The property management industry is growing at an annual rate of over 10% and is expected to reach $39.5 billion by 2030. That’s not all — profitability in this industry is also at an all-time high. Now is the perfect time to learn how to run a property management company effectively.
This article will cover the basics of how to run a property management company so you can see recurring profits. If you want to see how to START a property management company, check out our resource on how to organize one that grows quickly.
Start Generating Leads
Spending on sales and marketing helps you grow much faster than organic growth. You can put your PM brand out there with the following strategies:
Homeowners who are looking for a property management company online are almost ready to convert into customers. When they search for something like: “best property management company in Colorado”, your website page should spring up to the top of Google’s results, preferably in the top three.
Over HALF of the organic traffic on Google goes straight to the first result. It’s smart to work with an SEO agency or professional who can help you structure your landing pages for maximum traffic.
If your blog posts and landing pages can answer the questions asked by your leads in the best way possible, you’re bound to create a steady stream of clients. Content marketing has high up-front costs and delayed results, but its ROI can easily make up for those downsides.
Paying for Google ads is a smart way to get potential high-quality leads within a few weeks. It is also a solid long-term strategy since Google ads optimize over time and work in tandem with your content marketing to strengthen your brand.
Realtor Referral Programs
In case they are not able to sell a home, realtors will always be happy to earn a fee by referring their clients to property management companies. If you happen to know realtors, you can reach out to them and let them know how much you are willing to pay for referrals.
Manually keeping track of your business on an Excel sheet won’t cut it anymore. If you’re not working with good property management software, it isn’t easy to scale up and save time.
Ideally, you should have these tools:
- Property management software helps streamline various tasks related to managing rental properties. It typically includes features for lease management, tenant screening, maintenance tracking, financial reporting, and communication with your clients. Some good property management tools are Buildium, Appfolio, and Rent Manager. These softwares will typically include online payment options as well.
- Customer management software, also known as CRM (Customer Relationship Management) software, helps property management companies maintain and organize client information. It enables efficient communication, lead tracking, and customer engagement. Examples would be Salesforce, HubSpot, and Zoho CRM.
- Sales and marketing software assists property management companies in promoting their services and attracting potential clients. It may include lead generation tools, email marketing automation, and analytics to measure marketing performance. Mailchimp (best for pure email marketing), LeadSimple, and ActiveCampaign are highly popular sales and marketing software in the property management industry.
And last but not least, every modern property manager needs ChatGPT in their ecosystem to thrive. Other property management companies are using it, and you should too. This tool will save you a lot of time and money with marketing, administrative, and customer support-related tasks, among many others.
Prioritize Customer Success
According to the NARPM Financial Performance Guide (2022), the average lifetime value of a property management client was $16,128 in 2021. However, the benchmark that you should aim for is $30,190 or higher. Fortunately, your company’s success doesn’t rely on the average rent in your area of service.
As long as your pricing is optimal, you will continue to perform.
However, retaining your clients for as long as possible (at the optimal pricing) is your bread and butter. Your churn rate, which is the number of clients you lose per year, is cutting into that. You need to MAXIMIZE retention and minimize churn.
US-based property management companies had an average churn rate of 19.5% in 2021, but the best companies were at half that figure at 9.6%.
You can grow your average lifetime value per unit by sticking to these strategies:
- Focusing On Maintenance
Partnering with a high-quality maintenance service or hiring your own staff should never be overlooked. At BetterWho, we have seen many clients lose homeowners simply because of maintenance backlogs.
- Transparent and Timely Communication
Do everything possible to make your clients feel valued. Detailed quarterly reports, regular updates, touchpoints, and emails that say Merry Christmas will go a long way.
- Your Customer Service Should Be On Point
There are some clients that are impossible to please. You don’t want them to stick around anyway. However, the rest of your clients deserve prompt and cordial responses whenever they have a query. You should go out of your way to give them resources and real estate advice that proves to them that your brand is irreplaceable.
Refine Your Team
Effective hiring strategies are key to running a property management company. Here are some steps that you can take to ensure that your organization functions like a well-oiled machine:
- Hire the Correct Way
The top-earning property management firms in the US hire globally to drive down costs. Your bottom line depends on reducing your expenditure, so if you want your company to join the top ranks in the industry, you’ll want AT LEAST 60% of your employees working offshore. Remote employees in other countries cost a fraction of what they would in the US but do exactly the same job. If you need help hiring remote team members, check out our RTM Direct service.
