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5 Property Management Mistakes that make you a Bad Property Manager

We all make mistakes. But when in comes to property management mistakes, the consequences can be tremendous. Property managers balance so many moving pieces, and fixing even the smallest mistakes or bad habits can make a huge difference to your resident experience and your business growth. From hiring people who aren’t a good fit to letting tenant screenings slide, there are plenty of predictable characteristics of what some might call a bad property manager. But it’s not always as straightforward as it seems. So, we decided to seek out an expert on property management who could talk to us about how property managers can avoid the most common property management mistakes. Meet the Expert: Michael Catalano Michael Catalano is a lifer in the industry and has unique insights as a founding partner of PURE Property Management. We asked him for the five most common mistakes made by property managers are and he delivered. ‍Michael Catalano is co-founder and general partner of Silicon Valley-based PURE Property Management, the fastest growing profitable residential property management and technology company in the U.S. As a second-generation property manager with over 25 years of experience running, growing, and acquiring property management companies, Catalano is an industry insider looking to transform the traditionally cumbersome and complex process of managing properties. PURE acquires hyperlocal property management companies and invests in their people, processes, and technology to achieve market leadership in their location. 1. Mismanaging Trust Accounting “One of the biggest mistakes I see newer property owners make is not actively managing and understanding their trust accounting,” says Catalano. “Trust accounting discrepancies can do more than jeopardize your bottom line. Depending on the state you live in, big shortages can put you out of business or even in jail.” The key to avoiding any discrepancies is to have the right people in place. Trust accounting in rental property management requires a more specialized understanding of the industry than a traditional CPA often has. The accountant you hire needs to have a deep knowledge of how money fluidly moves through all stakeholders, specifically in the property management industry - residents, property investors, and vendors. They need to keep accurate and up-to-date accounting so that you always know what your resources are. While shortages do come up occasionally, even with the most well-run companies, knowing and troubleshooting to find the problem right away will help avoid bigger discrepancies later. “Every owner should be monitoring trust accounts with their CPA at least monthly, and for some states, it is a licensing requirement. In these states, if you have a negative in a trust account, you will lose your license and can also be fined or jailed. Shortages in a trust account usually occur when money from a client has been placed in the wrong client account, commingling funds. As soon as you commingle, you break the law in most states.” Catalano really stresses the importance of getting this right the first time and offers two important suggestions: “Number one, put someone in place that understands this. Fortunately, there are now many accountants and firms that specialize in trust accounting. You can find the best for you by talking to your colleagues and checking references before hiring. The second is to conduct a self-audit every other year. Take the time and spend the money to hire a professional auditor to audit your trust accounting and make sure that all the accounts are balanced and in order. It may cost about $5,000, but that is considerably less expensive than having it wrong,” emphasizes Catalano. ‍ 2. Dropping the Ball on Forecasting and Financial Analysis “It is very important to have a sufficient understanding of your everyday and future finances by budgeting and forecasting, which is critical to running any successful business. I’ve seen some property management companies miss this important step,” says Catalano. Underdeveloped financial analysis can leave a lot of money on the table and become a costly mistake in property management services. Catalano is quick to note how some basic budgeting and bookkeeping refinement have quickly increased the margins and cash flow of many of the companies that have joined the PURE Property Management family, and this modification is generally something that every company can very easily do on their own. “In addition to budgeting and forecasting, it is important to have an understanding of your KPIs and metrics as well. I feel like a lot of companies in our industry could do a better job of tracking so that every day they can answer critical questions about the financial position of their business – ‘What’s my revenue per door?’ and ‘Who is bringing in revenue and why and what am I paying them?’” Catalano offers this advice to help ensure you’re keeping up with finances appropriately: “You should always be prepared to sell your company, even if you have absolutely no plans whatsoever. Because when you operate at that level, you will have the best control and understanding of your overall finances. By watching your revenue and expenses on a daily basis, you will always have a pulse on the health of your business.” 3. Failing to Complete Workflow Implementation “While property management is not a particularly tech-savvy industry, we’ve seen more changes over the last three or so years than in the previous 30. There are now single-point technology solutions for the most time-intensive tasks within the workflow process innovated to increase efficiency. But the implementation remains challenging,” says Catalano. “I’ve noticed that in this industry, when you decide on a new process or workflow that you would like to implement, I see a lot of incomplete implementation. Every new process requires employee training, which means extra time away from daily responsibilities, but it helps, in the end, to actually sit down and hold a class on how to operate the new technology or workflow. The technology only delivers optimal efficiencies if the users know how to wield them appropriately. So you need to think critically about how much technology to implement and what it means to your current and future workflows.” Catalano says that as the industry has embraced technology at an increasing rate, the companies that have leveraged that change most successfully are the ones that made the proper investment in educating their teams. Technology can help with communication, streamlining workflow around property maintenance issues, leasing, move in, renewals, rent payments, tracking late rent or other late fees, security deposit, etc. Part of the challenge of technology implementation, according to Catalano, is the lack of an end-to-end technology solution that completes the entire workflow process within one system. “Right now, company owners are trying to piece together too many technology platforms on their own,” adds the professional property management veteran. “That’s the hard part because, in this industry, the different technologies do not truly connect. While some property management tech solutions are labeled as APIs, generally they aren’t true APIs because they don’t talk to each other.” The lack of integration Catalano touches on here makes heavy reliance on a large amount of software a hazardous venture. Not only do employees need to learn to be efficient with all of them, especially in smaller companies, but because they are not interconnected, there’s a lot of manual data transfer. “Right now, a property management API is like a CSV file, where you're downloading and then importing that CSV file in the new platform. In order to implement an entire workflow process, property managers use seven to 10 different platforms for all the different processes. Moving from one tech process to the next, we’re asking our property managers or leasing agents or maintenance coordinators to remember what they did in one platform and literally hand type that information in the next platform. As you can imagine, things get lost in translation, and then you have a problem.” 4. Falling Out of Compliance with Laws and Regulations & Screening Tenants “I live and operate in California, and it seems like California has a new law every day for resident rights,” says Catalano.”Property managers have an obligation to themselves, their teams, their clients, and their residents to stay up to date with the ever-evolving laws and industry regulations in their state.” And unfortunately, as everyone knows, rapidly changing fair housing laws get complicated really fast. “To make this situation even more complicated, in addition to the statewide ordinances, there are local ordinances as well that supersede the state ones,” says Catalano. “So, for example, you have to stay on top of knowing that while there is a statewide rent control in California, certain areas in Silicon Valley have a different rent control.” Knowing that lease and eviction law changes are fluid, Catalano believes it helps to think of them as living, breathing organisms that are continually changing and growing. In addition, Catalano recommends that you should review all state and local laws and regulations on at least a monthly basis. And while leases and property management agreements don’t need to be updated monthly, they should be combed through on a regular basis to be sure they are all compliant. Understand the laws around background checks, credit checks, and discrimination when screening tenants, etc. “Updating your lease agreements is tedious and can sometimes be monetarily expensive. You may even have to pay an attorney to do it. But at the end of the day, you really have to do it. Believe it or not, we’ve had a few situations, especially in California, when we have acquired a company and when we have looked at the leases have found as many as four items in there that are actually illegal.”’ “It’s not easy to be perfectly compliant with how many laws and regulations there are, how quickly they change, and how different they are from place to place, but it is important if you don’t want to get sued. While lawsuits from renters are generally frivolous, they’re happening more and more, and it’s not something you want to open yourself up to.” 5. Making or Keeping a Bad Hire “Right now, hiring is probably one of the most difficult aspects of this business, and can be one of the biggest mistakes property managers make. There are a lot of hurdles to finding and placing the right people for every job.” “In California, if you want to be a property manager, you have to be licensed, which is also the case in other states as well. With a lack of viable candidates, however, many unlicensed people are doing property management duties that require licensing. As a company owner hiring unlicensed employees, you could get in some serious trouble with the Real Estate Commission,” says Catalano. “So have a strategy for finding the right employees for your company. Start by confirming that they have the required licensing. Next, make sure that they have the right personality for the job that they're hired to do. We use a company called Culture Index to help us determine if there is a good fit. The company uses personality analytics to determine if the job candidate will be in the right position, whether or not they have the skills to be a leader, and answers personality trait questions like ‘are they ambitious and will they follow directions accurately?’ This Culture Index has really helped us with hiring and making sure that we have the best person in the right position for them. In addition to implementing a hiring strategy, Catalano says that it is important to understand your end goals for each department and the overall company structure to hire the right workers correctly. “You should have an org chart, even if you only have six employees. The chart should visually outline, ‘Who's doing what?’, ‘Who reports to who?’ and ‘Are they in the right position?’ When you are hiring, you need to know if the position is departmental, portfolio, or hybrid. Both you and new hires will want to know the plan moving forward to attain more growth, and I think that’s a big pitfall. Having this org chart will keep you from hiring the wrong person or guide you on how you want to run the business,” says Catalano. “Having an org chart and hiring strategy really ties back to knowing your financials and metrics. Understanding how many doors are being managed per full-time employee and how to structure around the best servicing that door count is the best way to optimize your business for success. I know that these strategies work because I think the average in the industry right now is about 50-60 doors per FTE and at PURE, we're sitting at about 115. You can get to well over 100 iIf you're more efficient, maybe 150 iIf the technology gets a little bit better. We think we can get to 200 eventually. So that's how we look at it. How are you structuring your business to get the best and most efficient organization?”

May 17, 2023

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Benefits of Outsourcing Property Management Services

