships, boost retention, and even save money.
During economic downturns, tenants may face financial difficulties that can lead to missed rental payments or even eviction. By proactively communicating with them, you can address potential issues before they become major problems.
Invest in Marketing and Networking
In a recession, it can be tempting to cut back on marketing and networking efforts in order to save money. However, investing in these areas is essential for the continued success of any business during an economic downturn. Marketing allows you to reach new customers and maintain relationships with existing ones, while networking gives you access to valuable resources that may help your business during a difficult time. By investing in both marketing and networking before and during a recession, you can ensure long-term financial stability.
Best Practices for Managing Cash Flow During a Recession
It’s undeniable that a recession can leave businesses across many industries feeling uncertain and overwhelmed when it comes to setting realistic budgets and financial goals. With economic sectors across the board being impacted, property managers need to take stock of their current resources and use strategic planning to best position their organization for ongoing success throughout this period.
Maintain Cash Reserves and Contingency Plans
Having cash reserves can provide a safety net during times of financial uncertainty, allowing a business to continue operating even if revenue decreases significantly. This can help to cover fixed expenses such as rent, salaries, and utilities, ensuring that the business can stay afloat and avoid defaulting on payments. Combined with a good contingency plan detailing potential risks and specific actions to be taken in response, you should be able to weather a recession.
Cash reserves can also provide a business with opportunities to invest in growth during a recession. With many competitors struggling to survive, a business with cash reserves can take advantage of lower prices to acquire new assets or expand its operations, positioning itself for long-term success once the market returns to normal.
Track and Analyze Financial Data Regularly
Don’t get caught unprepared when recession strikes. Keep a close eye on your company’s financial performance. Try to identify potential problems or areas of concern before they become significant issues. Good accounting systems will also help you track spending and ensure that you are operating under budget.
Seek Out Financing Options
During a recession, it may be more challenging to obtain traditional financing options such as bank loans. However, there are other financing options available that can help you navigate a tough economy. The following are some common financing options that property managers may consider:
- Small Business Administration (SBA) loans: The SBA offers several loan programs designed to help small businesses, including property management companies. These loans typically have lower interest rates and longer repayment terms than traditional bank loans.
- Bridge loans: Bridge loans are short-term loans designed to provide immediate funding to cover expenses during a transition period. These loans can be used to cover the gap between the end of a current loan or other financing and the start of a new financing option.
- Private lenders: Private lenders may offer alternative financing options to property managers who do not qualify for traditional bank loans. These lenders may be more flexible in terms of credit requirements and collateral, but typically charge higher interest rates.
- Line of credit: A line of credit is a flexible financing option that provides access to funds as needed. This can be useful, as it allows you to draw on funds as needed to cover expenses.
- Factoring: Factoring is a financing option where a property manager sells their accounts receivable to a factoring company at a discount in exchange for immediate funding. This can be a useful option for property managers facing a cash flow crunch during a recession.
Exploring New Avenues For Real Estate Investment Opportunities
After experiencing the ’09 recession, Kim and Scott learned the importance of staying ahead so that they don’t get caught off guard like they did with the unexpected foreclosures we went over earlier. Over time, they have diversified the types of properties that they manage so that they are not putting all their eggs in one basket.
Introducing Multi-Purpose Spaces As A Cost-Effective Solution
Now Kim and Scott are working on transitioning from a traditional office to a multi-use space. Essentially, this is a way to reduce overhead expenses by renting out part of the office as a co-working space. As investors themselves, Kim and Scott own the building, which makes this kind of solution possible. It provides a safety net because, if need be, the space could fit up to 4 separate offices, allowing them to earn rent should one of their other income streams dry up.
Looking Forward – What’s Next On The Horizon?
Kim and Scott have a lot of things in the works despite a shaky economy. They see themselves as always being a step ahead and they are always looking for the newest idea or innovation. Kim refers to them as “trendsetters” and “guinea pigs” – always willing to be the first to try out the latest tech. We’re excited to see what they have in store.
If you’re a property management company looking to grow your business, we encourage you to get in touch with the Fourandhalf team by filling out the form below.