Calendar icon June 28, 2023

Property Management Profitability: FAQs on Profit Margin

Property Management profitability is, of course, how much money a property management company keeps of their revenue after their expenses. But Daniel Craig, the CEO of ProfitCoach, wants PMCs to think of profitability far more expansively.

“We recommend that you think about profit as the opportunity to reinvest in the business,” Daniel says. “Your business isn’t just a machine that makes a profit; it's a machine that turns profit reinvested into more profit.”

In other words, profit is a virtuous cycle that, once started, can deliver increasing ROI, better value, and better business.

The big question is: How do property management companies increase profitability?

That’s what we connected with Daniel to talk about. We’re sharing some of Daniel’s insights on property management profits and experiences we’ve gathered over years of working with property management companies across the country. 

Key Learning Objectives:

  • How property management companies increase profit
  • How long it usually takes to become profitable
  • Common mistakes property management companies make when trying to build profit
  • How to optimize operating costs
  • How to find the right residents and property investors
  • Tools for helping to increase profitability

Meet the Expert: Daniel Craig

Daniel Craig is the CEO of ProfitCoach, which provides property management entrepreneurs with financial knowledge, tools, and strategies to drive greater profits. 

 

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How do Property Management Companies Make Money? 

In the most basic terms, property management companies make money through real estate investors paying for the services they offer. The more value a PMC can drive for its property investors and residents, the more revenue they generate. 

The profit, of course, is how much is left over after paying all your expenses. 

“We've worked with hundreds of residential property management companies and seen a wide variety of profitability levels,” Daniel says. 

ProfitCoach and NARPM started benchmarking profits with the NARPM Financial Performance Guide and Daniel says they’ve seen a significant shift in the past few years. 

  • In 2017, the average profitability in the property management space was 6%, and the top 25% of performers’ profitability was 25%.
  • In 2021, the average profitability was 11%, and the top performers were 32%.

The important nugget in these benchmarks? Seeing what’s possible. Many rental property managers may not realize they could strive for anywhere from 25% to 32% profitability. 

But if the target is that high, how do you get there with your business? At ProfitCoach, Daniel and his team have outlined the “Three Steps to 3X Profitability.” 

3 Steps to 3X Profitability

Here’s what Daniel has to say about the three steps to 3X your profitability.

1. Get Clear

PMs need to get clear on where they are, where they want to be, and what they can achieve. It’s important to know:

  • What’s possible across the industry
  • Trends in your local market
  • How you compare

If you're not clear on the potential, then you're not going to be clear on what you should strive towards. If you're not clear on where you are today, you're not going to be clear on whether you need to change.

2. Define Your Target

Compare your performance to the latest NARPM numbers and benchmarks and determine your target for each of the six Do-or-Die metrics. 

Maybe the benchmark isn't your target, and that's fine, but you need to know what's possible. Many people go through their business lives without engaging the possibilities. They operate within certain boxes, and those boxes need to be compared to what other people are doing. Then you can adjust your perspective of what's possible and set realistic targets.

Next, build a realistic financial forecast that helps you chart the course from where you are to where you want to go based on your financial goals. 

3. Stay on track

Now it’s time to bring the team into the conversation and basically say, “Here’s our roadmap. What specific tactics and strategies will we enact to accomplish the financial shift we need in each of these six areas of our business?”

And once you have those defined, measure your progress against your goals monthly or quarterly. Engage your whole team in the conversation and engage a coach to help you define a financial performance improvement action plan and hold you accountable.

How Long Does it Take for a PMC to Increase Profitability?

According to Daniel, businesses should give themselves between one to three years. 

“We've seen companies make massive changes in 12 months, and we've seen companies make massive changes across several years,” Daniel says. “But generally speaking, I would say to give yourself one to three years to make a major shift – if you want to go from an average company to a benchmark company.”

How to Set Up a Property Management Business For Profitability

Setting up your business for profitability is often about avoiding the most common mistakes other businesses make. We asked Daniel about where he sees professional property managers most often go wrong. 

