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Our guest today is Kathleen Richards, President of Portola Property Management and PropertyManagementCoach.com. Our interview is geared towards a newer Property Management company that may need help establishing their pricing and hiring people. However, this interview contains plenty of useful advice for both newer and seasoned Property Management business owners.
Transcript of the Podcast:
Starting a Property Management Company: How Much to Charge and How to Build a Team
Hello and welcome to The Property Management Show. I am your host, Alex Osenenko. My day job is serving as the CEO of Fourandhalf, a marketing company working exclusively with fee-based property management companies. I have spent the last seven years of my life helping property management companies become more successful by improving sales, marketing and operational efficiencies. In this show, we’ll deconstruct success down to its key components and invite subject matter experts to help you improve every facet of your business.
The topic today is starting a property management company, and how much to charge for your services and how to build a team. To help me talk about this is Kathleen Richards, the CEO and President of Portola Property Management and the founder of ThePropertyManagerCoach.com. She has journeyed from property manager to property management coach.
Q: Kathleen, thanks for being with us. Why don’t you introduce yourself and tell our listeners what you do.
A: Thanks for having me. I’ve owned Portola Property Management in Santa Cruz for 10 years. Prior to that, I worked in Silicon Valley, so I have a background in tech, finance and business. That helped me to grow my companies. Over 10 years, I have taught a lot of classes at community colleges and conferences. A lot of new people in the industry don’t have a formal education in property management and they’re learning as they go. So I became a certified coach, and I’ve been coaching individuals who manage or own properties. I wanted to help my industry colleagues get up to speed quicker, so I evolved into business coaching. I don’t want someone to spend 10 years getting to where I am. We can learn from each other and grow without struggling and working so hard.
Q: So when someone is starting a property management business, how do they determine their fee structure and how do they create it for future growth? Most new managers want to make sure they can help their company grow, and be competitive without giving away too much. Do people change their fees very often?
A: Most people don’t, but they should be. There’s a money mindset that people have when they run a business. It comes from how we view money. There’s always a debate about whether it’s okay to raise prices and add services. Some people think they will lose clients: If I raise my prices, I will lose clients. They have a money mindset that they’re not valuable enough to charge their fees. If you are too cheap, you’ll get the cheapest owners who don’t want to spend money on their properties. You’ll be fighting over maintenance needs and your stress level goes up. Cut out those owners. Raise your prices and increase your value. If you are confident that you’re the best in your area, people sense that and they will pay that. I’m not the cheapest but people stay with me and no one asks me to accept less. Be prepared to explain what your price is and why. If someone isn’t willing to pay what you are asking, invite them to hop around and maybe you can work together in the future. That’s scary for a newbie.
Q: They have to win the business somehow. A new property management company needs a price point that is low enough to attract a buyer. So maybe they can also have auxiliary services where they make money. Some successful property management companies have contracting business as well. They do remodeling and they lead with that service, providing rehab services for investors. So that’s an incredible opportunity for new companies to charge a flat fee and then have additional revenues. It comes down to strategy, doesn’t it?
A: Yes. I have a maintenance company too. The difference is the quality of owner. You can take on beaten down properties. But the owner needs to come for your expertise and be willing to pay for it. My in-house maintenance department is valuable, and owners or investors must be willing to write the check. In Santa Cruz, we don’t have a lot of new construction. We developed an in-house maintenance department so we can be on top of maintenance needs. This is a surfing area, so when the surf is good, some of the local vendors are out there rather than getting our jobs done. We wanted to be sure we had maintenance teams ready to show up, so we created our own.
Q: So the people who are just starting out with no experience can’t say they’ve been doing this for 20 years. So how do they set up a price matrix?