Property management services have changed in leaps and bounds over the past 5-10 years. And property management outsourcing services have grown along with it. While the traditional approach to property management simply provided the basics – maintenance, rent collection, etc. – entrepreneurial PMs saw a massive gap in that value proposition and have transformed the real estate industry. Now, property management services are increasingly seen as a way to generate value for residents, real estate investors, and property management companies. PMCs are delivering resident benefits like credit reporting, renter’s insurance programs, pet guarantees, and more. And each of these services acts as a value add for everyone involved. But that can also add extra burden and cost to your property management business when your team is already spread thin. One of the best ways to offer value without overextending your team is to outsource some of those PM services to PropTech products, contractors, or a fully managed solution. Today we’re going to talk about this option in more detail. Whether you’re just getting started in property management or a seasoned pro, we hope you’ll find something here to help. Key Learning Objectives: What is outsourced property management? What services add the most value to the resident experience? What property management services are most easily outsourced? What are the costs associated with outsourcing PM services? What are the benefits of outsourcing PM services? What is outsourced property management? Outsourced property management refers to the practice of paying for a third-party company or product to handle certain tasks or operations for your property management company. This could include tasks such as tenant screening, resident benefits, renters insurance programs, rent collection, maintenance and repair coordination, lease enforcement, financial reporting, and more. Property management is in itself an outsourced service for real estate investors/property owners. Just as property owners often choose to outsource their property management to save time, reduce stress, and ensure they stay profitable – property management companies may outsource several of their services for the same reasons. Property management outsourcing services, whether PropTech products or fully managed solutions, allow property management companies to build efficiencies and focus on quality and growth. Outsourcing certain services can give residents more of what they need and investors more value for their dollar. What property management services can property management companies outsource? Advances in technology and innovation within the property management industry have given PMCs greater flexibility in terms of outsourcing key services. As a property manager, you may outsource for a range of reasons. Maybe you’re still building up your team and need cost-effective expertise in a certain area. Maybe you have core products you want to focus on and want certain services to take less of your time. Maybe your investors or residents are asking for out-of-scope services that you can offer for an additional fee. Overall, outsourced property management services can help PMCs save time, reduce stress, and maximize the profitability of their company. So, what are some of the most commonly outsourced property management services? They can be grouped into a few categories: A property management tech stack with property management software and integrations that enable all kinds of business operations. Maintenance and repair. Many PMs outsource things like plumbing, HVAC, and other contractor work. Resident benefits and ancillary services. Property managers often outsource value-driving products like an RBP and other services that investors want, and residents will pay for. Let’s dig into the services that might be included within each of those larger categories. Rent collection Third-party payment processing companies can handle the actual collection and processing of rent payments for the PMC. The property management company will provide the payment processing company with the necessary information and details about the residents and the property, including lease terms, payment due dates, and amounts owed. The process may involve various payment methods, such as online payments, credit card payments, ACH transfers, or other payment options. Some popular outsourcing solutions that help collect rent include Buildium, Propertyware, and AppFolio. Second Nature provides a fully managed service that helps ensure your residents pay rent on time. Repair and maintenance Many PMCs outsource repairs and property maintenance. We’ve spoken with experts like Bob Preston, who run their own maintenance companies separately as another source of income and an added value to their clients. When a property management company outsources repair and maintenance, it typically involves hiring third-party contractors or service providers to handle the actual repair, upkeep, and maintenance tasks required for the property. Outsourcing repair and maintenance can offer several benefits for property management companies. You can access a broader range of specialized skills and high-quality expertise, which may not be available in-house, and save time and resources by avoiding the need to recruit and manage in-house staff to handle repair and maintenance tasks. Marketing and advertising Marketing isn’t everyone’s strong suit, and that’s okay! When a property management company outsources marketing and advertising, it typically involves hiring a third-party marketing or advertising agency to handle the promotion and advertising of the rental properties. The agency will work closely with the PMC to develop a comprehensive marketing strategy that aligns with the property's unique selling points and target audience. The marketing agency may use a variety of advertising channels and mediums to promote the property, including social media marketing, search engine marketing, online advertising, email marketing, print advertising, and other marketing channels. They may also create engaging content and visuals, such as videos, images, and virtual tours, to showcase the property's features and amenities. Legal Most PMCs outsource their legal services to a third-party law firm or attorney to provide legal advice and representation on various matters related to the property or properties. Legal services that may be outsourced can include lease agreements, evictions, compliance with local and federal laws and regulations, dispute resolution, and other legal matters that may arise in the course of managing the property. Outsourcing legal services helps minimize legal risks and liabilities, ensure compliance with applicable laws and regulations, and protect the property investor’s interests. Accounts and finance Many PMCs outsource to an accounting firm or financial service provider to handle the financial management and reporting. The outsourced firm will work with you to manage financial records, provide financial reporting, and ensure compliance with accounting standards and regulations. The accounting and financial services that may be outsourced can include bookkeeping, financial statement preparation, tax planning and compliance, budgeting and forecasting, and other financial reporting and analysis. Overall, outsourcing accounts and finance can help property management companies to operate more effectively and efficiently and achieve their financial objectives while minimizing financial risks. Insurance PMCs often work with a third-party insurance broker or agent to provide insurance coverage and manage insurance-related issues for the property or properties. The insurance coverage that may be outsourced can include property insurance, liability insurance, workers' compensation insurance, and other types of insurance coverage that may be necessary or recommended for the property. Another way to outsource insurance is to find a service that provides a renters insurance program like Second Nature’s. Ensuring that residents have insurance coverage is a priority for 90% of property managers, but only 41% of residents maintain compliant coverage. At Second Nature, our renters insurance program has 100% compliance. You can learn more about our coverage and fully managed Resident Benefits Package in our 2023 Resident Experience Report. Safety and security Many PMCs outsource to a security company to provide safety and security services. The security company will work closely with the property management company to assess safety and security needs, design and implement safety and security protocols, and provide safety and security personnel and equipment as needed. Security services that may be outsourced can include security personnel, security systems and equipment, safety training and education, emergency response planning and execution, and other safety and security-related services. What are the costs associated with outsourcing PM services The cost for a PMC to outsource some property management services can vary depending on a number of factors, such as the scope of services required, the complexity of the work, the location of the service provider, and the level of expertise required. Some service providers may charge a flat fee, while others may charge an hourly rate or a percentage of the property's rental income. The cost for outsourcing property management services can range from as low at $1 per property per month to much as hundreds of thousands of dollars annually, depending on whether it’s a full-service tech solution, simple maintenance services, a Resident Benefits Package, etc. It's important to note that while outsourcing property management services can come with a cost, it can also provide benefits such as increased efficiency, reduced workload, and access to specialized expertise. Before outsourcing any services, it's important to carefully consider the potential costs and benefits and to choose a service provider that offers high-quality services at a reasonable price. How outsourcing property management services benefits you Outsourcing property management services can have a massive impact on your return on investment per door and per client. Outsourcing also helps with scaling when you can’t afford to run every service in-house. With the ability to outsource, you can offer more value to your clients without skyrocketing your operating costs. You can also drive secondary sources of revenue through outsourcing. Not convinced? Let’s go over some of the real-life benefits we’ve seen PMCs leverage with outsourcing select services. Cost savings Outsourcing property management services can save property management companies significant costs associated with hiring and managing in-house staff, as well as investing in technology and infrastructure. Outsourcing can also help to minimize overhead costs, such as office space, equipment, and supplies. Let’s think even bigger. Outsourcing value-generating services like a Resident Benefits Package has multiple benefits: boosting resident satisfaction, incentivizing on-time payments, and reducing vacancy rates. Talk about a cost-saving win! Increased efficiency We’ve seen PMCs use outsourcing to streamline their operations, reduce administrative property management tasks, and increase productivity. This can free up time and resources for property management companies to focus on core business functions and strategic planning. Instead of using your own team for time-consuming tasks, you can outsource them. Access to expertise Outsourcing property management services allows PMCs to access specialized expertise and skills that may not be available in-house. This can include legal, accounting, marketing, and maintenance expertise, among others. Outsourcing can also provide access to the latest technology and software, which can improve efficiency and effectiveness. Better risk management Property management inherently involves risk. You’re managing people’s lives on the one hand (residents) and investments on the other (owners/investors). Outsourcing can help better manage risks associated with property management, such as legal liabilities, compliance issues, and safety and security concerns. This can help to protect your company from financial and reputational damage. Improved resident satisfaction You can more seamlessly and reliably improve resident satisfaction by providing better maintenance and repair services, more efficient rent collection, and faster response times to tenant concerns and requests. This can help to increase tenant retention and attract new tenants. Higher employee satisfaction Outsourcing services to a third party is a direct way to impact your employees’ satisfaction. How? Outsourcing helps reduce workload, gives access to better training and development, improves working conditions, and provides a better work-life balance. Often, outsourcing means that your employees get to focus on the core functions that they love instead of getting bogged down in tasks they don’t love or don’t feel equipped for. How thousands of PMCs are outsourcing services for better resident experiences Property management companies are always looking for new ways to generate value for themselves, their residents, and their investors. One of the quickest ways to scale and increase return on investment can be outsourcing property management services. At Second Nature, we’ve pioneered the first-ever fully managed Resident Benefits Package in order to support PMCs with just that goal. Our RBP provides services that residents are proven to pay and stay for – and our team manages every part of the process so property managers can focus on strategy, growth, or work-life balance. We’ve helped thousands of property managers transform their services and their operations with a customized RBP providing services they couldn’t do alone. Our goal is to make property management easier for PMs, residents, and investors – and drive value that benefits all three. We call it the Triple Win.

May 17, 2023

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FAQs on Property Managers’ Insurance