Daniel says three major mistakes affect how profitable your business is.

1. Financial Fog

Daniel defines financial fog as “Not having clarity on where you are, where you want to go, or what's possible in the industry.”

“One of the cool things about this industry is that it's such a unique opportunity,” Daniel says. “I don't think that many property management owners realize the extent to which they can drive profit in this industry. They often don’t have a clear sense of what the real opportunity is.”

2. Financial Isolation

“At ProfitCoach, we believe that finance should be done in community,” Daniel says. “We are advocates of what we call community-driven finance, which is essentially engaging with community-based benchmarks, community-based best practices, and community-based scoring.”

Community-driven finance helps individual rental property managers and businesses know how they’re stacking up against top performers. It also helps generate value for everyone, where each PMC can benefit from best practices from those top performers.

“One of the wonderful things about the property management space is that it truly is a community space in which there is a lot of idea sharing,” says Daniel. “We think that when you bring that idea sharing into a conversation that is also numbers-based, you can begin to see the strategies and tactics that will be most effective as indicated by the data.”

“Staying in financial isolation is a huge mistake,” he says. 

3. Not Being Mission-Driven

Being mission-driven is all about thinking in terms of customer lifetime value. Sure, it’s possible to get a quick win on pricing, but it may cost you in the long run if you’re not thinking about lifetime value. Rather, Daniel says, “you want to make sure that your approach to pricing, marketing, everything in your business is values- and mission-driven.”

“What is your mission as it relates to your employees? What is your mission as it relates to your stakeholders? What is your mission as it relates to your owners/investors? What is your mission as it relates to your tenants/residents?”

 

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How to Reduce Operating Costs to Increase Profitability  

So, once you’ve considered the three steps to 3X your profit and evaluated the pitfalls of profitability – what next? How do you actually optimize your operating costs and increase profitability?

Daniel advises every PMC to adopt the NARPM Accounting Standards Chart of Accounts for their bookkeeping. 

He says the best part of using the NARPM Chart of Accounts to optimize your profit is the six “Do-or-Die” metrics. These property management KPIs are critical to business success:

  • Profitability
  • Direct Labor Efficiency Ratio
  • Revenue Per Unit  
  • Unit Acquisition Costs
  • Churn
  • Expenses as a Percent of Revenue

“It’s critical that property managers get a clear line of sight on how they stack up in terms of specific rental property management metrics that have an operational connection.”

For example, an income statement will tell you how much revenue you have but won’t tell you how much revenue per unit you have. By building off your income statement with the PM-specific metrics, you’ll be able to tie it to a more operational connection. For example:

  • From profitability to profit per unit
  • From revenue to revenue per unit
  • From sales and marketing spend to unit acquisition costs

In this way, you can understand on a per-unit basis how your business is performing operationally. 

Daniel says: “The problem with the standard income statement is that it doesn't often give property management owners and entrepreneurs a lot of clarity on specific operational shifts that they need to make in your business. When you implement the NARPM Chart of Accounts, you can then implement a whole suite of metrics that does give you that operational clarity and insight to drive action and improvement in your business.”

How to Increase Profitability in Property Management

Increasing profitability takes time and should be done in a few different steps across your business model. These steps are the same whether you are a large or small business. 

Daniel breaks down the work between developing your pricing, labor, expense, and growth models.

Look at Your Pricing Model

Your pricing model is a significant driver of profitability. Getting your pricing right is one of the pillars of profitability. A few things to consider as you are managing properties:

  • How does your pricing compare to the local market in your area?
  • Are you offering any property management services that you should charge management fees for?
  • What are you doing beyond rent collection that you should charge a flat fee for?
  • Are there more services you could offer and charge for their value?
  • How is your cash flow? 

Daniel cautions that it can take time. “If you roll out a new pricing model to tenants and owners, it takes time to implement. You should give yourself about a year to get that fully implemented.”

