Why your current property management system needs to change

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Four-story condominium building with green front lawn next to a white residential home

02/23/2015 | Author: Jeremy J. Conaway, guest author

A key question for the real estate industry emerged in 2012: Would millenials, the largest demographic in American history, take up homeownership as a part of their life’s experience? Or, would they remain in their early lifestyle rental environment?

It's now apparent that millennials will join the ranks of homeowners but that, due to a number of issues, such as debt and mortgage complications, their migration will take a bit longer than that experienced by their cultural predecessor, Baby Boomers. A key message here is that rental lifestyles will have to expand to meet the needs of this very sophisticated and demanding demographic. Today’s lifestyle-driven real estate consumer is going to rent for a while, but he or she is not willing to view the rental experience as a punishment that one must endure while waiting to ascend to homeownership.

Property management impacts
The takeway of this message from the broker perspective is three-fold. First, existing property management operations will not be sufficient to meet this enhanced status. Second, major players are moving to bring their property management operations up to new standards. And third, the property management function will move far beyond investor accommodation through core services, and will become a primary portal and/or gateway through which brokerages will create positive relationships. These relationships will ultimately transition into classic real estate transactions enriched by substantial lifestyle offerings.

Property management may be the ultimate "customer for life" generator.

A wake-up call
But, you say, you've been in the property management field for decades and are doing just fine. These comments are not to suggest that traditional brokerage-based property management efforts haven’t performed an important function; they have. It is to suggest that, like every other element of the residential real estate, property management is about to experience a significant transition in operations, objectives, and purpose.

Consider the following regarding the traditional real estate brokerage-based property management program:

  • The primary function of traditional property management was not to drive profits but to drive commission revenues from clients who said, “I will buy if you agree to manage.”
  • The procedures and practices that evolved through this course were not intended to optimize relationships but to facilitate the above accommodation and maintain a connection that might generate a commission when the investor was ready to move on.
  • This arrangement is what created the traditional real estate brokerage-based property management program.
  • Many of the primary competencies and skill sets of a great property manager are antithetical to the common skill sets of a great agent. This was not a match made in heaven.
  • Property management was not looked upon as a distinguished function but rather a necessary task.
  • While property management revenue might have occasionally functioned as a revenue stabilizer, it was never seen as a primary revenue source. Nor did it ever reach the level of a qualified core service, even though if operated properly it has the potential to outperform those classic offerings
  • Even in its traditional format, property management has always been and continues to be a highly challenging business activity that has a high liability profile. This fact is often not addressed.

Moving forward, as the contemporary property management system begins to make an impact, brokerages will discover the following:

  • Common sense will dictate that operating a traditional property management operation will no longer make any sense. It is simply not relevant to today’s industry environment. It is not making an appropriate contribution to revenues; it is not sustaining relationships; and it isn't in anyone’s benefit.
  • Even the financial equation of the traditional property management business model continues to blur. Costs have increased. Investor demands for operational metrics have increased. Without increasing revenues to meet these increased expenses, property management will quickly become a loss proposition. It is fast becoming a business not worth owning.
  • The current property management environment is poised for digital disruption, as major players announce plans to take a position in the property management field backed by substantial financial resources and motivated by a vastly expanded vision of the competitive advantages of a combat tactical property management.
  • The message to brokers is either come up to speed with your property management, or you will be a victim of this unique form of digital disruption.

How does property management have to transition?
If you find the above arguments compelling, here are the functions that must be incorporated into a contemporary property management program: 

