What is the most common mistake made in property management today?
That’s the question we posed to five industry-leading voices. Hear from Matthew Whitaker, Pablo Gonzalez, Peter Lohmann, Maranda Hunnicutt, and Wolfgang Croskey as they share what they each believe to be the most common mistake in property management. Are you currently making one of these?
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Season 4 Episode 16 features Matthew Whitaker, Pablo Gonzalez, Maranda Hunnicutt, Peter Lohmann, and Wolfgang Croskey
The Triple Win Property Management podcast is produced and distributed by Second Nature
Transcript
Andrew Smallwood
What do you think is the most common mistake made today by single-family or scattered site properties? What's a mistake that seems persistent in the industry?
Matthew Whitaker
So this is going to sound like, I'm preaching to the choir here, and, I promise you, they didn't ask me to say this, but one of the things this industry is going to focus on over the next, you know, decade five, 5 to 10 years is the resident experience. I think that we are so hyper-focused on the owner and keeping them happy. And we do have to keep them happy, right, because they can fire us at any time. But the resident experience is where companies are going to differentiate themselves for the future.
Andrew Smallwood
Hello, professional property managers, Andrew Smallwood here with the Triple Win podcast. Thank you for pressing play and choosing to spend a piece of your life with us today. I am very excited for this episode with our new format where we actually ask one question to five different industry professionals. So you get five answers to one question from five different industry professionals people like Peter Lohmann, Maranda Hunnicutt, Pablo Gonzalez, Wolfgang Croskey, and more. you're going to hear their answers to the same question. This week's question is, what's the most common mistake being made today in property management? So again, you're going to hear that question. Answer five different times five different people. We hope you enjoy it. And up first we've got Wolfgang Croskey. What do you think is the most common mistake made today in single-family or scattered site properties? What's the persistent thing that you see just continuing on in the industry?
Wolfgang Croskey
Wow, that's a good one. I would say the thing that I see is people not understanding the law and just going off of what another property manager said and taking that as the law, and I've been guilty of that myself, like, oh, this, I trust this person. Go with it. But then you find like, no, I don't think the law says that because in our state there's a lot of fear of the law and there's some big consequences. So, you know, you're juggling that. But really knowing what is tenant-landlord law in my area and having policies that are around that and being confident with that, not just what did this expert say or what did this attorney say or whatever, but like, really, what is the law? Now I'm not licensed to practice law. But I think as property managers. Being very confident in what is the law, how do we operate within the law and are we compliant with the law?
Andrew Smallwood
I love it, I love that.
Wolfgang Croskey
And there's a lot of unintentional violations that take place.
Andrew Smallwood
Yeah, yeah. And as a follow up on that is sometimes the challenge that property owners face is like, well, I am looking at this and I have talked to my attorney about this and yeah, here's what the law says. But sometimes the law is written in a way that's not clear. Right. And it's up to interpretation. Right. How do you manage those kinds of decisions?
Wolfgang Croskey
I think having confidence in your process, you know, just this is our process. This is what we're doing every time that I've gotten burned, it's because I made an exception. The process, it was a friend. It was a family member or a client who's got X amount. Yeah, we'll make that tweak in every single one. If I trace back every time we've had to correct something, it was because we made an exception, a process. So if you are hey, let me speak to my attorney because they're the ones they're gonna have to defend me or my, you know, insurance company or whatever. And that's their interpretation. And that's what I want to operate with. Then your process needs to be aligned and you don't deviate. Or when you deviate, challenges are going to come your way.
Andrew Smallwood
Consistency. Yeah. Great. Well okay. Thanks so much.
Wolfgang Croskey
I appreciate it.
Andrew Smallwood
Absolutely awesome. That's Wolfgang's answer. Up next, Maranda Hunnicutt, what's something that you think is a common mistake or misstep that persists in the single-family, scattered site property manager?
Maranda Hunnicutt
Well, I think a variation on policy, like, not really not having policy, not leading with policy, not being able to give clarity to your employees, which I've made that mistake again. Like finally I've learned it. But every time you make a decision, that's a policy. Look. Every time are we going to accept, you know, late, late fees? Are we going to waive late fees? Are we going to allow someone to go month to month or have an owner not respond to us and just live in limbo, like some things we have control over and some things, we can't. But every time you make a decision, you're making a policy and you need to write it down and you need to share it with other people and you need to not have it in your hand.
Andrew Smallwood
Yeah. Can you give an example of like implications where you've seen variability in policy or decision-making play out to have negative consequences for a property manager?