Look at Your Labor Model

Your labor model is the next big thing, as labor is your biggest expense and could also be a driver of inefficiency if you don’t have it right. Daniel recommends asking:

  • Do we have all the right people in the right seats on the bus? 
  • Do we have the right mix of U.S. talent versus global talent? 
  • Do we have retention strategies in place?
  • Do we have the right systems in place to enable each team member to be maximizing their productivity and their effectiveness in the organization? 

Again, these questions may lead to significant strategic shifts that you should give yourself time to implement.

Look at Your Expense Model

This one is a little bit easier but just as important. You can trim expenses fairly quickly once you identify where to cut back. Are you spending too much on overhead? Could you engage property management software to help with bandwidth?

In some cases, changing your expense model may take some time – for example, if you need to renegotiate a long-term lease.

Look at Your Growth Model

Evaluating and updating your growth model is another opportunity for maximizing profitability. Once you’ve identified and set your targets, here are some potential next steps for growth:

  • Finding and hiring a high-performing business development manager
  • Get a new sales process in line
  • Dial in your lead generation strategies so that you have enough leads for that BDM
  • Etc.

Again, this shift may take several months or years to integrate into your business processes fully.

Launch a Residents Benefit Package

Ultimately, one of the best ways to increase profit and influence your bottom line is by considering where you can add more value for your residents and residential property investors. Daniel recommends starting small tweaks to your Revenue Per Unit.

“We have seen repeatedly that a 10% improvement to revenue per unit can easily result in a 100% increase in profit per unit. So, look for ways to get small wins on value creation, value communication, and value realization.”

Daniel says one of the quickest and most practical ways to adjust Revenue Per Unit is to implement a Resident Benefits Package. (And we didn’t even put him up to it!)

“A resident benefits package alone can result in that 10% bump to revenue per unit, which can result in that 100% increase to profit per unit. This profitability can result in more fuel to your freedom, more fuel to your mission, and realizing all the things you went into business for in the first place.” 

How to Find Profitable Residents & Investors and Keep Them Happy 

Daniel says they’ve seen significant profitability gains when a company identifies the right-fit and wrong-fit clients.

“We have seen significant profitability gains come about for those who are looking through the client list, finding the misfits accelerating, and then getting those misfits out of their portfolio so that they can bring in the right-fit clients who are going to be a better fit from a value proposition perspective. Getting rid of low-performing clients and then backfilling those with the right kind of clients is a great way to improve profitability.”

Daniel says that this goes back to being mission-driven. By identifying your point of view on your industry, your values, etc., you can build a “why” for your company that can help you define the right new clients for your business. 

Daniel uses his own company as an example: “At ProfitCoach, we believe in community-driven finance. If we come into contact with a potential client who's all about financial isolation – they don't want to share their numbers with anybody, they don't want to engage in a community conversation, they don't wanna learn from the best practices in the industry – that's not a good fit for us.”

So, the two questions to define are:

  • What is your point of view?
  • What is the value proposition that comes out of that? 

Based on that value proposition, there will be a certain set of criteria that will define what a right-fit client is and what a wrong-fit client is.

Learn more about SecondNature’s Resident Benefits Package, which is designed to generate revenue and “Triple Win” conditions that benefit residents, investors, and property managers alike. 

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10 Best Property Management Websites for Property Managers