A: Do a little research. Cal other property managers and see what people are charging. Ask for their information and look at their services and charges. Decide where you want to fit within that model. Look at your expertise. If you’re transitioning from a different career, look at your strengths and what you can offer. When I bought my property management company, I set up a management fee that was competitive. Then, I put prices on individual services that I offered. So clients would pay the management fee and then if they wanted, they could buy more services. I charge for a walk through or inspection of the property. I set up a pet program because Santa Cruz is very pet friendly and a lot of property managers don’t want to deal with pets. We charge the tenants with pets for inspections twice a year. Responsible people are happy to have you come in for those inspections, and the owner gets to see that everything is okay at their properties with pets. We do a preventative maintenance walk through once a year and our maintenance people do a professional report with photos. It looks like an appraisal and we charge for that.
Q: So you charge a general management fee, you have a pet program, a preventative maintenance walk through; what else do you charge for?
A: We also charge a renewal lease up when we have a tenant renewing a lease. We also charge the owner for paperwork. When we have to go post three day notices if tenants are late with rent, we charge the tenant for posting the notice. That doesn’t happen often. But there are a number of revenue streams in addition to our management fee. There’s also a one-time lease up service we offer. A lot of property management companies don’t like doing that, but we have our process down to a science. So a property owner who wants to manage on his own can hire us to do a lease up.
Q: So this is a different product? You have a management product and lease up product.
A: Yes, then we also have concierge services. Sometimes owners like to manage their own properties, and they do all their own advertising and showing. We act as their back office. We never meet the tenant because the owner does all that. We will look at the ad to make sure it doesn’t violate fair housing, and then we receive the application and run credit and process the screening and say yes or no. If we approve the tenant, we do the lease paperwork and hand everything over to the owner. Then, when that tenant gives notices to move out, we do the move out as well. It’s another separate service to move the tenant out and return the security deposit within a legal timeframe. We have successfully developed a number of different revenue streams. People should not be scared of that.
Q: So you have a competitive management fee. Then, depending on the level of involvement or service, clients can buy other services from you. Or, they can just pay the management fee and opt for nothing else.
A: Right, they only pay for the services they use. Depending upon the market, you can also structure your business with a flat fee that is all-inclusive. In some other markets, people won’t want to feel nickel and dimed, so it’s okay to have one fee that includes everything. Just make sure that fee is high enough to cover your work. Santa Cruz is a coastal community, so that doesn’t work. People want to pay only for what they need.
Q: So location is important and so is the makeup of your clientele. That’s the beauty of property management. You have a territory or region that you know. When you understand the socioeconomic makeup, whether there are students, high tech professionals or retirees or factory workers in the area, you can get ahead of the curve, review competitor pricing and be innovative with your pricing strategy.
A: Yes. This evolves over time. I believe that when you go to conferences, you get tons of ideas from all over the place. I’ll try something for a year. If it works, great. If it doesn’t, I try something else. See what part of the market you can fill. That’s how my maintenance and concierge departments came about. I learned what owners were looking for. I made a conscious decision not to do sales. So I was able to court other Realtors in my area as well as vendors. I give referral fees when they refer business to me. Try to build your relationships with vendors and Realtors.
Q: That’s a good framework for people who need a pricing matrix. Let’s talk about building a team. Now, we have pricing and a website and still just one person running the shop. With momentum, business is looking good and gaining properties, how do you build a team? Where and when do you start?
A: Start at the get-go. You need to think about people who will make you look good and save you time. Vendors are the most important people you can work with. Build relationships with vendors before you get that plumbing emergency call or before a tree falls through the roof. Start contacting vendors while you’re building your business. Get them on your team so they can save you time.
If you’re making money and you find you are working 10 plus hours a day and seven days a week, hire an assistant. Look at the things taking the most time from you. I had a part time assistant and she would do the showings for me. I hired her to help me with that part of the business initially. Then, she began doing the leases and paperwork and things that take your administrative time. That freed me to go on those sales calls and get business. That part time assistant grew into full time person.
Q: So you hire an assistant, and they shadow you. Did that person become a property manager?