A recent study by Orchid on property manager insurance found that while 80-90% of property managers require residents to carry insurance, only about 41% of residents actually have or retain that required coverage. Kind of crazy, right? Especially when you consider that that gap represents a huge exposure to risk for both the property manager and their investor. Insurance for property managers is a must – it protects not just you but your investor’s assets and your resident’s safety. At Second Nature, insurance is so important to us that we wrap an insurance product into our resident benefits package. So, today, we’re looking at property manager insurance and why it’s so important to get into the nitty-gritty details. ‍ Key Learning Objectives: What is property management insurance? Why do property managers need insurance (risks and liabilities)? What types of insurance are important for property management companies? Should property managers require residents to have insurance? How do you choose the best property manager insurance? How much does property management insurance cost? Examples of property management insurance coverage claims What our tenant liability insurance product can cover What is Property Management Insurance Property management insurance is protection for property managers against the risk of damages or claims against you from residents or clients. In other words, insurance for property managers ensures that you, as the professional property manager, are covered in the case of liability claims, legal proceedings, or losses from perils like fire, vandalism, or burglary. Property manager insurance can also include tenant liability insurance, or your leases may require that renters are insured in some form. We’ll talk more about tenant liability insurance below. Why Property Managers Need Insurance Property managers are responsible for a lot. Managing people’s homes means that property managers take on considerable risks. Claims of injury or property damage can lead to serious financial losses if you aren’t protected. Property management insurance reduces that risk exposure and keeps you from paying out the cost of wrongful eviction claims, injuries, property damage, etc. In a perfect world, you wouldn’t need insurance. We talk a lot about the Triple Win and how property managers should aim to build services and products that delight residents, protect investors, and retain talent on their teams. But even with the best service, everyone inevitably hits some speed bumps. Maybe a resident isn’t happy with an eviction notice, a maintenance item slipped through the cracks, or a property simply got unavoidable damage. Insurance ensures you’re not liable for the costs of these inevitable parts of life. What are the Types of Insurance Property Managers Should Buy? At Second Nature, we’ve worked with professional property managers across the country and seen several different approaches to insurance. But no matter where you manage property, there are some standard types of insurance that property managers should buy or require. Here are some of the basics. General Liability Insurance General liability insurance for property managers covers physical risks for which you might become financially liable. It will typically help cover repairs, replacements, legal fees, and medical bills. You can get it for residential or commercial property. General liability insurance can include coverage for claims like like: ‍ Bodily injury: If a resident decides to sue for an injury they sustained on the property. Medical payments: If someone gets hurt on your property and holds the property manager responsible for the injury, the PM could be liable for covering their medical costs. Property damage: If you or one of your employees caused damage to the property. Reputational harm: This helps cover you financially if someone sues you for libel, slander, wrongful eviction, privacy violations, etc. Advertising injury or copyright infringement: This typically refers to coverage if you ever faced a lawsuit for copyright infringement in your marketing. Errors and Omissions Insurance or Professional Liability Insurance Known as both professional liability insurance or E&O insurance, this type of property management insurance protects Property Management companies (PMCs) from claims about mistakes in their professional services. Errors and omissions insurance willy typically cover legal fees if there was a mistake in a contract or if there were any – well – damaging errors or omissions in any communication. It may also cover errors in service, omissions in information, negligence, or even inaccurate advice. Like with any insurance, ideally, you’ll never need this! However, it is best to protect your company from such financial risks if any of your clients decide to make a case against you. Cyber Liability Insurance Cyber liability insurance helps protect you from financial losses due to cyberattacks or data breaches. Cybersecurity is a top focus of business leaders for 2023 and should also be a strong consideration for property management leaders. PMCs handle sensitive personal data from both residents and clients. Should your company ever experience a data breach, fraud, or other cybersecurity threats, this insurance will help recoup your losses. Worker’s Compensation Insurance Every business with employees – whether it’s one or many – needs worker’s compensation insurance. Worker’s comp covers the costs of employee injury while at work. It also can protect the business from employee injury lawsuits. Even sole proprietors may use worker’s comp insurance to cover work injury costs that health insurance might not cover. In most states, businesses without worker’s compensation insurance will be fined. Be sure to know your state’s laws. Deposits and Damage Coverage Deposits and damage coverage is a payment the resident submits up-front to be given back at the end of a lease, assuming they haven’t damaged the property. There’s a lot of innovation in this space, with new products and services providing security deposit alternatives. Many of these are pure insurance, covering damages for a monthly fee. Vacation Rentals Owners’ Insurance Vacation rental owners’ insurance covers the investor for any vacation rental property they own. This coverage protects against losses in case of robbery, fire, vandalization, or other damages, whether the building is vacant or occupied. While investors should have their own policy, sometimes property managers can extend coverage for some losses as part of their license. Tenant Discrimination Insurance While we don’t know any property managers in our network who would intentionally discriminate against residents, it’s smart to have this type of insurance as well. Discrimination based on sex, race, religion, ethnicity, age, sexual orientation, disability, etc., is illegal. But that doesn’t mean you’re automatically protected from a discrimination suit. This type of insurance can protect you in case a disgruntled former resident attempts to sue, no matter how baseless the allegations are. Tenant discrimination claims can lead to serious financial risk and expensive lawsuits. Coverage for such claims are generally excluded from General Liability policies. Be sure to review your existing policy to determine your exposure and add additional coverage as needed. ‍Renter’s Insurance Renter’s insurance – or H04 insurance – is essentially a financial safety net for residents and their belongings. Renter’s insurance should include three distinct types of coverage: ‍ Property Damage/Liability Insurance: Plans typically provide around $100K in coverage, though different properties may require different coverage (pools, for example, increase coverage) Contents and Belongings Coverage: For any damaged or stolen belongings they would like covered. Usually, this will be around $10K of coverage, but residents can opt for higher coverage. Loss of Use/Additional Living Expenses: For any costs a resident incurs for living expenses in the vent the residence is uninhabitable. We recommend residents seek contents and belongings coverage that provides replacement cost value (RCV) rather than actual cash value (ACV), as ACV may not offer sufficient coverage. For example, if you have a 10-year-old laptop that gets damaged, ACV would only cover the value of your 10-year-old laptop at the time of the damage. RCV would cover the value of replacing it with a new laptop of a similar kind and quality. Should Property Managers Require Renter’s Insurance? Do property managers need to require their residents to carry renter’s insurance, or in the least, tenant liability insurance? Most professional PMs would say absolutely yes. Remember, 80-90% say they require their residents to carry insurance coverage. So, why do only 41% of residents retain that coverage? Often it’s simply a matter of insurance lapsing without anyone noticing. Or a resident might submit paperwork that’s out of date or decide to end their policy without thinking they need to let you know. Whatever the reason, it’s important to have a backup plan. If a resident’s insurance lapses, you could be liable for damage during that time. At Second Nature, we provide tenant liability insurance as part of our Resident Benefits Package (RBP). This feature allows property managers to offer price-competitive insurance coverage that applies to all residents with one basic group rate. We’ve seen 100% insurance compliance among property managers using our RBP. How to Choose the Best Property Manager Insurance Plan As you choose your insurance plan, it’s important to consider the risks you want covered and any liabilities you might face. Here are a few best practices for selecting a property management insurance plan. 1. Consider your niche and your needs. What is your property management business niche? What kind of properties do you manage? What is their value? What risks or liabilities are you most concerned about? Do you have employees, or are you a sole proprietor? ‍ It’s also important to consider your goals and how your business services and objectives might change over the coming year. If you need a new type of insurance soon, include that consideration in your search. 2. Establish your budget and review prices Get a good idea of what’s on the market and how much it costs. Consider the level of coverage you need vs. what you feel you can afford. Make sure you’re building those insurance fees and deductibles into your pricing structure. 3. Compare vendor specialties Some insurance companies focus on offering several types of insurance, while others dial down into a specialty. Often, just like with property management, going with the specialist vendor will ensure better coverage and service, however, it may also cost more. 4. Use your network This is where your network really becomes useful. The SFR property management community is an open, generous group of folks. Most will be more than willing to share their insurance experiences, what has worked, what hasn’t, and their favorite vendors. Ask around within your network for advice. Also, make sure to read reviews of any potential insurance companies and see if they have property management clients. 5. Always talk to your attorney Of course, this is probably the most important practice. Never make any insurance decisions without discussing them with your attorney! They will be best able to help you navigate legal requirements, your greatest risks and liabilities, and what type of coverage makes the most sense for your PMC. How Much Does Property Manager Insurance Cost? The cost of property management insurance will fluctuate based on what you decide you need. Your level of risk also affects the cost of insurance. Insureon gives several estimates of standard costs for property management and real estate insurance. The following average prices are based on Insureon’s customers’ policies, subject to change at any time: General Liability insurance costs, on average, about $30/month for a $1 million per-occurrence limit and a $2 million aggregate limit. Errors and Omissions insurance can cost, on average, around $55/month with a $1 million per-occurrence limit and a $1 million aggregate limit. Worker’s Compensation insurance can cost, on average, about $50/month or $600-$620/year. Cyber Liability insurance can cost, on average, a median of $140/month, depending on the sensitivity of the information. The average prices listed above will vary based on the PMC, properties covered, and the type of coverage and limits requested. Again, property managers should consider which type of coverage they need and then build those costs into their pricing structure. Property Manager Insurance Coverage Claims - Examples Let’s look at a few examples of common property manager insurance coverage claims. How does insurance help when you face a crisis like damage, injury, or a lawsuit? Here are a few examples of common types of claims. Wrongful Eviction That’s one no property manager wants to see! But it takes just one disgruntled former resident to bring a wrongful eviction suit against a PMC – even if the claim is unreasonable. An example of this could be a resident approved with excellent references, but after move-in, begins disturbing the peace in the neighborhood. Maybe they get noise complaints late into the night or transgress community guidelines. Another example would be a resident who is not making rent payments on time. In those cases, the property manager would then deliver formal notice of the problem and take the proper steps to legally evict the resident if necessary and allowed by law. It’s still possible that the resident could sue for wrongful eviction. However, as long as you document your process clearly with your attorney, and follow all legal requirements, your insurance should cover the costs that may result from the lawsuit if such coverage is included within your policy. Loss of Rental Income Here’s a good example of coverage for loss of rental income: Our built-in tenant liability insurance plan provides coverage to a PMC in the event one of their properties is unrentable due to a covered loss caused by a resident. For example, if a property that is covered by our plan is damaged due to a fire caused by the resident and the PMC is unable to rent that property out for a few weeks, they can file a claim under the Loss of Use endorsement and receive up to $1k. Property Damage Property damage could be covered differently based on the type of coverage – either by the renter’s insurance, the PMC’s, or the investors’ general liability insurance. So, here’s a real-life example from one of Second Nature’s partners: A resident went out of town, and when he returned after two days, he found that the back sliding door with two glass panels was cracked on one side. It’s tempered glass, so the PM didn’t know if it was from heat, intentional damage, or something else. In this case, if the damage were caused by a covered peril (fire, smoke, water, explosion, collapse, etc.) or resident negligence, the PM’s master insurance obtained through our offering would help cover the cost. An investor’s property insurance should also cover property damage for the same causes. Pet Damage or Dog Bites Pet liability insurance helps cover any damage done by pets to the property – or injury caused by the pet to anyone else. Under our tenant liability insurance benefit, pet damages and dog bites are covered up to $25k. We have one of the only insurance policies that cover any dog breed as long as the property manager approves the dog. Animal liability covers the cost of any suits filed and medical expenses up to the policy’s limit. How SecondNature Helps with your Resident’s Insurance Coverage At Second Nature, we know how valuable your investors’ assets are – and how much risk you take on as a property manager. While insurance can sometimes feel like a zero-sum game, we aim to make every opportunity a win for everyone involved. That’s where our tenant liability insurance product comes in. We offer PMCs a fully managed tenant liability insurance plan that helps ensure compliance and that you, your investor, and your residents can rest easy knowing you’re covered for damage or harm. With our tenant’s liability insurance, we’ve seen our partner PMCs go from: Only 41% of residents covered → 100% of residents covered Portal administration → Fully managed for you Leasing team tracking certifications → 100% certificate management Higher premiums → lower premiums Implementation and vendor management → 1 RBP, 1 Invoice Derrick Scott, from IMG put it this way: “I don’t know if people grasp just how important the ‘fully managed’ part of that is. We’ve seen property managers whose residents’ insurance lapsed, but no one knew about it. Unfortunately, the resident had a claim during the three-month period they didn’t have insurance. So the property manager took on that liability. “Being fully managed means transferring some of that liability to get that done – and ensuring you have coverage. I see that as a massive benefit.” Every property manager knows insurance matters, but that doesn’t make it any less of a headache. If you want to learn more about how we can partner with you to make that part of your life simpler, check out the details on our Resident Benefits Package.

May 17, 2023

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How Property Managers Can Address An Evolving Industry