One important approach that property managers can take to keep up to date with current industry trends and approaches is to maintain a watchlist of different property management websites. That's because these sites often reflect best design practices and website templates as well as content sharing ideas. Today we'll cover some of the top property management websites, all considered favorites and regularly featured on “Top 10” lists in the industry, with a focus on what makes each one distinctive, whether from a design optic or a content perspective. 1. Second Nature It may seem odd for us to mention ourselves first on this list, but we are genuinely proud of our brand and messaging! After all, we’re in this business for a reason – and that’s why the content of the Second Nature website is so squarely people-focused, with an emphasis on solutions that improve the lives of residents, investors, and property managers alike. There’s a robust business principle underpinning this “Triple Win” philosophy: residents want their needs proactively anticipated, and they're willing to pay (and stay) for that service. This is particularly true for a younger generation that is attuned to the convenience offered by services such as Uber and Amazon. That’s why the language used on the website reflects a humanistic approach that goes beyond transactional basics, preferring “residents” rather than “renters,” for example, or “home” rather than “rental property.” It’s also why Second Nature’s “Resident Benefits Package” is front and center, and designed to give residents, investors, and property management businesses a win. Accordingly, like all successful marketing, Second Nature’s value proposition is not only tangible – it’s personal. Visit www.secondnature.com to learn more. 2. Nest DC The Nest DC website also focuses on the families behind the doors and the people behind the investment portfolios. Although residential real estate management is associated with a certain gravitas, the language as well as the overall branding of the Nest DC website plays off of a certain “avian” riff and is designed for easy readability. Where most sites incorporate an “About Us” page, for instance, Nest DC features an “About the Birds” content piece. It’s all done with serious intent, however, and the website design is sleek, clear, and user-friendly. Visit www.nest-dc.com. 3. Bay Management Group As soon as you hit the homepage of the Bay Management Group website, it’s clear that its primary target audience consists of real estate investors and property owners. That said, the site does host an impressive library of instructional and advisory videos for tenants, property managers, and landlords, as well as investors. With the tagline “property management that’s a cut above the rest,” home page testimonials, and a blue-toned web design of the sort favored by financial institutions to connote trustworthiness, the focus is on differentiation through delivery of high-quality property management services to deliver reliable rental income. Beyond its primary “free property management analysis” feature, other web functionalities include a blog, owner portal, tenant portal, and various program application options. Visit www.baymgmtgroup.com 4. Rentberry Rentberry is a global rental platform describing itself as a “transparent and secure home rental platform that connects tenants and landlords.” With the tagline “Renting done right – finally,” its principal focus is on prospective tenants and landlords. Top-level navigation includes online rent payments/rent collection. It also includes tenant screening functionality as well as options to search listings for vacancies or create a property listing. Among the usual resources (blog, help center, FAQ, contact information), Rentberry also features pricing guides for both tenants and landlords to help streamline the onboarding process. Visit www.rentberry.com 5. Grace Property Management & Real Estate Based in Denver (Colorado), Grace Property Management & Real Estate focuses on both residential and commercial properties in Denver. Although the company was founded in 1978, its online presence boasts astute use of online marketing tools and property management solutions, to say nothing of search engine optimization, with numerous calculators and other resources available from the top-level menu. Like many companies with a strictly regional presence, Grace Property follows the tendency of including full social media and phone contact information in the header. Visit www.rentgrace.com. 6. MESA Properties MESA Properties gives its geographical focus the hero image treatment, with the tagline “Servicing the Inland Empire, Eastern San Gabriel Valley and High Desert.” Below the header, it also bills itself as “an owner-centered property management company.” Accordingly, much of the functionality on offer from the top-level navigation is focused on professional property manager services and resources for owners, but it does include resources for tenants, including maintenance request options, and portal login. Visit https://www.mesaproperties.net/ 7. Golden State Property Management The Golden State Property Management website presents with the tagline “Total property management of the most comfortable homes in the South Bay,” as well as two prominent feature buttons aimed at residents (“Pay Rent”) and potential residents (“Search Vacancies”). With straightforward top-level menu options, mobile-friendly design, and high-contrast navigation elements, this site is exemplary in its simplicity. Visit www.goldenstatepropertymanagement.com 8. Sleep Sound Property Management Sleep Sound Property Management takes aim at the stress of managing the rental process, and as such takes on an advisory persona in its content. With the word “guarantee” appearing over 10 times on the homepage alone, the message is clear: this is a company devoted to providing great property management services in support of maximizing investment returns. Its “Why Choose Us” page also highlights its investments in cloud-based property management software, also designed to ease the stress of managing property investments. Visit www.propertymanagementportlandor.com 9. Good Life Property Management The website of this San Diego-based property management company is one of the only companies in the industry to highlight customizable user elements (color and font size) in the header of every page of its website. From the marketing perspective, this sends an important signal that the company is serious about finding ways to partner effectively with its community of investors and tenants. Visit www.goodlifemgmt.com 10. Luxury Property Care Luxury Property Care bills itself as “Florida’s only full-service property management and investment concierge for residential and commercial properties.” Its focus on offering high-end services is reflected in its mission statement: “Treat yourself to the luxury you deserve and let us handle every aspect of investing in off-market real estate and building a first-class rental empire with ease.” It’s also reflected in the website design scheme, with black and gold color elements being a popular way for brands to convey notions of elegance and prestige. Visit www.luxurypropertycare.com Follow the Second Nature Website to Keep Tabs on the Property Management Industry At SecondNature.com, you’ll find an abundance of resources designed to keep you up to date on events, analysis, and expert perspectives in the field – all geared toward helping property managers create a “Triple Win” that benefits residents, investors, and property managers alike: Triple Win Property Management Blog Triple Win Property Management Podcast Triple Win Property Management Events Learn more about Second Nature’s Resident Benefits Package, which is designed to generate revenue and establish Triple Win conditions for your residents, investors, and business.