  • The program must be focused on profitability and revenue per unit. The property manager must focus on maximizing profitability and investor relationships while being aware of the lifestyle movements of their tenants.
  • It must incorporate a wide range of service-related revenue generators. To do this, it must identify each service task and equip each with a companion revenue factor.
  • The program must have a highly effective process that will rent the property quickly. Vacant properties all too frequently reflect property management deficiencies rather than market shortfalls.
  • Fast and effective tenant qualification is critical. The investor is looking for a quality tenant who pays the rent on time, lives in accordance with the lease, and cares for the property. Credit, criminal background, and past rental checks are part of the new property management standard.
  • Regular and detailed property inspections and condition reports are an integral part of the new property management.
  • The program must work in continuous collaboration with a real-time, managed network. Property management is now about what you are learning today, not what you learned five years ago. Best practices are no longer aspirational but expected. Critical knowledge and data have become essential factors of success. The cost, competitive, mass buying, and comparative benefits of such a network are now essential to property management effectiveness and profitability. Surprise is no longer acceptable to the real estate investor. Investment has become a much more specific data- and metric-driven activity. Investor communications must be complete, comprehensive and compelling. Only a tactical network can provide this information.
  • Property management must prioritize the creation and nurture of tenant and investor relationships that will evolve into real estate service delivery opportunities moving forward.
  • Each of the functionalities outlined above must be self-supporting financially, and each must contribute to the overall profitability of the program.
  • The property management function and network must incorporate finely detailed operational data and metrics that address each of the hundreds of tasks that constitute contemporary property management. Which paint to buy, what response protocol to maintain, and what actions to take. Each of these tasks must be backed up by management, cost accounting, and communications resources. Highly profitable property management is a game of minute attention to detail; the pennies and the minutes must be counted!
  • Today’s investors are willing to make enlightened decisions regarding the level of property management service and support they are willing to pay for if it is properly presented. Such service must include real-time information regarding property condition and rental metrics that can be compared with like properties in like environments.

A new standard of performance, one that is significantly more detailed and sophisticated than its predecessor, has emerged and is heading into the property management space. Within the next 18 months, this new standard will become an investor expectation.

Don Lawby, president of Real Property Management, headquartered in Salt Lake City, summed it up when he said, “The property management industry is now facing real and significant digital disruption. Through innovation and advanced technologies, the industry can make digital disruption an opportunity rather than a threat. All of the pieces are in place. This is the opportunity of a lifetime. We can do this.”

This article originally appears in the February 2015 issue of the REAL Trends Newsletter and is reprinted with permission of REAL Trends Inc., © 2015.

Categories: Business tips
Tags: millenials, property management, business advice


Mike on 02/24/2015

We both manage and sell but we do not leverage our management in order to get listings.  If it happens it happens.+-

Bart Sturzl (President Elect NARPM) on 02/24/2015

I think Mr. Conaway’s article has some interesting points.  I also believe the millennials are absolutely changing the way we do business.  They demand instant access and prefer to complete the transaction completely through automation. 

But then there is some confusion as to what Mr. Conaway thinks is property Management Company is.  Please read carefully he stated in the article that a traditional real estate brokerage-based property management program.  He is clearly addressing those in the industry that use management as a tool for sales revenue.  Most professional managers (those that do this as a primary business) look at management as the profession and not for generating sales leads.  We consider ourselves to be managers not agents.  I agree with Mr. Conaway that those that use management as a tool will need to get out of the way as those of use that consider ourselves true professional managers will continue to thrive in this industry.

I also agree with Don, for those of us professionals…We Can Do This!!  Our industry has changed so much in the last decade, even in the last few years we have seen so much new technology that it is making our jobs so much better.  From software, to apps, to integrated systems, the sky is now the limit.  As more and more investor demand the professional full time manager we will see the dabblers in the industry go by the way side.  This does not mean that the “Walmart’s” of management are going to take over.  There will always be a place in our profession for the single self-run managers like Steve Crossland.  It is these experts, that can bring a personal touch while at the same time bring the technology and data to the table, that will continue to grow and gain business.  This is just my two-cents, thanks for reading.  And Mr. Conaway thanks for the thought provoking article. 

Caitlin on 02/24/2015

Mr. Conaway has clearly never run, worked in, or owned a property management company.  If he had done his proper research before writing this article; he would have seen that the property management industry is growing and thriving.  He also contradicts himself in this article.  With one breath he says that the industry is “not worth owning”, “not making an appropriate contribution to revenues”, and “isn’t for anyone’s benefit”. In the next breath though, he says how big corporate companies can’t wait to dive in and scoop up the market. 

We are able to make a very nice living, and provide terrific high paying jobs for our employees.  In the last 5 years we have seen our business grow more than ever.  We provide valuable services to owners with our cutting edge technology, local market knowledge, and resources that any investment property owner would benefit from. As more young people continue to enter the rental market, our business and all of our clients will profit. 

I look forward to what the future holds for our industry, and strongly disagree with Mr. Conaway about what that future holds!

Steve Crossland on 02/23/2015

I think the entire article is hogwash. Small property management companies have never had greater opportunities or been more vital. The author is speaking gobbledy-gook.

Mike on 02/23/2015

A pretty wordy article.  Why digital disruption?  Shouldn’t it be digital enhancement?

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