“PropTech companies are making the mechanics of property management easy – rent collection, maintenance, screening, the day-to-day mechanics of property management. Thirty years ago, that’s what a property manager did. Now though, when it comes to things like benefits packages, pet guarantees, and rent guarantees with security deposit alternatives – these are all things you can’t do with software. Software doesn’t solve this problem, especially for landlords trying to manage their own smaller-scale properties. The fact that we manage a lot of properties as opposed to just being a software solution, we can offer much more value.” - Revolution Rental Management CEO Todd Ortscheid ‍The basics of property management, that is collecting rent, conducting maintenance, and listing and filling properties, have never been easier. The wave of investment into the industry in the form of proptech companies, as described above by Ortscheid, has stimulated this change. This is a good thing in some respects, but it also poses new challenges for PMCs. As technology makes property management’s core competencies easier, the need for an owner to hire someone to do those core competencies decreases. The service is being commoditized, which is to say that the ability to differentiate your business simply by being proficient at those core competencies is approaching zero.This creates a need for property managers to offer something beyond the core competencies, to offer something that can’t be easily replicated by technology or the accidental landlord using that technology. Thus, the focus for the property manager has changed. Good property management is no longer just taking on screening, renting, maintenance, and so on for the client. Good property management is now about maximizing the investor’s ROI via innovative value-creation programs that technology cannot duplicate.‍ "So the advent of resident benefits packages really grew out of that. There was just more demand to be something more. This took property managers from being just a kind of a lackey to really being the professionals, to understand the laws, to understand who protects our clients and income streams.” - Formatic Property Management CEO Matthew Tandy‍ So how do you as a property manager offer something more in order to protect your clients and their income streams? You start upstream with the resident. ‍“The experience of the tenant is paramount in this industry. Our product is tenants. It's not all the systems. It's not all the organization. Our product to the homeowner is the tenant. Now we can go into psychological studies about making tenants happy and how they treat products better and treat the properties better, but you can have that conversation just from a logical standpoint with your homeowner. Let's talk about the resident experience in your property. And if we give them the best experience possible, they're going to feel appreciative of this address and of you as a landlord, and of us as a property manager. The better experience you can give them, the more likely they are to take better care of your property, pay you on time, stay in your property, and lower your vacancy costs. It's like a literal triple win in this case.” - RevUp Consultant Jonathan Cook ‍Obviously, the resident is the source of the monthly income for the investor, so protecting that income stream and maximizing ROI from it means protecting the resident’s interests. You need them to stay. Making the property and the rental experience as good as possible for the resident incentivizes them to stay, and less turnover means less lost vacancy and turnover costs to the property’s owner. A winning experience for the resident becomes a winning experience for your clients. Property managers have gotten ahead of the curve in the evolving market by redefining the resident’s role in the business. They’re not just a necessity anymore. They’re an opportunity to install a resident experience program that creates value for investors that the investors don’t have the capacity to create themselves. This committed evolution from a service provider to an experience provider is making all the difference for America’s top PMCs. Related: State of Resident Experience Study ‍ Four Keys to A Successful Resident Experience Platform 1. Create value This is the single most important part of an ancillary income program. Ancillary services are not just money grabs. Treating them as that will have undesirable long-term consequences. To be sure, there is money to be made for you as the property manager, but unless you’re also creating a desirable situation for residents, you’re not helping your clients, which threatens the long-term viability of your business. Vision is important here. Creating that undeniable value for your residents is the origin point of this entire strategy. It is the cornerstone without which the whole thing crumbles. There’s a long list of pretty easily accessible programs that are proving to be welcomed by residents, including things like air filter delivery, credit-reporting tools, security deposit alternatives, resident rewards, gifting programs, home-buying assistance, and more. 2. Convenience Residents perceive value in a number of different ways, but one of the big ones, especially in modern America, is through convenience. ‍ “What I'm seeing from our residents, whether they're paying $3,000 a month in rent or $1,000 a month in rent, the number one thing that they look for is ease and convenience. They don't want complicated instructions. They just want simple, they want right now. They want contact free, they don't want to talk to people. That's what our residents want. So everything we do from showings to moving into the experience after they move in is all revolved around design for that expectation.” - Skyline Properties Broker DD Lee ‍Delivering convenience really means making the obligations of the resident as easy as possible to fulfill. The resident is required by the lease to pay rent, they’re required by the lease to keep their air filter changed, they’re required by the lease to have renters insurance. A great resident experience doesn’t require a huge dog and pony show. Just making these basic things as easy as possible will thrill residents, especially considering how common negative perceptions of property managers can be. 3. Protect the asset Certain convenience programs for residents can also serve to create value for the investors by protecting their asset. Services like filter delivery and comprehensive auto-enroll renters insurance help minimize maintenance and the risk of charges coming back to the client. Studies actually show that filter delivery service decreases the number of HVAC maintenance tickets. This is not only a convenient service for residents, eliminating their need to go to the store and buy a filter, but it also extends the life of the HVAC system, which is one of the most expensive things in a home to replace. 4. It all adds up When you can create a ton of value for your residents, you can keep those residents in the properties. When you can show your clients that you can not only rent their properties, but rent them to residents who will stick around and take care of the property, while also providing services that make taking care of the property easy, you’re offering them more than technology can create. That’s how you differentiate your business in the modern era.

May 17, 2023

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10 Hiring Tips For Recruiters in Property Management Companies

It’s not always so easy to build a property management team, and property management hiring tips can be hard to come by. Professional property management is a complex industry with endless responsibilities, nuanced roles, and lots of stakeholders’ priorities to balance. Putting together a dream team – the kind of team that just makes things work, delivers happy residents, and makes workflows feel seamless – it’s hard! So, we sat down with an expert in just this subject. He’s perfected the art of finding and hiring the right people – the kind of people who can become your property management dream team. An organization is its people, and few companies in the property management industry have internalized this idea more than Evernest. Whitaker sat down with Second Nature to talk through some of the key things he wants in an employee and how he goes about identifying which candidates have them and which do not. Ready to hire the best property management team? Let’s dive into Whitaker’s top property management hiring tips. Meet the Expert: Matthew Whitaker, CEO of Evernest Matthew Whitaker has developed and refined his hiring process over years of experience in real estate as a property management firm CEO. Evernest is a nationwide SFR company based out of Birmingham, Alabama. Evernest manages around 6,000 doors and continues to scale its business and grow its team at an impressive rate. CEO and founder Matthew Whitaker has been constantly adjusting and reevaluating his hiring process, and it has resulted in one of the most comprehensive talent acquisition procedures in the property management game. 1. Hire Based On Characteristics Over “Qualifications” Whitaker’s biggest insight, which he’s developed over years in the property management industry, is that there is a lot more to hiring the right people than simply hiring qualified people. The concept of hiring the most qualified candidate seems like it’s pretty straightforward. But if you start to pull it apart, many of us have hired candidates who seem “qualified” on paper but who end up being a poor fit with the company. “Who you are matters almost as much as what you’ve done,” Whitaker says. “And as employees rise up through your business, you need to be confident you’ve hired someone who is bought in and is wired for the challenges that come with that.” Whitaker says their investment in identifying personal characteristics has helped separate their best candidates from the rest of the pack. Be clear with property management recruiters about all the characteristics you’re looking for. 2. Define What a Qualified Candidate Looks Like for You Evernest hires with a well-rounded definition of “most qualified” – with defined characteristics and experiences they’re looking for. Those descriptions might not be the first things you think of, but it’s helped them with resident retention and growth. For example, instead of just seeking candidates with “property management experience,” they’re looking for candidates who can handle failure well, who have shown resilience, and who match their company culture. (More on each of those later!) As a heavily scaled company, Whitaker recognizes that you’re not going to hit on 100% of hires, but going a little deeper than just career experience can up that number as much as reasonably possible. Clearly defining your ideal candidate can help with referrals, as well, since you can describe to others who you’re looking for. 3. Develop Interview Questions that Reveal Important Traits The next step is to outline interview questions in your screening process that can identify the qualifications and characteristics you defined in Step 1. What does that type of person look like? What kind of life experience would they have that built their skills? How have they exhibited the traits that you need in the past? Give them a scenario they might experience while on your team and ask how they would respond. Carefully evaluate if their responses align with the candidate profile you created. 4. Look For Resilient People Resiliency is the trait that really stands out to Whitaker for the property management space. After all, single-family property management, in particular, requires people who can stick with it when things get tough. SFR property management is tricky because properties are spread out over larger regions, residents may have very diverse needs, and the properties themselves may have very diverse problems or requirements. Evernest always looks to hire resilient people who can handle the ups and downs and surprises of the job. Look for any red flags of people who aren’t willing to go the extra mile. Whitaker is adamant that resilience is among the most important traits a property manager can have and a great indicator of their potential success in the company. “One of the things about a property manager is the fact that all you do is deal in the world of problems,” Whitaker says. “If you didn’t have problems, there wouldn't be a role for property managers. So they have to get used to dealing with problems all day and being able to bounce from problem to problem.” 5. Consider Candidates’ Personal Experiences, Even Beyond Real Estate Whitaker says that resiliency is legitimately a skill you can identify in the interview process and one that you can design interview questions around. While it may be challenging to uncover in a conversational setting, Whitaker likes to work through the personal experience of a candidate. The key is asking the right questions. He asks about potential major life events that have challenged their resolve, which he believes can forge resiliency in a person. “Sometimes [people who have had major life events] make the best team members because they realize that things aren’t unicorns and rainbows,” Whitaker says. 6. Find Out How They Deal With Failure Another key part of the interview process – and identifying resilient people – is to find out how they’ve historically dealt with failure in their life. Whitaker believes that someone who has dealt with adversity and failures and come out the other side is automatically going to be better suited to rental property management. He says, “Whether it’s a huge disappointment they’ve had, a business failure, or a failure in maybe a job, [those experiences] sometimes turn them into somebody that’s very resilient. Some of our best team members actually meet that profile, and I’ve thought that for a long time.” 7. Use a Culture Index to Find a Fit for Your Team Whitaker and Evernest have proven how important cultural fit can be in such a demanding industry. They use a tool called the Culture Index to test for traits like resiliency, and Whitaker says the tool has really gone a long way for Evernest and the success rate of its hiring process. With Evernest hiring at scale, Whitaker believes it has helped them get the right people in the right seats at a higher rate, which results in losing fewer people out the back door. “We buy into the idea that Culture Index can help us identify someone’s unique personality or wiring and that. As a result, they have more success when they are put into the right positions on the team,” Whitaker says. Culture Index is a data-driven personality testing tool and the weapon of choice for Evernest. It’s part of their refined hiring process that they refer to as “The Grinder,” which features four interviews, the third of which assesses cultural fit. It’s one of the keys to finding the right property manager. 8. Use a Personality-Testing Tool The Culture Index is just one example of hiring procedures that help to identify personality traits. Companies can use any kind of personality-testing tool to ensure not just that someone is a culture fit but that they’re being hired for the right role on the team. Whitaker shares: One of our biggest "aha" moments around personality and natural wiring is when we moved a team member out of accounting here in Alabama and moved him to Little Rock to run our market there. This guy was an excellent operator in Birmingham. He had all the "i's" dotted and "t's" crossed. No stone unturned. When he moved to Little Rock, we expected him to grow the business. We kept waiting and waiting on it to happen, but it never did. But he was still dang good at executing. Later, when we profiled him, we learned that he is a "Craftsman," which basically means he is a detail-oriented, highly introverted person. So of course he wasn’t out there growing the business. We later moved a "Trailblazer" into the role, which is a highly relational, highly autonomous person, and she KILLED it. She grew the business and it almost doubled in size. The Craftsman came back to Birmingham to run our accounting department and has been incredibly successful. He continues: “Since we’ve gotten into personality profiling, we’ve certainly gotten a lot more intentional about putting the right people in the right places, and I feel like we’ve been a lot more successful doing that.” Failing to invest in a more refined hiring process that features components such as personality testing is cited by Whitaker as one of the mistakes he made early on that other PMs have the opportunity to avoid. 9. Be Smart About Promotions Whitaker notes that early on, a less refined and consistent approach opened Evernest up to being a victim of the Peter Principle. The Peter Principle is the all-too-common practice of promoting employees into jobs they aren’t cut out for – based on their success in their previous role. “We would use our hiring process to hire middle-level and upper-level management,” Whitaker says. “But then when we would go to hire frontline people, we would just basically skip through the process and hire people. These are the people that are going to move up into the middle management, so not being consistent at the frontline level led to people getting into the company that probably should not have been there.” From the very start, you need to think about hiring people you can eventually promote. 10. Don’t Assume You Can Hire from Multi-Family Property Management Whitaker says that perhaps the biggest hiring mistake he sees in single-family rental management is poorly-vetted cross-hiring between property management industries, from residential to commercial properties, or SFR and MFR. He specifically points to single-family homes and property management companies hiring multi-family managers who are unprepared for the transition. And it’s a much tougher transition than it may seem, with differences in property owners, property types, maintenance issues, rent collection practices, property management services, etc. “The skillset doesn’t easily translate because a full-time multifamily manager has been working on-site at a property,” says Whitaker. The communication and logistical demands of single-family are quite a bit different than multifamily complexes, where every issue that arises is right in front of you. “When you add multiple real estate investments and then the logistics of single-family, it becomes a much more complicated business,” says Whitaker. “If you’re going to pull from the multifamily industry, you’re going to have to make sure that you’re hiring some of the best and brightest from that industry because, again, dealing with 300 homes and 50 investors is way more complicated than a 300-unit apartment community all together with one investor.” Transitioning a property manager from a multifamily business to a single-family has a number of logistical roadblocks. You need to know more about a candidate than how successful they were to feel confident they're up to the challenge. ‍ That doesn’t mean that cross-hiring is impossible, and Whitaker clarifies that Evernest has done so successfully. But the bottom line is that a diligent and robust hiring approach like Evernest’s is important to identify whether a person is up to the transition. Final Thoughts Building a good property management team is a complex process, but it doesn’t have to be overwhelming. The key to creating your dream team is to outline a robust hiring process and know exactly what makes a candidate successful in SFR property management. At Second Nature, we work with thousands of residential property managers around the country and have helped ensure PMCs have the tools they need to retain their best talent. Get more insights like these from Matt by listening to our Triple Win Podcast, or check out more from our blog.