Calendar icon February 26, 2024

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10 Best Property Management Blogs to Read and Learn From

As a property manager, one of the best ways to stay attuned to the latest trends, technologies, and strategies in the field is to read industry blogs across a range of property management websites. That's because the content of these blogs often consists of shared best practices and practical tips from peers and other experts. They also help you keep abreast of any regulatory changes and compliance requirements that may inform your business decisions and strategies. Today we'll cover some of the top property management blogs, with a focus on what each site brings to the table. 1. Second Nature The SecondNature blog provides insights on a wide range of topics related to property management, including market trends, technology, resident retention, and more. Its focus is primarily on a “Triple Win” philosophy, which expresses the idea that residents, property managers, and investors can go beyond transactional basics to create new, mutually winning experiences. In that vein, sample blog post titles include “How to Start a Resident-focused Property Management Company in 13 Steps,” “9 Ways to Improve Your Resident Experience,” and “How to Craft a Lease Renewal Letter that Wows Your Residents.” With top categories ranging from “Operational Efficiency” to “Resident Experience” and “Homeowner Insights,” the SecondNature blog is a valuable, highly readable resource for property owners and managers alike. Visit the SecondNature blog 2. Bay Management Group Blog The Bay Management Group manages over 6,000 units throughout Pennsylvania, Maryland, Northern Virginia and Washington, D.C. Its blog reflects this partially regional focus, with categories including “Owning a rental property in Maryland,” “Owning a rental property in Pennsylvania,” and the like. However, much of the content is broadly relevant to the property management business, with articles including “7 Ways to Ensure Your Potential Tenant’s References are Real,” “Tips for Successful Real Estate Partnerships” and “What is the Renter’s Bill of Rights and How Does It Protect Tenants?” This is a great blog that hosts archives going back to July 2012, making it one of the more venerable sites in this list. Visit the Bay Management Group Blog 3. Nest DC Blog Nest is a Washington management firm that focuses on homes and residents in and around Maryland, with expertise in single family homes, condos, multifamily housing, and mixed-use property in high-density, urban environments. Its clean, stripped-down design dispenses with the standard trappings of blogs such as tags and categories, and features both job listings and articles, with sample titles including “Important Factors for Real Estate Investing,” “Best Practices for Tenant Screening,” and “A Guide to the Eviction Process in Washington DC.” Visit the Nest DC Blog 4. Buildium Blog The property management software company Buildium publishes blog posts and other resources on a wide range of property management topics, from accounting & taxes to legal considerations, to marketing tips and the latest news from Buildium. Clearly, the content is aimed at a broad segment of the property management community, including rental property owners, property maintenance professionals, and real estate investors. Sample blog post titles include “The ins and outs of HOA reserve fund accounting,” “The best rent payment app in 2024: Comparing 8 online rent payment systems,” and “The 5 best multifamily property management software solutions in 2024.” Visit the Buildium Blog 5. Appfolio Blog Another software company, Santa Barbara (California)-based AppFolio focuses on SaaS for the real estate market. You do not need to be a user of the Appfolio software to find its blog relevant – in fact, much of the content focuses on issues of broad interest to property management and property investment groups, with sample blog article titles including “Three Leasing KPIs Every Property Manager Should Track