Maranda Hunnicutt
Oh yeah. Yeah, I mean when there's when we take over others when we take over tenants from other points, seeing some of the things in the noise is what this person, you know, unit A pays their due on the first and unit B due on the 15th. And unit C's do whenever. And it's like how do you have any consistency? How do you know what your expectations are going to be? And you can't have different rules for different people like hello, everybody needs to be treated the same. So just seeing things like that has really been I, I love when we take over properties and I see other people's leases and it's, it's a very eye-opening experience every time. It's very maddening.
Andrew Smallwood
What's the most surprising thing you've seen in a lease that you take it over and here to management?
Maranda Hunnicutt
It's more what's not in there than what is in like to get a page and a half lease. And I'm like, there's no way I could take this to court. It doesn't even say what the due date is. It just says the rent is X amount per month, but there's no late penalty. Like, how are you late?
Andrew Smallwood
What date is it? How much is a late fee?
Maranda Hunnicutt
Nothing, like your rent is $1,000 a month and due on __. It's not there. Like, oh my gosh. Like that is so basic, but some people don't have it. And at least I saw that like three weeks ago. And I was like So confused.
Andrew Smallwood
Well-defined policies and consistently applied policies and something that still persist out in the industry but not done. That's a great one. Thanks, Maranda. Appreciate it. Okay, you heard from Maranda Hunnicutt. Next up is Matthew Whitaker. What do you think is the most common mistake made today by single-family or scattered-site property owners? What's a mistake that seems persistent in the industry?
Matthew Whitaker
So, this is going to sound like, I'm preaching to the choir here, and, I promise you, they didn't ask me to say this, but one of the things this industry is going to focus on over the next, you know, decade 5 to 5 to ten years is the resident experience. I think that we are so hyper-focused on the owner and keeping them happy. And we do that to keep them happy, right? Because they can fire us at any time. But the resident experience is where companies are going to differentiate themselves in the future. Today, just because of the shortage of, you know, rental homes, we can almost be like not resident-focused. But there is going to come a time where there's going to be a bill that has to get paid that, you know, I don't know if it's 5 or 10 years from now, but all of us are going to have to compete on the resident experience. And I'll tell you that institutions are thinking about this a lot right now. They're thinking about how we can make the resident experience really great, because they also have a narrative that they're trying to project to the public, and frankly, they're going to make it better because they have to. And what are we going to do as third-party property managers to keep up with what they're doing, where they don't get all the good residents? And then we're able to get some of those residents, good residents as well.
Andrew Smallwood
Yeah. Attracting the best residents with a great experience and, focus on that. And it does seem in the industry the fiduciary responsibility to the owner and that that's really my primary client has been just a dominant kind of undercurrent of the industry. But more and more and I'd say second nature plays a role in this, but it's much broader than even second nature. Thinking about what's happening with resident experience and the opportunities people can pursue. Okay, that was Matt Whitaker. Next, we've got Pablo Gonzalez. What's something that you see? It feels like a mistake or a misstep or a big missed opportunity. That single-family or scattered. So property managers, it just seems to persist right in the industry or professional property ownership.
Pablo Gonzalez
If you make most of your revenue from tenant placement fees, you are not aligned with your investor.
Andrew Smallwood
Say more about that.
Pablo Gonzalez
As an investor myself, the most painful time to be an investor is when I have a vacancy. So if your business lives off of tenant placement fees, no matter how you operate, you are somehow going to be incentivized to turn that client, to turn that resident over. Right? Like if you're high-fiving when your client is in their worst moment, there's something inherently wrong. So, you know, like building a property management company based around occupancy rates and like, length of tenant stay to me feels like the North Star.
Andrew Smallwood
So it seems like an interesting question around the business model. Yeah. And how you're aligning incentives. I mean I obviously like I think I would say it's rare to encounter at least the people listening in this podcast that they're probably high-fiving, turning over a tenant. But like, there's an interesting question of implicit kind of incentives, right? Can it still be influential, and drive behavior? So I'm trying to think of, you know, what's your thought on kind of like Yelp so that when you talk about optimizing for retention. So it's, hey, I'm not monetizing, obviously there's a lot of work. Yeah. So I probably just don't do work that is valuable. Yeah, yeah, yeah. Perfect place to be. So how do you think about a different business model?