May 11, 2023

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What is Long-Term Lease? How to Win with Long-Term Property Management

A long-term lease is a rental agreement that lasts longer than the standard in an industry. Designing and managing a long-term lease can help create stability for property managers, investors, and residents. Or, as we like to say – long-term property management creates a triple win. Today we’re diving into all the nuances of the long-term lease, the pros and cons, and why engaging long-term property management can build a win for you, your residents, and your investor clients. Related: State of Resident Experience Study What is a long-term lease? A long-term lease is a lease agreement that lasts longer than the standard in an industry. In commercial real estate, long-term rentals could be ten years or more. In single-family homes, a long-term lease could be anything more than one year. Long-term leases have the benefit of locking in payment for however long the lease lasts. It benefits property managers by guaranteeing cash flow and reducing vacancy, though with less frequent lease renewals, you may not be able to increase the price as often as you feel you need. The concept of a long-term lease agreement may spark some preconceived notions among professional property managers. Locking a resident into their rental for two-plus years seems like something of a gamble where you bet on the quality of the resident and the value of the lease remaining high. While it’s true that this type of lease comes with some tradeoffs, many PMs don’t see the positives, which have begun to outweigh the risks in an evolving market. Benefits of a long-term lease A long-term residential lease can offer several benefits for residents, property managers, and owners, including: Stability: With a long-term lease, residents have the security of knowing that they can stay in their home for an extended period, often one or two years, without having to worry about the possibility of the owner deciding to sell the property or not renew their lease. This can be particularly important for families or individuals in single-family residences who want to establish roots in a community and avoid the hassle and expense of moving frequently. Predictable Expenses: With a long-term lease, residents know exactly what their rent will be for the duration of the lease, which can help them plan their budget and avoid any unexpected rent increases. Similarly, property managers and owners can count on a steady stream of rental income, which can help them plan their expenses and investments. Reduced Vacancy Rates: A long-term lease can help property owners and PMCs reduce the vacancy rate of their properties by providing them with a stable, reliable resident who is committed to staying in the property for an extended period. This can save time and money that PMs would otherwise spend trying to find new residents and dealing with turnover. More Responsible Residents: Renters who sign a long-term lease are often more committed to taking care of the property and being responsible “tenants.” This can lead to fewer damages, less maintenance, and a better overall experience for both residents and property managers. Better Creditworthiness: A long-term lease can also help residents build their creditworthiness by establishing a history of paying rent on time and staying in one place for an extended period. This can be particularly useful for young adults or those who are just starting to build their credit history. With Second Nature’s Resident Benefits Package, they can receive the benefit of getting their on-time payments reported to credit bureaus. Overall, a long-term residential lease can offer a range of benefits and create a Triple Win for property managers, owners, and residents. However, it's essential to establish clear terms of the lease to ensure that it meets everyone’s needs and expectations. Liabilities of a long-term lease Of course, along with benefits, long-term lease liabilities exist as well. The primary drawback of long-term management is that you need to be more certain that the lease – and the resident – are the right fit for you and your investor. A few things to consider before starting with a long-term lease apartment or long-term lease house: Ensure you do a thorough background check and credit check for all renters Ensure the lease clearly outlines behavior that could lead to eviction Be prepared that it may be more difficult to transition a difficult resident out Account for the fact that you won’t be able to raise the rent as easily or quickly as with a short-term rental Long-term lease vs. short-term lease A residential long-term lease and a residential short-term lease differ primarily in their duration, with long-term leases generally lasting for a year or more and short-term leases lasting for less than a year. Here are some of the main differences between the two types of leases: Duration: As mentioned above, the primary difference between a long-term and short-term lease is the length of the lease term. A long-term lease typically lasts for one or two years, while a short-term lease can be as short as a few weeks or as long as 11 months. Flexibility: Short-term leases are generally more flexible than long-term leases, as they allow residents to move out relatively quickly if they need to. This can be useful for renters who are unsure about their future plans or who need to move frequently for work or other reasons. Long-term leases, on the other hand, provide more stability and predictability but can be less flexible if the resident needs to move out before the lease term is up. Rent Amount: The cons of short-term leases are they can be more expensive than long-term leases month-to-month, as owners or property managers can charge a premium for the flexibility they offer. Long-term leases generally have lower monthly rental rate, but residents are required to commit to paying that amount for the entire lease term. Renewal: Long-term leases typically include a renewal clause, which allows residents to extend the lease term beyond the initial period. Short-term leases may or may not include a renewal option, and residents may need to negotiate with the PM or owner to extend the lease or agree to a new lease. Maintenance: Long-term leases often place more responsibility on residents for maintaining the property, as they are expected to stay in the property for an extended period. Short-term leases, on the other hand, may include more maintenance services from the property management company, as they are more likely to have turnover between residents. Long-term lease examples A long-term residential lease typically refers to a lease agreement between a resident and an owner that lasts for a year or more. Here are some examples of long-term residential leases: One-year or two-year lease: A one-year lease is the most common type of long-term residential lease. It lasts for a period of one year and requires the tenant to pay rent on a monthly basis. Two-year leases are less common but still fairly standard. Multi-year lease: In some cases, owners may offer a lease agreement that lasts for three, four, or even five years. This type of lease provides residents with a high level of stability and predictability, but it may be less flexible than shorter-term lease options. Corporate lease: Some companies may lease a property for their employees on a long-term basis, typically for several years. This type of lease often requires the company to pay the rent directly to the owner. Lease-to-own: This type of long-term residential lease allows residents to rent a property for an extended period with the option to purchase the property at the end of the lease term. This can be a good option for residents who are not yet ready to purchase a home but want to establish roots in a community. How the long-term lease helps investors Gregg Cohen of PWB Properties is one of the property managers leading the charge on the long-term lease. PWB has positioned itself as a different kind of property management company, one that's focused on helping investors achieve their highest possible return on investment. "As with most things in life, if goals aren’t aligned, one party typically loses. In “normal” property management, this is an unfortunate truth as well. It’s a shame that so many potential investors who see the incredible opportunities for earning above-average risk-adjusted returns on investment passively in rental property investing are so fearful of a poor property manager and resident relationship that they give up on their investing journey before they even start. At JWB, we are not trying to be “better” at property management. We are DIFFERENT." ‍ JWB is successful because they have perfectly understood how to create a Triple Win in an environment that is increasingly demanding of a relationship-focused property management strategy. As a property management company that offers far more than just plain old management of properties, they've built a business model that is extremely attractive to investors, part of which includes the long-term lease. Note their 5-year case study below on the financial results for the investor of signing residents to long-term leases. The key takeaway is the dramatic decrease in fees paid by the investor. These numbers may scare you at first. JWB is willingly forfeiting profit from tenant placement fees, and quite a bit of it. Understanding the context of this decision is critical though, lest you end up playing catch-up with the rest of the industry over the next decade. JWB's commitment to their investors creates so much value that the growth of their business and retention of clients offsets the short-term profit decreases from this strategy. Property management strategies and business models built around short-term profit from things such as tenant placement fees will lose whatever staying power they're clinging to over the upcoming market cycle. Those types of companies will struggle to attract clients and many will eventually go out of business. JWB has proactively avoided being swallowed by the commoditization of the industry by offering something more personalized, relationship-driven, and value-creating. As mentioned, JWB is focused on long-term investors that intend on growing their portfolios, holding properties for at least a full real estate market cycle, which is typically 10 to 20 years, and are intending to create income via real estate investment over a long period of time. The returns for these investors are diminished by property vacancies, so note the vacancy percentage decrease with JWB's long-term model versus the high-turnover model. All of these benefits come together to provide clients with longer-term, goal-focused property management instead of short-term profit-focused property management, which is differentiating JWB right around the time that property management is becoming commoditized. It creates an enormous amount of opportunity to sign a large number of long-term clients by providing something that isn't otherwise available, creating a sustainable business model ready for consistent growth and prepared to sustain threats such as commoditization and do-it-yourself property management technology. The longer lease is just one element of this triple win, but it's a significant one. As the case study notes, the dramatic decrease in costs is very attractive to investors. However, the long-term lease only works if the residents are willing to sign such a lease. So let's make this double win into a Triple Win. How the long-term lease helps residents Uncertainty has been a big theme over the last two years, mostly as a result of the coronavirus pandemic throwing the SFR space into quite a predicament. PMs have certainly taken some hits as a result with eviction moratoriums, residents being furloughed, and other challenges. But residents are experiencing significant challenges of their own as a result of the uncertainty they’ve experienced within their jobs, their ability to pay rent, and the potential of changing rent. These are problems, but problems demand problem-solvers, and problem-solvers create solutions that end up differentiating their business. The long-term lease is proving to be that solution for many PM companies. The stability that it provides is proving to be a welcome sight for residents. Knowing where they will be in three years and exactly what their rent will be is valuable to residents who are fearful of a changing market, and the percentage of residents who see that value is continuing to increase. The result is one of the best resident retention tools out there. For the PM, this doesn’t mean that rent is stuck. Rent adjustments are still possible, but they’re baked into the lease from the start. This allows the PM to plan for a changing market while giving the resident notice of pending changes prior to them signing the lease. Residents are much less likely to react negatively to rent increases if they signed off on them before ever moving in. “Stability starts with helping them understand what their financial responsibilities are going to be years in advance. That’s where it starts and that’s a big reason why residents do like long-term leases.” People find value in knowing where they will be in 3 years. A long-term lease is a commitment for a resident, but it's one that JWB has found that many are willing to make. Implementing a long-term lease program isn’t for everyone, but it’s proving an effective method for creating a Triple Win by creating stability, something everyone is after in these uncertain times.