to Optimize Their Business,” “4 Ways to Strengthen Vendor Relationships,” and “Your Ultimate Guide to Leasing Season: How to Maximize Occupancy and Efficiency.” Visit the Appfolio Blog 6. BiggerPockets BiggerPockets is positioned as a complete resource for anyone looking to succeed in real estate investing. Thus, its blog is squarely focused on matters relating to property investment and rental income, with titles that reflect that focus (e.g., “12 Ways To Make Passive Income From Real Estate Investing,” “High Credit Borrowers Get Punished and New Landlord Laws Put Tenants First,” and “2024 Rental Market Outlook: Is a Shift Coming Next Year?”) However, it also provides a number of articles with potentially broader interest to property management services (e.g., “Put THIS in Your Lease Agreement (So Tenants Don’t Break It!)” “9 Ways Your Property Management Tool Can Improve Your Business,” and “The Rise and Fall of the American Shopping Mall”). Visit the BiggerPockets blog 7. Rentometer Blog Rentometer provides a number of offerings around its collection and analysis of approximately 10 million rental records annually. The Rentometer blog is an extension of this capability, and aims to provide marketing insights to help manage real estate businesses. Its blog publications date back to 2018, and provide perspectives on remote property management, tools for growing real estate businesses, and more. Sample titles include “6 Tips for Communicating Rent Increases,” and “How to Use Rent Comps When Setting Your Rent Price.” Visit the Rentometer Blog 8. Propertyware Blog Like Buildium, Propertyware is an acquisition of the RealPage corporation but it continues to maintain a blog featuring news, trends and tips on single-family rental properties. Sample titles include “10 Tips For Maintaining Electrical Safety At Your Rental Homes,” “What’s Hot: Tankless Water Heaters for Rental Housing,” and “How Rental Property Software Helps in Processing Security Deposits.” The blog has also compiled different article series under various themes and topics, making it easier to navigate the wealth of information on offer. Visit the Propertyware blog 9. Rent Manager Blog The Rent Manager blog is largely focused on news about this property management software developed by London Computer Systems (LCS), and features tips and best practices for users, as well as news on feature enhancements. However, the blog also includes a dedicated category for property management trends, with articles such as “The Benefits of AI for Residential Property Management,” “Why Lowering Renewal Rents is a Smart Move for Multifamily in 2024,” and “Resident Screening: The Lost Art of the Reference Check.” Visit the Rent Manager blog 10. All Property Management Blog The All Property Management Blog reflects its identity as a marketplace of property management services, with articles aimed at real estate investors as well as property managers. Blog categories include property management tips and advice, product reviews, and content related to property taxes and finances. Sample titles include “How to Rent Out an Apartment: The Go-To Guide for New Landlords,” “Top 10 Rental Listing Syndication Websites and Time-Saving Tips,” and “5 Successful Rental Property Management Strategies.” Visit the All Property Management Blog Follow the Second Nature Blog, Podcast, and Events to Keep Tabs on the Property Management Industry At SecondNature.com, you’ll find an abundance of resources designed to keep you up to date on events, analysis, and expert perspectives in the field – all geared toward helping property managers create a “Triple Win” that benefits residents, investors, and property managers alike: Triple Win Property Management Blog Triple Win Property Management Podcast Triple Win Property Management Events Learn more about SecondNature’s Resident Benefits Package, which is designed to generate revenue and establish Triple Win conditions for your residents, investors, and business.

Calendar icon February 21, 2024

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