- Fostering the Right Work Culture
Your remote employees and local ones alike should have a work environment that empowers them so they can actively contribute to the team’s long-term goals. Also, it’s important to set up key performance indexes (KPIs) that track your employees’ output and offer them meaningful incentives to stay ahead of the game.
Your property management organizational structure and team effectiveness is the single most important factor determining your long-term prospects, so setting it up properly comes before everything else.
If you want to know more about remote hiring, this article has all the details that you’ll ever need.
Ideally, you should have 59 units per direct employee (employees who deal directly with clients), as reflected by the top performers in the 2022 NARPM Financial Performance Guide. Increasing your doors this way will dramatically increase your ROI.
Optimize Your Key Metrics
Aim For a Total Labor Efficiency Ratio of 2.55
Your total labor efficiency ratio is a measure that assesses the overall productivity and effectiveness of labor in an organization or business. It’s represented as a ratio of your total revenue to the amount you spend on labor.
You can calculate your labor efficiency ratio with this formula: (REVENUE) / (LABOR COSTS) X 100. The closer it is to the 2.55 benchmark ratio, the better.
As mentioned before, well-trained employees with a solid work environment are highly effective. If you want your team to perform better, Betterwho’s QuickStart training program is the perfect solution.
Bring Your Global Talent Utilization to 65%
Given the vast difference in labor costs, most PM companies are hiring globally for positions that don’t require boots on the ground. That includes employees for marketing, sales, accounting, and customer support departments.
If you’re looking to hire globally, RTM Direct is a great option. Ideally, you should have 65% of your workforce working remotely from outside the country, which is the amount that top property management companies have incorporated into their team as mentioned in the NARPM 2022 financial performance guide.
Raise Your Revenue Per Unit to $317
The fastest way to increase your profit margins is to raise your property management fees. For areas with average rents below $2000 a month, top companies are charging between 15-24% of rents. For rents above $2000, the winning range is between 10-13% of monthly rents.
Simply increasing your monthly fees by 10% could see your profits double. On the contrary, adding more doors while your revenue per unit is low will HURT you in the long run, especially if you’re making losses.
Reduce Your Unit Acquisition Cost to $769
Lowering unit acquisition costs is vital for a property management company’s financial efficiency. Actively tracking and minimizing this cost will improve profitability and allow your company to expand its portfolio more effectively.
Effective sales and marketing, coupled with a streamlined onboarding process are the keys to lowering your unit acquisition cost.
However, it’s important to note that even if you don’t hit the benchmark of $769 per new unit, a strong focus on retention and high revenue per unit will more than makeup for it.
Pitfalls to Watch Out For
Poor record-keeping and documentation
Inadequate record-keeping and disorganized documentation can lead to misunderstandings, disputes, and legal issues (which you want to avoid at ALL costs). Properly maintaining records of leases, transactions, and property maintenance is vital for smooth operations and regulatory compliance.
Insufficient risk management
Neglecting risk management exposes you to potential financial losses and liabilities. Implementing comprehensive risk assessment, insurance coverage, and safety protocols is essential to safeguarding your bottom line. It’s important to have insurance like the following, among others:
- Fidelity bonds for bookkeepers
- Master insurance policy for landlords and tenants
- Errors and omissions
- Cyber liability
- Positive pay with your bank
Always plan for vacancies, lawsuits, and market swings. It’s also important to have liquid assets so the business can survive downturns, along with having available credit that can help you whenever you need it.
Lack of effective tenant screening
Failing to screen tenants thoroughly can result in problematic renters who may default on rent or damage the property. Utilizing robust tenant screening processes, including background checks and rental history verification, ensures responsible and reliable tenants, which means reliable monthly returns.
The Final Takeaway
While average PM companies had a profit margin of 11% in 2021, the TOP companies were at 32%. The only difference between these two groups was the way they ran their companies.
If you’re serious about running a property management company that’s profitable, we’ve designed our BetterTeam Consulting packages to help you optimize your business and hit benchmarks across the board in the shortest time period possible.