May 11, 2023

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Resident Retention Ideas and Tips for Single Family Properties

Resident retention ideas help reduce turnover in leased properties–which is, of course, a key element of any property manager’s job. But the property managers we’ve spoken to have told us something interesting. Merely thinking about “resident retention” doesn’t capture the generative, behavior-changing work they do every day. Why? It’s too transactional and far too basic. Reframing the phrase “resident retention” is the first—and most important–step to brainstorming the type of resident retention ideas that will make an impact not only on your business but also on residents’ lives. Here are some of the best trends we’ve seen for resident retention in the property management industry. Related: State of Resident Experience Study What is resident retention, and why is it important? Resident retention is a key part of achieving a Triple Win in property management, whether it’s in single-family (our focus) or multifamily. In transactional terms, the ultimate goal of a resident retention strategy is to increase lease renewal and reduce resident turnover, which results in lower costs and less work for property management teams. However, a Triple Win mindset levels this up by asking, “How can we create experiences so good that residents never want to leave?” Resident satisfaction, in turn, maximizes the investor’s ROI and boosts the property manager’s success. A win for residents is a win for investors is a win for property managers. This mindset moves from approaching property management as a list of menial tasks into a more generative and entrepreneurial approach. You’re in the driver’s seat as the property manager, and you can create programs and solutions that residents will pay and stay for. What residents are saying about retention In a recent survey by Buildium, only 32% of single-family rental (SFR) residents said they were certain they’d renew their lease this year, and an additional 36% were on the fence. This means that more residents have a desire to move than we’ve seen historically. Why is that? A couple reasons… 22% said they planned to move to a rental with more appealing amenities or benefits. 13% said they planned to move because they weren’t happy with the experience at their current rental. That’s a huge chunk of residents whose main reason to leave is a lack of the kind of benefits they want or need. Property Managers share their best resident retention strategies These survey findings align with what many property managers are telling us, too. In fact, professional PMs tell us that a Resident Benefits Package is a powerful way to retain residents over the long term. RBPs can help with resident satisfaction and resident retention rates. After all, amproactive, differentiating approach to resident retention means building experiences that people will pay and stay for. In multifamily property management, resident retention strategies often center around resident events and building a sense of community. They may try things like holiday parties, happy hours, movie nights, and other get togethers. But in single-family property management, where you properties are likely very different and spread across a larger region, the strategies aren't always a straightforward. Here are the top strategies that professional PMs are talking about right now. These help with bringing in new residents and with retaining good residents. Build easy communication with residents Relationship building is an important part of resident retention, and the foundation of any good relationship is, as any dating advice will tell you, communication. The rise of digital apps, online portals, messaging services, and social media platforms has made it easier than ever to communicate. Studies show that text messaging is on the rise, and most single-family rental (SFR) residents prefer text to other communication channels. Here’s how one study found the breakdown of where residents are communicating the most. 49% are using text 43% are using email 41% are using phone PMs also know that convenience is key. If residents are attempting to contact you, they likely have an issue that needs resolution. That’s why strategic PMs meet residents where they’re at—and that’s probably online. More PMCs are using solutions like texting, ticketing/inbox, offshore or outsourced staffing, and automation to remain responsive. Another great communication channel is seeking feedback by sending surveys to current residents on a quarterly basis. Professional PMs ask what could be improved upon and use the data collected as a source for additional resident retention ideas. At Second Nature, we allow residents to survey and give feedback in their rewards app, and even incentivize it. When you are actively seeking feedback, you can more easily drive positive social reviews and reputation management. Invest resources in property maintenance Anyone can tell you that property maintenance management is critical to a positive resident experience. But sometimes newer property managers only know how to take a reactive approach. They might do an annual inspection or respond to complaints. But they may not be proactively developing strategies to improve the property for themselves and their residents. In contrast, excellent property management companies approach maintenance with a benefits-focused mindset. Instead of reacting to property problems, enterprising PMs tend to ask, “What habits and behaviors can I encourage in residents to help keep the property in tip-top shape?” First, by creating care and value, PMs encourage residents to care for and value the property. But beyond that, PMs can implement strategies that make those behaviors easy. For example, a Resident Benefits Package can include air filter subscriptions, 24/7 maintenance support lines, and a renters insurance program – all of which help support residents in maintaining and nurturing the property. After all, it’s easy to change your air filters on time when they show up on your doorstep. We’ve seen a trend of property managers developing proactive strategies that help residents take care of the property. It pays off in dividends. Provide a simple payment portal Speaking of paying off, most property management companies now offer online payments to residents. It’s true: 73% of residents say they prefer a digital method for payment. That’s the first step. But PMs have told us that many of those legacy payment systems can be difficult to use or don’t actively support residents in making timely payments. The next step is to ensure you’ve set residents up for success in making on-time payments. Some PMs set up rewards systems or incentives for on-time payments. These programs can help reduce the amount of time you spend following up on rent. For example, Second Nature’s Resident Benefits Package has a built-in credit-building service that rewards residents for on-time rental payments. We’ve helped residents increase their scores by as much as 20-40+ points. You can bet that if residents have the option to boost their credit score, they’re more motivated to pay on time. Focus on resident security Creating safe spaces to live helps protect both the residents and the properties that you manage. Making it clear that safety is a priority is also an effective way to build a reputation as a property management company that cares. Property managers can emphasize the safety of single-family homes through standard practices like ensuring rental properties have flood lights, working smoke detectors, carbon monoxide alarms, and solid locks changed after each move-out or before move-in. Surveys can also help assess how safe residents feel in their homes and if your company can do anything to improve security. Regular inspections and good communication go a long way to maintaining excellent security. For a Triple Win, property management companies provide holistic, hassle-free insurance. This minimizes hassle for PMs, protects the investor’s assets, and gives holistic coverage to the resident. Adopt new technology Technology brings ease and automation to every element of property management – and every individual involved. In fact, 79% of SFR residents prefer to complete at least some rental processes online. Technology helps you deliver competitive features without breaking the bank or slowing you down. And it gives ease and convenience to residents, too. These days, property managers have digital solutions for basically every part of their job, including: Online payments Maintenance request tracking Online rental listings & applications Text and email communication Renters insurance programs Resident screening Document signing, sharing, and storage Using SMS messaging platforms, online rent payment systems, and resident portals adds more efficiency for property managers while offering convenience to residents. The ability to pay rent, make a property maintenance request, or register a new pet or vehicle online creates a seamless experience that the resident can manage independently on their own time while also creating an organized system for leasing agents to respond to those requests. No more scribbling a repair request on a sticky note—now you can automate everything. It’s the best option for everyone involved. Be proactive The best PMs are always aggressive. They visit each property at least once each year, not just when something goes wrong. They have automated systems in place to alert them when new needs pop up. They design or invest in benefits packages and perks to serve their residents and stand out from the crowd. In “The 7 Habits of Highly Effective People,” Dr. Stephen Covey’s second habit is, “Begin with the end in mind.” Professional property managers who are ready for the future proactively identify opportunities to improve the resident experience. Ask things like: “What can I do this coming year to improve the living experience for my residents?” Maybe that’s new programs, new roles on the team, new technology, etc. Whatever creates value for residents is worth an investment because the payoff lasts. For all of the above, invest in a resident benefits package As we’ve seen, resident benefits packages are the best way to build these experiences and perks that residents want. Benefits packages are bundled services that help drive revenue for your investor and drive satisfaction for your residents. At Second Nature, we offer services in a custom resident benefits package (RBP) designed by you and managed by us. We developed and designed each pillar of the RBP based on pain points that property managers shared with us – turning those pain points into benefits. These services include supports like: Routine air filter delivery: This is a cornerstone of our benefits package because one of the most common causes of HVAC maintenance requests is a failure to change air filters on time. We’ve seen a total reduction of 38% in HVAC requests. $1 million identity theft protection: Our benefits package includes identity fraud alerts and protection. Your residents can rest easy knowing every adult on the lease has coverage. Credit building: As we’ve mentioned, we report on-time payments to the credit bureaus so your residents can automatically boost their credit scores just by paying rent on time. Rental rewards: People love rewards! We include the cost of rental rewards in our total package, so PMs don’t pay more. We include perks like gift cards to local businesses, restaurant cards, cash rewards, and more. Move-in concierge: The first thing most residents do on move-in is make several calls to set up utilities. With our move-in concierge service, residents turn four phone calls into one. They don’t have to contact utility companies; we do it for them and identify the best rates. Renters Insurance Program: Our benefits package includes price-competitive insurance options to apply to all residents – at one group rate. A benefits package puts PMs ahead of the game, proactively building the environment residents pay and stay for. How 1,000+ professional management companies create Triple Win experiences Resident retention is far more than a transactional arrangement. We know that a high percentage of residents leave when they aren’t getting benefits they could get elsewhere. Forward-thinking property managers take a proactive approach to resident retention by developing experiences that residents are looking for. By creating a fantastic resident experience through offering benefits and support, property managers drive a triple win for residents, investors, and themselves. Higher retention can drive referrals to prospective residents and clients, too. Offering a resident benefits package that adds value to the leasing and living experience of your residents is as easy as Second Nature.

May 11, 2023

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How Property Managers Can Automate Rent Collection