Pablo Gonzalez
Yeah. listen, I would, I would put your effort into signing the longest leases you can to start, right, like 2 or 3-year leases. I know it's hard, right? But if you're able to do that, then you can market yourself that way. So you're going to have more clients that want to do this. And you can position your competition. If you put your effort into training your team to see a renewal the same way that an accounting executive sees a renewal for a software company, and it's about building their relationship with your tenant, letting them know that, hey, if you leave, yeah, you might, you know, you might not like our $100, monthly increase fee, but like, this is what is going to cost you move, you know, and this is what you're going to then rent anyway. So it's not really going to help you and help them understand what's best for them and start building a relationship ahead of time so that you are maximizing renewals and building a good thing. you're going be able to market that, right? Like, I think the way that you the way that you win that way is that you have more clients that are happier, tell more of their friends, don't go out there and tell people not to do rental properties will bring you other people that say, you know, my property manager is doing x, y, z all real estate investor talk, right? So like if you can really corner the market on this idea that I win, when you win, I think that's the ultimate advantage.
Andrew Smallwood
So on that note with JWB, is it different, like a reduced tenant placement fee? Is there no tenant placement fee?
Pablo Gonzalez
No, there's a placement fee. I think the placements are like $200-$400 bucks. Yeah. Right. But you know they're…
Andrew Smallwood
It's less than what's common in the market.
Pablo Gonzalez
I don't know I'm not a property manager. Right. So that's the caveat for everybody listening. But they make their money off of selling you more properties. Right? Right. Like there they optimize for you buying a property with them. And that's where they make their money. So, you know, they don't have to go as hard at tenant placement fees. Right. So like oh you said 10% fee. Tenant placement fee is standard. The tenant placement fee is one month's rent okay. Right. Yeah. Renewal fee is like $200-$400 bucks, right. Or whatever. Get it right. But you know, they have really beat the drum on this idea that like to be in rental properties, you want to be in a long time and you got to maximize for experience, right. Just like the resident experience.
Andrew Smallwood
I see. So it's not that it's in a place a fee isn't being charged. It's actually that, hey, here's our average tenancy, which is much longer.
Pablo Gonzalez
Four and a half years.
Andrew Smallwood
You're going to pay fewer of these over time. Yes. And that's where you are when you're selling a line to where you're still having a shorter tenancy. So this month's rent expense is going to keep coming up.
Pablo Gonzalez
And the resident is happy. One could call it a Triple-Win if you, if you were to get so fancy with your words again.
Andrew Smallwood
Okay. And I think one more practical question because you talked about long-term leasing was an interesting concept. You know, a question I've heard people ask about this is okay. Yes. Are there built-in rent increases? people have seen in the last few years a very volatile change in the market where we've seen double-digit rent increase like not year steady three, 4%. and then also things soften, you know, very quickly. And so how do you think about reconciling that kind of volatility with a long-term lease?
Pablo Gonzalez
You hedge. Right. Whatever you think is going to happen, you give them a slightly better deal in order for a long-term lease. Right. So there's still going to be a rent increase right. If you sign a three-year lease maybe there's no rent increase at year one. But there's definitely like a standard rate increase year or two. But they know what's coming. It's not like I don't know how many property managers have been a tenant. You know, like I've been a renter. How long ago that was. But, man, it's stressful to get rent increases, right? Like it's stressful to go year to year and be like, with your wife. And it's like three months till your lease comes up is like, man, are these guys going to rack me over the coals this year? Do I need to start looking into it and I need to start looking right, like taking away that part of it will allow them to lock them in longer for three years. and set that up. And if it's a two-year thing, it's just like, hey man, you're signing a two-year. But I guarantee you, you know, like right now the market is saying that, you know, rent increases are call it 8% and we're going to just do a 7% because you're going to be here for two years. You get to control your costs and whatever or whatever. And then when the contract, when, when that contract is over and it's renewal time, now you're talking about like, hey man, these are the comparables. Now use your catch-up to the market. and then also incentivize a long renewal based on like, this is what it's going to cost you to move. This is what you're going to get out there. It's going to be comparable. You will save their money and just pay us this renewal fee and lock it in again. And it's just not going to be as much. But you get to stay here and we get to not have to paint the walls again.
Andrew Smallwood
And obviously something's being spread out over a two-year time or two-year term. If there's a little more, if there is some volatility, you can make that potentially a little more digestible and hopefully you know, not continue to get too far behind.
Pablo Gonzalez
I mean yeah, well at the end of the day, when renewal time comes, it's a time that you can catch up to the market again or decide how much you want to catch up with the market again when they leave. Time to catch up to the market, you know. But I just see what I understand is that real estate investors are too busy tripping over pennies to pick up dollars, right? Like they're too busy worrying about an extra 200 bucks of cash flow, a month a year to realize that, hey, if your tenant leaves, you're going to drop five G's, right? You know, and that is a whole lot of, like, 200 bucks a month. And, you know, at the end of the day, you win by holding this thing for a long time, having the property increase, have your debt get paid down, saving on taxes, doing all these different things that allow you to then refinance and go buy two more properties, or 1031 into another, a faster-growing market like the name of the game is like time in the game when it comes to real estate investing. So if you want to make your experience as breakeven to be as profitable as possible, maximizing cash flow is a great way to shorten your time and time again.
