Growing Your Property Management Business Without Growing Your Headaches
One of the more difficult roles of being the boss of a small business is that you “get” to do everything. Often it is hard to get ONE thing done in a day let alone the myriad of tasks that are all competing for your time and attention.
This article focuses on choosing the type of property management business you want to run, so you’ll know where to focus your attention to make that growth happen. In a follow up article, you’ll learn more specifics about managing tasks to accomplish more, stay focused, and deal with all the other demands of your time.
First, it’s important to stop and assess why you want to be a property management business owner. For most business owners there is a passion about what they do, pride in offering a service or product, and last but not least the noble idea of being one’s own boss (which we think means working when we want, spending time with family, and having a good living and eventual retirement).
However, more often than not, owning a business means the complete opposite. Business owners often work 24/7 and pour all our resources (time, energy, and money) into the business, often at the expense of our family and our own health and well-being. They get sucked in and can’t seem to find a balance, often ending up burned out and less well off financially. As an experienced business owner, I am here to tell you there is a way to have the dream.
Ask yourself the following questions:
How much growth do you want?
I strongly believe it is important to decide upfront your end game. If you grow too quickly you risk damaging the reputation that you worked so hard to establish. I am a firm believer in consistent growth. This allows you to prepare for and manage the growth. Banks like to see this as well. You are a stronger candidate for bank loans or lines of credit if you can show consistent growth.
What type of growth should you pursue?
Growth can be measured in number of properties or in revenue. I decided to keep my number of properties the same but grow the revenue. I went after higher-end properties that had less maintenance and produced more revenue. I also started to aggressively offer value added services to clients which allowed me to create additional revenue streams while still managing the same number of properties.
Survey what your competition is offering. Then seriously look at what you offer and see where you might be able to offer additional services. For example, you might start offering tenant placement services. Not all companies offer this. Look at what you are currently doing that you are not charging for and start charging for it. If you accept pets in your properties, offer a Pet Program where you inspect the property 2 times per year and the tenant pays for your time. This has been very successful for my company. Owners are more willing to allow pets, the responsible tenants are more than ok with the inspections, and the properties bring in higher rents for allowing pets, (more money in property management fees).
All too often, I find that property management company owners undersell themselves and tend to work for free. If you aren’t confident in your own value then how can a property owner feel confident in hiring you to manage their investment?
Look at your property management fees. Don’t just be the cheapest in town. Know your value and charge for it. Consider raising your management fees just a half percent. If you provide good service, clients won’t leave and those half percentages add up, boosting your bottom line.
Review your rents, can they be increased? If you spend a lot of time handling maintenance calls and repairs do you charge a coordination fee to deal with the vendors? Start looking very seriously at all the things you do in your business and see how you can monetize it. My property management business is the most expensive company in town and it is thriving. Don’t let the fear of losing clients keep you from offering services and charging what you are worth.
If you decide you want to grow the number of rental properties you manage, remember there is a tipping point. When you have too many properties, you must hire more employees; at some point, the cost of additional staff may outweigh the gain in the properties. Focus on your numbers so you know what properties are producing; then you can do the simple math to determine the maximum number of properties you can handle before you need to hire more staff. In addition, if you want to increase properties, determine the number you want to reach and then hire for the increase first. To do this, you’ll need to save money to pay additional salaries until the new properties are covering those expenses. You need to plan for growth; otherwise, your employees will be over worked, over stressed, and could leave. Where will you be then?
How should you invest your time to maximize growth?
Everyone who runs a small business will attest to experiencing the 80/20 ratio (that means you spend 80% of your time managing 20% of your clients). I have always felt this extremely unfair to the other clients. The 20% are essentially stealing from the other 80% of your clients. They all pay the property management fee, yet some clients receive less attention.
You can handle the 20% in two ways. Let them go or increase their management fees to cover the extra time you spend with them and their properties. I chose to cut them loose. I also terminate owners I don’t like working with, focusing on quality of property and owner instead of quantity. My property management business has grown primarily through referrals. I want referrals of great clients not referrals of needy and demanding clients. Eliminating the less desirable 20% not only frees up time, allowing you to take on more great properties, but 80% of your headaches will go away too!
Over the last 9 years, I’ve used this approach to run and grow my property management business. Company revenue has grown at a rate of 20% per year since I purchased the company in 2005 while keeping about the same number of properties. That consistent growth in revenue allowed me to get a SBA loan to purchase my office building, and remodel it. It also allowed me to refinance it at better terms 2 years later. Now I am able to pay myself a good salary instead of putting everything I earn back into the business.
I have the right employees who can run the office without my presence; this has allowed me to work in the office only 3 days a week, working remotely as needed the other 2 days a week while I perform parental caregiving. It has been a true blessing to be able to spend time with my loved ones at end of life and not feel torn between my responsibilities at the company.
I challenge all property management company owners to take a serious look at their business. Decide what type of business you want and then decide what you need to do to get there. Have the right number of employees to support your goals and start the plan. If you stay focused on the plan you will be able to have it all without the headaches.
Story by: Kathleen Richards