A: The assistant had finished her classes to get her real estate license, so she did showings and paperwork, then I had her do the lease signings. She processed everything and she became an assistant property manager. I still signed off and had oversight. But my focus was sales calls and the move in and move out reports. Eventually, I transitioned and had her do that as well as post all our advertising. So she grew into her position. Something else you should use when building a team is technology. Ten years ago we didn’t have the technology we have today. Not everyone was using Craigslist and you still had to place an ad in the paper. In some small towns, you still do. You need to know your market. Initially, I would spend a full day or two days doing owner statements. With technology now, it takes us two hours to do those statements. So even as a sole proprietor, you need to invest in technology. Sometimes people think it’s too expensive. But how much is your time worth? You can’t do everything yourself. Build your team and partner with people who will help you get on social media and do marketing. I have a concept for technology but it’s not my area of expertise, so I hire experts. Fourandhalf does all my marketing and I hire specialists to help with my owner statements. This kind of teambuilding saves you a lot of time and allows you to get more business and bring in more money. If you don’t do this, when will you have time to build your business? You won’t. Be smart in thinking about your team. Maybe partner with another Realtor who knows the industry and the market.
Q: There are a few struggling Realtors willing to augment their careers.
A: Right, and they can help you save time. Over time, you slowly start to build your team. I have a Realtor friend who does my pre-move out inspections. In California, offering tenants a pre-move out inspection is required by law. I don’t want to do that with tenants, so I hire a Realtor friend to do that. I pay her to do it and it has been huge because the tenants who do that will usually get their full deposit back. So I’m not spending my maintenance department’s time turning over that unit. I know the property looks good, and I can get people moved in.
Q: It also means you have a happy tenant who may be willing to give you a 5-star review.
A: True. I’ve never had a tenant come back and threaten to take me to court. That’s because we document everything. We are also set up departmentally. So think about whether you want to set up your company as portfolio model, where you hire a licensed sales person to be your property manager and they handle everything – maintenance, leasing, advertising, etc. They usually work on commission. Or, you can do a departmental model. We have a leasing department, an accounting department and I am the broker. We chose this model because it’s hard to find people who are good at everything. Some are especially good at leasing and advertising, some are good with money and others are good with maintenance. It’s hard to find someone who can do the whole process well. It was also a self-preservation model. If a property manager were to leave with his or her entire portfolio, it would be hard to keep those owners from going with that manager. We find there are just better efficiencies in the departmental model.
If you attend NARPM trade shows, talk to vendors that help you set up your office systems. You’ll need letter templates and procedures. I recommend doing that when you’re new so you don’t have to think about these details. Landlord Source is a great company for that. It’s all there and you just edit those letters and forms. It helps you set up structure and create policies and procedures. When you go to get E&O or Liability insurance, you’ll be asked if you have a procedural manual. When you say yes, it will save you money.
Q: Maybe our next conversation will be to invite someone who is pro-portfolio models. There are property managers who think that’s the only way to scale the business. You are departmental and I can see both systems working, but each structure fits certain people better. Would you agree it depends on personality, the amount of time you’ve invested in the business and how fast they want to grow?
A: Yes, there are also local factors, such as what your pool of employees might be. In Palo Alto, I could see companies being more portfolio based. In Santa Cruz, the demographics are different, as well as the ability to find a property manager. We tried the portfolio model and it did not work, so we re-organized and put together our departmental system, which is much better for our marketplace. There is no right or wrong way of doing it. Look at your market and your competitors. They have probably tried a few things if they have been in business for a long time. Copy some of the things they do and decide what you can do differently to make your services stand out.
Q: We really appreciate your time, Kathleen. If property managers want a coaching session, where can they find you?
A: Contact me at ThePropertyManagementCoach.com and if you’re in Santa Cruz looking for property management services, contact us at Portola Property Management.
And if you need help with marketing for property management companies, please contact us at Fourandhalf. Thank you for listening, and we’ll see you next time.