Andrew Smallwood
Awesome. We'll end it there. Thanks, Pablo. All right. That's Pablo's answer. And to bring us home, Peter Lohmann, what do you think is the most common mistake or misstep that just continues to occur in the scattered side? Single-family property management industry?
Peter Lohmann
Okay, so I see a lot of property management company owners try to solve process or policy problems with technology. with some outstanding technology partners of our space. Almost all of them are in the vendor hall right across the way there. And those companies can take your business to the next level. We use many of them, but they are downstream of setting up great policies which then drive your processes. Jordan will at first turn me on to this. He says this process is downstream of policy. So your poly ses. I cannot overstate the importance of your policies at your management company. It's hilarious to even talk about this, because when I talk about poly CS, it's you picture a dusty binder on a shelf and it's like, well, subsection C says we really shouldn't write. And but but your policies, everything from how you handle a late fee to, what are your criteria for a new property owner client list? They are the beating heart of your business. They form and shape who your customers are, how you interact with them, what is permissible, what happens when someone doesn't follow the policy? Everything from your internal sort of corporate policies with your employees to your resident policies, to your vendors, to your property owner clients. So having an outstanding set of policies then lets you create amazing processes that make those policies come to life, enforce them, drive them, and take your customers, your vendors, your residents or owners, your employees through a well-defined process. That process can't happen without clearly written, well-defined enforce policies. And now you can layer on technology and supercharge all of that. But if you try and do this in the reverse order, you're gonna chase your tail, potentially to the tune of tens of thousands of dollars. So if I could just get a message to every property management company owner out there, I would say, get yourself a great set of policies and stick to them, whether you buy them or you modify them or you hack them together from somewhere, that's where it starts.
Andrew Smallwood
Okay. One quick follow-up. If you know the way we would think. And I've talked to Jordan about this like we think a lot about experience. Hey, that's kind of like an ultimate outcome. Jordan will talk a lot about the outcome. Right. Outcome experience. Behind that behind like a ten x experience is a ten x process. Right. Working behind that right is a really great killer policy. So I'm curious that's like the kind of natural next question which would be what informs developing great policy?
Peter Lohmann
Company values, and your local state and national rules regs and laws come together to form your policies. That's how I think about it. I might have gotten that from you. I don't remember, but so does your company, your core values at your company are going to define your approach to how you want to interact with your residents. For example, And you. So I want to give a specific example. If one of your core values is kindness, not one of my core values. By the way, if one of your core values is kindness, that's going to inform your Lakeview policy for residents. How could it not? Our late fee policy at my management company is not kind. Unfortunately, that's not an area that we've chosen to extend a lot of grace. But if you are, sort of a warm and fuzzy person at heart and you build your company around that, and that's part of your core values, you should absolutely have a policy around late fees that matches your core value. That's going to feel authentic to you, to your team, and it's going to your brand, which ends up being a reflection of your core values, your residents. It's all going to kind of click. It's going to make sense to an outside perspective. and from there you can generate the process for how you handle late fees and everything downstream from that.
Andrew Smallwood
So I love that example too, because it, you know, the value serves the value. And you've also got housing considerations, if you want it to be compliant right. The rest. Yeah. Yeah. So thanks for putting some color on that with the specific example. Thanks, Peter.
Laura Mac & Carol Housel
And that wraps up another episode of the Triple-Win Property Management podcast. Thank you for pressing play. We hope you've gained valuable insights and inspiration.
The Triple-Win Property Management Podcast is proudly produced and distributed by Second Nature, where we believe in a Triple-Win, building winning experiences for your residents, investors and your teams with the only fully managed resident benefits package. Visit SecondNature.com to learn more and talk to an RBP expert in your area. If you have any questions or comments or want to weigh in on the conversation, we'd love to hear from you. Email TripleWin@SecondNature.com. That's TripleWin@SecondNature.com. Stay connected with us beyond the podcast. Visit our website at SecondNature.com to stay updated with upcoming property management events and articles. And don't forget, you can keep the conversation going in the Triple-Win Property Management Facebook group. It's exclusively for property managers. To receive even more valuable insights and updates, subscribe to our newsletter. You can find the link to that and much more in the show notes. On behalf of the Triple-Win community, this is Laura Mac, thanking you for tuning in. And on behalf of Second Nature, this is Carol Housel. Check back soon for another exciting episode. Until then, keep striving for that Triple-Win.