If you asked ten property managers their least favorite part of their responsibilities, nine of them just might say rent collection. That’s why online rent collection is a common PropTech solution and one of the first things PMCs look to digitize or automate. Automated rent collection is a system that enables property managers to collect rent payments from residents via electronic means such as online portals, direct debit, ACH, direct deposit bank transfers, or credit card payments. Automating monthly rent payments simplifies the rent collection process, saves time, and minimizes errors associated with manual processes. It also provides residents with a convenient and secure way to make payments, leading to increased satisfaction and retention rates. But maybe the best part? You don’t have to constantly remind residents to pay rent. We all want the resident experience to be better than that – and your experience, too! In this article, we’ll talk about some of the best online rent payment systems, the best strategies to automate rent collection, and how to implement these strategies. We’ve got insights from two leaders in the industry: Wolfgang Crosky and Ray Hespen. Key Learning Objectives: What are the best cloud-based online rent collection software products? How do you set up automated rent payments for residents? How do you transition residents to using mobile payment apps? Can you outsource rent collection? Today's Expert: Wolfgang Croskey, Founder & President of How’s My Rental Benefits of Automated Online Rent Collection for Single-Family Rental PMCs While automating rental management tools is valuable for any type of property, the benefits are enormous when we’re talking about SFR property management. PMCs managing single-family homes have to deal with geographically dispersed properties with often a wide range of property types and needs. In addition, SFR property managers are often entrepreneurs running independent small businesses. They’re quick to adopt new technology, especially since using automation tools helps simplify workflows and effort. Wolfgang Croskey calls automation the “great equalizer.” “Why I have a passion for automation and AI in tech is we're a small independent company,” Croskey says, “and technology is the great equalizer. It allows us to compete with these nationwide companies and to provide not only the same level of service but to be able to pivot and adapt much quicker than those larger companies can. So for me, you're a smaller company, AI and Automation Tech is that equalizer that's going to allow you to shine just as well as these larger companies.” Choose a Cloud-based Online Rent Collection Software Cloud-based property management solutions have proliferated in the last decade, with proptech solutions and third-party tech platforms solving age-old property headaches. Cloud-based online rent collection software is a platform that enables property managers to collect rent payments from residents securely and conveniently over the Internet. It eliminates the need for manual rent collection processes by automating payment reminders, processing online payments, and reconciling accounts. These products are hosted on remote servers, allowing property managers access from anywhere with an internet connection. Let’s look at some popular examples to help you collect rent online. Buildium - A property management platform that provides a range of features, including online rent payments, payment processing, tenant communication, maintenance tracking, and financial reporting. AppFolio - A cloud-based property management software that offers online rent collection, security deposit, tenant screening, property inspections, and accounting tools. Avail - A cloud-based rent collection tool that allows PMs to automate rent, send rent reminders, track payments, and manage rental properties. Rentec Direct - A software platform for property managers that offers features such as online rent payments, tenant screening, lease tracking, and maintenance management. RentRedi - A mobile-first property management software that allows landlords to collect rent payments online, screen tenants, and manage maintenance requests through a user-friendly app. Cozy - A free online rent collection platform that enables landlords to collect rent payments, screen tenants, and manage lease agreements. These are just a few examples, but there are many other cloud-based online rent collection software options available on the market. They can typically connect to your property accounting software and expense tracking and create a seamless experience from end to end. Allow Residents to Choose Recurring Automated Rent Payments Recurring rent payments are a popular method of rent collection among property managers and property investors. This method involves automatically deducting the rent amount from a resident’s credit card or bank account at regular intervals, most often monthly or on certain business days. For property managers, autopay eliminates the need for manual rent collection processes and reduces the risk of late or missed payments. It also streamlines accounting processes by providing accurate and up-to-date records of rent payments. And, of course, recurring payments can be set up to occur automatically, saving property managers time and reducing the need for follow-up with tenants. No more existential dread around rent time! For tenants, recurring rent payments provide a convenient and hassle-free way to pay rent on time every month. It eliminates the need to remember to make a payment, reducing the risk of late fees and improving their credit score by building a consistent payment history. Property managers who are reporting rent payments to credit bureaus (such as TransUnion) as part of a Resident Benefits Package can use this as a massive incentive for residents to automate payments. Additionally, tenants can set up recurring payments using their preferred payment method, making it easy and flexible for them to manage their finances. How to Set Up Recurring Payments with Residents Setting up recurring rent payments is straightforward and can be done using cloud-based rent collection software, like the examples described above. First, the property manager needs to have the resident’s consent to set up recurring payments. Once the resident has agreed, the property manager can initiate the process by entering their payment information into the software. This information typically includes a variety of payment options such as their debit card, credit card, or bank account details; the rent amount; and the frequency of the payments. Once the information is entered, the software will automatically deduct the rent amount from the resident’s payment method on the designated date, and the payment will be recorded in the property management software. If there are any issues with the payment, such as insufficient funds or an expired credit card, the software will notify the property manager and the resident to rectify the issue. Allow Residents to Pay with Mobile Payment Apps Allowing residents to pay rent with Apple Pay or Google Pay is gaining popularity across the property management industry. Zelle is another payment service that can help with ACH payments without transaction fees. PayPal and Venmo are other mobile payment platforms. With these mobile payment apps, renters can pay their rent using their mobile devices. It’s a win for residents because they can easily make automatic payments on the go using their smartphones without the need for a physical wallet or a visit to a bank or property management office. Additionally, these mobile payment methods are highly secure, as they use biometric authentication to ensure the transaction is authorized by the account owner, minimizing the risk of fraud and identity theft. (Learn more about how property managers are protecting residents from identity theft in our State of Resident Experience report.) For real estate investors and property managers, accepting mobile app payments can streamline the rent collection process, reducing the need for manual processes and improving the efficiency of rental income. Additionally, mobile app payments are highly trackable and can provide detailed records of rental payments or partial payments and send you notifications of issues, making accounting processes easier and more accurate. How to Set Up Mobile Payment Apps with Residents Setting up mobile app payments for properties is easy and – again – can be done through cloud-based rent collection software. First, property managers need to enable mobile app payments in the software and then provide tenants with instructions on how to set up and use the payment method. The software will then provide a unique payment link that can be sent to the tenant via email or SMS, enabling them to make payments by the due date using their preferred mobile payment app. Once the payment is made, the funds are automatically deposited into the landlord or property manager's designated bank account, and the payment is recorded in the rent collection software. In case of any issues, the software will notify both parties. Outsource Rent Collection to Third Party Service Providers Of course, you can also outsource rent collection entirely. Outsourcing rent collection to third-party specialized service providers can be a great solution for property managers who want to save time and reduce the stress that comes with managing rental properties. Rent collection is one of the most important tasks for property managers, but it can also be one of the most time-consuming and frustrating tasks. By outsourcing it to a third party, property managers can focus on other important tasks, such as marketing the property, screening tenants, and maintaining the property. Third-party rent collection service providers are reliable and have a proven track record of success. They can offer you the expertise and resources needed to effectively collect rent and manage resident relationships – plus, they already have advanced technology and software to track payments and manage records. Another benefit of outsourcing rent collection is that it can help property managers avoid potential legal issues that may arise from handling rent collection themselves. Third-party service providers are experienced in dealing with rent collection laws and regulations, ensuring that landlords and tenants are protected. How Second Nature Helps Ease the Stress of Rent Collection At Second Nature, we’ve built digital products around creating ease for residents and property managers – adding value and reducing headaches for everyone involved. Our Resident Benefits Package provides services that incentivize on-time rent payments and supports residents in building credit, protecting their identity, and remaining financially sound. Rent doesn’t have to be stressful for everyone involved. In fact, using the right tools, rent collection can become as easy as – you guessed it – Second Nature. (We had to.)

May 3, 2023

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How to Structure a Property Management Company

The property management industry is full of entrepreneurs – self-reliant self-starters who got in the game as a side hustle and grew their property management company to be a full-time occupation. But, of course, with growth comes the need to hire a team. And the key to successful team-building? An optimized property management org chart. An organizational chart is a visual representation of a company's structure, showing the roles and relationships between different positions within the organization. Property management companies are no exception, and getting your property management company structure right from the beginning has a massive impact on the quality of experience of your investors, employees, and residents. In this article, we’re exploring the benefits of having a clear and concise property management company org chart with the help of Kelli Segretto, Founder of K Segretto Consulting. Kelli has helped with the launch of hundreds of property management companies and has tons of insight into how a PMC should be structured for success. Key Learning Objectives: What does an ideal property management organizational chart look like? How should you structure your property management company? What’s the difference between an org chart for a PMC vs. a real estate agency? How can you use your org chart to align employee roles? Who should you hire first? What’s the most important role in a property management company? What are the most common mistakes made in structuring a PMC? Meet the Expert: Kelli Segretto, Founder of K Segretto Consulting Kelli is a sought-after speaker and consultant with over 20 years of experience in the property management industry. Kelli has expertise in single-family, multifamily, and LIHTC property management, having coached across all 50 states and six countries. She has helped launch hundreds of new property management businesses and has developed in-depth knowledge of the types of organizational structures that work best in property management. Example Property Management Org Chart We asked Segretto about the primary areas of responsibility – or key roles – that that are essential to a successful property management business. She outlined six key focus areas regardless of how you end up structuring the company: Operations Management Property Management Leasing Maintenance Bookkeeping Sales According to Segretto: “Different structures will dictate the position titles and responsibilities within these roles, but these are the foundational pillars each property management business needs.” To get started with the cascading structure of the org chart, Segretto explains that in a full property management company structure, you typically see three-deep leadership: owner/broker, manager, and coordinator, each with their own focus area from the list above. “Even if your business is small, it is important to have an organization chart to plan for your future growth,” Segretto says. Here’s how it might break down in your PMC. Tier 1: Owner/Broker The Owner/Broker is the executive leadership or highest role and tier in the org chart. “In most states, you cannot operate a property management company without a licensed broker,” Segretto says. “The requirements to obtain your principal broker license varies by state, but most require a combination of time as a real estate sales agent, experience points, and education.” Of course, the owner of the PMC isn’t always the broker, depending on various circumstances or state laws. “A person with a broker’s license can sign on to be the broker of record or broker in charge for a property management business,” Segretto explains. “We see this when the business owner cannot yet meet the qualifications for their broker license, for example, in franchise property management companies and other organizations that are coming into property management from outside the industry.” Anyone newer to the industry should take note, says Segretto, “This arrangement can be tricky in some states, like New Jersey where you must operate under the same roof as your broker, or Ohio where any brokerages active under a broker must have the same core company name. There are many state and local regulations you have to be aware of when opening a property management company. My recommendation is always to reach out to your local department of real estate for guidance and information or work with a consultant that specializes in property management business startup.” Tier 2: Management (Operations, Sales, Finance, Maintenance, and Leasing) Reporting directly to the owner (who is usually also the broker) is a set of management roles. Depending on the size of your company, this may be one or many individuals, depending on the expertise and skills gaps of the owner. Your management level typically includes roles for Operations, Sales, Finance, Maintenance, and/or Leasing. These individuals have a fairly high level of responsibility overseeing their area and any direct reports under them. Tier 3: Coordinators (Property Management, Maintenance, Leasing, and Bookkeeping) Reporting to the management roles are employees at a coordinator level. You may hire coordinators that focus on property management, maintenance, leasing, and bookkeeping. These roles will fall under the purview of the manager above them. Tier 4: Assistants In large organizations, you may also see assistant roles that support the coordinator or management roles. For each of these tiers of responsibility, Segretto says, “the titles and function will vary depending on the type of structure you are operating under, but the core organizational buckets remain the same. In a small property management business, it isn’t uncommon for the first roles to be 1099. This helps keep costs down for the property management company as long as they are not treating their 1099 partners like employees. For example, scheduling their time, requiring uniforms, etc. As a property management business grows and stabilizes, most of the roles in the business become employees.” (Segretto provides her clients with several org chart templates that walk through the different roles and responsibilities in each configuration.) Types of Property Management Company Structures “Each property management business is unique,” Segretto says. “Some businesses service savvy investor clients, some focus on small multifamily, some are only high-end luxury while others have found their niche in Class C rentals. This means that the best property management business structure can vary for your organization.” Segretto explains that the ideal organizational structure for your business is the one that provides the best user experience for your clients, assigns ownership to the essential tasks, and keeps everyone on the same page. “Too often, I see businesses that have everyone trying to do everything, which ultimately creates chaos and confusion,” Segretto says. “Phone calls don’t get answered, emails get lost, and everyone expects someone else has ‘got it.’” Instead of this chaotic approach, Segretto recommends choosing from three common property management company structures: Portfolio Management, Departmentalized, and Process Driven. “Determining which one is best for your office is dependent on your location, your staffing capabilities, your goals, and your budget,” Segretto says. Here’s how they each work Portfolio Management Structure The portfolio management structure typically involves assigning a dedicated property manager to oversee a set of client accounts. That PM is responsible for all aspects of the portfolio, including property maintenance, resident relations, leasing and marketing, financial management, and other activities related to the management of the real estate assets. The manager is typically supported by a team of administrative and support staff, including accounting and financial specialists, leasing agents, property managers, project management specialists, maintenance technicians, and other professionals who work together to ensure the successful management of the real estate assets. Overall, a portfolio management structure gives clients a premium experience with one point of contact and allows for nimble decision-making. On the downside, portfolio management requires employees to have strong cross-skills, opens the PMC up to risk if that property manager leaves or goes on vacation, and makes it difficult to create operational consistency between portfolios. Departmentalized Structure Department-style management organizes the PMC into separate functional categories, grouping employees and teams based on their roles and responsibilities. You might see departments such as accounting and finance, leasing and marketing, property maintenance, resident relations, and other functional areas. Each department is headed by a department manager who would oversee the day-to-day operations and staff within that department. The benefit of a departmental structure is specialization over generalization. Employees are experts in their field and can focus on improving their area’s performance. The downside is that clients and residents may have multiple points of contact, and communication may get repetitive. No single person is keeping an eye on a specific property’s overall performance. Process Driven or “Pod” Structure A pod-style management structure in PMCs is a relatively new management concept that organizes employees into small, cross-functional teams called "pods.” Each pod is responsible for managing a specific portfolio of properties or assets within the company and typically consists of a portfolio manager, a leasing agent, a maintenance technician, and an administrative staff member. The pod-style management structure is designed to bring the benefits of the portfolio and departmentalized structures together – but can also suffer from their weaknesses. Pod-style management encourages collaboration and communication among team members and gives residents and clients an excellent customer experience. The structure also allows for greater flexibility and agility, as the pods can adapt quickly to changing market conditions and resident needs. Pod-style management is ideal for a fast-paced, dynamic environment where rapid response times and a high level of customer service are essential. By working in small, self-managed teams, pod-style management can lead to greater efficiency, productivity, and innovation while also improving employee satisfaction and engagement. The downside is that the pod structure can be expensive until you fully scale up. What is the difference between the structure of a PMC and a real estate agency? We asked Segretto to explain how a PMC org chart differs from that of a real estate agency. Segretto explains: “I had a client that structured their business like a real estate office, and it worked really well for them when they were small. As they started to grow and scale the business, it became limiting. Real estate offices have a very simple structure. Typically you have an owner/broker, and in larger offices, back office services like marketing, bookkeeping, office assistants, and maybe a transaction department. These are support services made available to the sales agents. Sales agents are independent business owners, often with their own LLCs. They are not employees of the company.” She also points out that some companies operate as both a real estate business and a property management company. “In these businesses, you may have a blend of the two org charts. You will still need all the same buckets as a property management business, but often those roles take on double duty to support the sales agents who still remain independent contractors.” FAQ: How to Use Org Chart to Align Employee Roles and Make the Right Hires So, let’s say you have an idea of the property management company structure you want and the types of roles you need. How do you actually get started? How do you make your first hires or align your current employee roles with your planned ideal structure? We asked Segretto some of the most frequently asked questions on this in the property management space. Here’s how she answered. What should I focus on in the hiring process? Segretto: Property management is an industry that can be trained, but human behavior is much harder to adjust. Pick the right personalities and drive for your team rather than the person with the most experience on paper. That doesn’t mean you should pick the person you get along with best or you think you could be friends with. It is important to identify the key personality traits that will be most beneficial in each role. Remember, your employees will be the face of your company. They will be the ones delivering on the promises you make each client. Make sure you have written job descriptions and a deep understanding of the role the person would fill. Setting proper expectations will also aid in finding the right person who will enjoy the work they are hired to do. In the interview process, ask qualifying questions and provide scenarios to see how the individual problem solves. This industry is fast-paced, multifaceted, and complex. It isn’t for everyone. Most of all, be patient. Start hiring before you need to so you don’t feel pressured to pick someone fast rather than ensuring you have the right person in the right seat. Take your time and avoid costly mistakes. Who should I hire first? Segretto: I have had the opportunity to help launch hundreds of brand-new property management businesses in my career, and one of the most common questions is, “Who should I hire first?” Initially, a property management company is typically run by a sole operator. The business owner wears all of the hats. It is beneficial for the owner to go through this phase of start-up as they learn all the ins and outs of the business and discover their strengths and weaknesses. I like to then take my clients through an exercise where we can discover the highest and best use of their skillset and time. From that exercise, you can then determine what role would be your ideal first hire. For many people, this is a business development manager to cover sales or a back office employee, like a bookkeeper. What are the key components of management structure in a PMC? The key components of management structure are customer experience ownership, work specialization, organization, coordination between departments, and continuous training. Property management is a customer service business. The structure you create should focus on the components that will foster internal communication, collaboration, and a culture of learning. What is the most important role in a property management company? Segretto: This is a tricky question! It reminds me of the grade school phrase, “There is no ‘i’ in Team.” Property management is a team sport; there is no one role that is most important or featured in the line-up. Your team will only be as strong as your weakest link, which is why it’s so important to hire talented individuals with the right personality and drive for each role. Once you have your superstar lineup, it’s crucial that you treat them well, trust them, and listen to the valuable feedback and insights they have. It’s more about having the right person in each role than it is about one role being valued higher. What are the most common mistakes you see in a PMC organization structure? Segretto: The two most common issues I see in the property management structure are: Too many points of contact for property owners and residents to keep track of. Keep it simple! Assign a point of contact to every relationship, and if that point of contact needs to shift, arrange a proper handoff. This business is built on trust, and as humans, we inherently don’t trust strangers. Lack of communication between departments. This business is built on a foundation of excellent customer service. It’s critical that you have processes in place that keep everyone in the loop. Most processes require multiple team members' effort, and when communication breaks down, the card house collapses. Final Thoughts Segretto recommends hiring a consultant to help you develop your org chart for both today and your future growth plans. A good org chart should include “job descriptions, KPIs, and personality traits for each role within your chosen structure,” Segretto says. “A consultant can take you through a process to identify your core values, goals, and action plan, which will help set a solid foundation for your business.” Learn more about property management structures, growth, marketing, and more in our Second Nature Community, or get in touch with Segretto via her website.

April 18, 2023

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How Property Managers Can Increase Ancillary Income

Ancillary income is a huge driver of profit for property management companies. Today we're looking at what ancillary income is, how it can give you better results, and how to get started building ancillary income. What is ancillary income? Ancillary income refers to any income not including rent that you derive from the properties you manage. By becoming greater service providers, PMs create opportunities for more revenue streams. There is a lot of money to be made in ancillary income in the property management industry and real estate industry. But many property managers don’t even consider the wealth of opportunities to increase profit, grow your business, and increase the satisfaction of your residents that ancillary income opportunities provide. It may seem counterintuitive to suggest that a practice exists that will simultaneously increase the amount your residents pay and increase their satisfaction with you, but if you provide the right services, and your residents find value in them, you can build a winning situation for all involved parties. How can property managers generate ancillary income? The best way to sustainably drive ancillary income for you and your business is through generating more value that your residents and investors want and charging for what that value is worth. Ancillary charges can apply to your investor clients and your residents. In short, property managers should figure out what’s important to their residents and clients and monetize those things. Ancillary revenue can come from programs that drive resident satisfaction, such as Resident Benefits Packages, property upgrades, pet insurance, pet rent, etc. You can also drive revenue through ancillary fees such as application fees or pet fees for new residents or for behaviors you want to discourage, such as late payment fees, early termination fees, paper lease fees, vendor screening fees, etc. Ultimately, each of these programs help to achieve what we call a “triple win.” A triple win, as described in this video, is any concept that manages to benefit the renter, you and your team of property managers, and the property owner. ‍ ‍ The importance of the triple win comes from the idea that long-term success that results in long-term profit must correlate with long-term satisfaction. Keeping all involved parties in a transaction satisfied will lead to high rates of re-signing, whereas ancillary income programs that residents don’t find value in can decrease renter satisfaction and hurt your bottom line in the long-term. Ancillary income examples in property management Let’s look at some of the most common and successful ancillary income examples. Ancillary programs work well for both multifamily and single-family rentals. You can break ancillary charges down into two categories: fees vs. special programs. Ancillary Fees First, there’s the ancillary fees approach. Those can include the following. Resident-Focused Security Deposit Processing Fees Leasing or Lease Amendment Fees Paper Lease Setup Fees Lease Renewal Fees Renters Insurance Late Fees Investor-Focused Inspection and Maintenance Monthly Fees Marketing Fees (social media, etc.) Insurance Risk Mitigation Fees Vendor Screening Fees Rent Protection or Eviction Fees Essentially, property managers should be sourcing income on anything they’re spending money on themselves. This ensure that you can continue to grow, add on value, and pay your employees. Ancillary fees also help encourage the kind of behavior you want from your investors and residents. You don’t want residents to pay late? Incentivize on-time payments by adding a fee for late payments. You don’t want investors requiring you to use their vendors instead of yours? Charge a small fee for vendor screening. Then you’re either getting paid for your extra time, or the investor will decide it’s not worth it, and you’re saved the extra burden on your team. Special Programs Of course, property managers can also generate additional revenue by developing programs that boost resident happiness and satisfaction. These programs can also help encourage the behavior you want, but the goal is more driven by a desire to improve the resident experience. The most popular – and effective – form of special program is the Resident Benefits Package. An RBP can include several different benefits for residents, from credit reporting to move-in concierge services to identity protection. And they’re easy to monetize for property managers. What is working and not working for property managers The residential real estate market is changing. By finding new ways to generate income, property managers can accelerate business growth. Ancillary income is one of those ways, and it works by providing real value to the resident. These programs don’t necessarily have to directly create revenue, although many do, but the key is always to create value. Of course, some programs work better than others – and some attempts to drive ancillary income can actually do the opposite: drive investors away, or cause resident complaints. Let’s look at a few examples of what is and isn’t working for property managers. Ancillary Drivers That Are Working Here are a few examples of the best drivers of ancillary revenue. Resident Gift Programs One example of a program that creates value for the resident without charging the resident is a Christmas gift program run by the Home River Group based out of Boise, Idaho. Residents at HRG’s properties receive a gift package every holiday season that includes gift cards to local restaurants, movie theaters, bowling alleys, etc. This comes at no charge to the resident, but it does create happy renters, which is a long-term benefit to your business. 24/7 Maintenance Another great example is 24/7 maintenance, which is often amenitized. Professional SFR managers have web portals, apps, 24/7 hotlines as part of their operations that enable a more professional and convenient resident experience. And it leads to faster resolution. Even though this may not be monetized by residents, including it in the resident benefits package helps communicate the difference in service so it is recognized and appreciated. Convenience Services Convenience services are great examples of ancillary income programs that do drive immediate profit and achieve a triple win. Residents tend to realize a lot of value from convenience services, and these services have become the expectation for renters. Second Nature’s air filter delivery service, which is widely used by property managers around the country, achieves this by providing the resident with cleaner air to breathe and lower utility bills, providing the owner with the peace of mind of knowing the air filters are being changed on time, and providing you with some added ancillary revenue. A great way to identify opportunities for ancillary services that achieve a triple win is by asking your residents. Just ask them. They’ll tell you what services they’re interested in and willing to pay for. This will not only help you identify key insights for your business, but it has a positive side effect of improving the relationship you have with your residents. What Doesn’t Work for Ancillary Income As you can probably infer, programs that don’t work will be the ones that don’t achieve the aforementioned triple win. Property managers are starting to realize the value of the long-term game. The extra effort required to make sure residents feel respected and not leveraged specifically for profit creates a lot of value for the PM as it keeps renewal rates high. Here’s the type of behavior PMs should avoid when designing an ancillary revenue strategy. Cheap Money Grabs When your residents feel like they're just a warm body that pays rent, that's really going to sour the relationship that you need to be focused on here. Truthfully, ancillary income can be created very easily, but cheap money grabs that make residents feel used are not going to be sustainable, and sustainable is the key word here. Not Understanding What Residents Value If the resident doesn’t see value, your program’s long-term prospects are not going to be good. Understanding where a resident will find value also requires you to understand how a resident perceives value. There is a saying in marketing that perception is reality, and whether or not you realize it, you're perpetually marketing your properties to residents. How they perceive their experience is going to affect how they feel when it's time to renew. Mixed Messaging The best ancillary benefit package in the world is going to be perceived negatively if the messaging around it uses words with negative connotations. Avoiding words like “fees” can help prevent a negative perception of a service you as the property manager are providing. A perceived lack of value for a required program contributes to a resident that feels disrespected, and a perceived lack of value for an optional program results in a program nobody uses. Either way, no benefit to the resident means no benefit to you. ‍ In the end, the best way to drive ancillary income is to find programs and services that add value for your residents and clients, and generate profit for your business.

April 10, 2023

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