Property Management Is The Key To A Great Rental Property Portfolio
We get asked many questions about rental property management ranging from how we set up our business to how we conduct the business. Most are simply stunned by the numbers. Some even specifically ask if we can work with property managers in other cities where they own properties. Nothing would make us happier than to help with your portfolio in other cities, but the fact is, we run our Memphis property management company differently than traditional property management companies. Our plan is to set-up and operate a management company in Dallas using the same successful techniques developed here in Memphis.
The biggest difference is that we approach property management from a business perspective. We do not approach the business from a real estate background or perspective. That really helps us do thing differently without falling into some of the same traps that you find other real estate professionals falling into. According to a Bloomberg article, many real estate professionals are entering the property management business.We want to shake things up and do them differently. We want to concentrate on different metrics. We try to influence our performance by implementing new ideas that others with real estate backgrounds think, for some reason, will not work.
Here are some examples:
So we track growth from two perspectives and tie that back to our performance in the portfolio advisement department. Part of what makes a great Turnkey Real Estate Company is the ability to assist investors with purchasing more properties. If your current clients are buying properties, then the pressure to find new clients does not exist. If that pressure does not exist, then your staff is able to concentrate on providing exceptional service and value.
The above graph illustrates that on January 1, 2012 Premier Property Management was managing 958 properties for 356 clients. On October 1, 2012, Premier Property Management was managing 1,402 properties for 538 investors. There was growth of 444 properties under management with growth of 182 additional investors. There have been 262 more properties sold than new clients created! If you are looking for 1 stat that shows a company is providing a great product...that would be it. All 182 of the new clients purchased at least 1 property and many have already purchased #2, #3, #7... The remaining sales have gone to the 356 clients whose properties were being managed on January 1 and they have continued to build their portfolios with property #2, #3, #4, #7, so on and so on. A business that grows because their clients WANT more, is a business moving in the right direction.
Beginning in January of 2011, Nate Gray, who is the Director of Operations at Premier Property Management, came to us as owners and told us he was making a major change in the operation. He was instructing all of our rental agents that as company policy we wanted to offer 2-year leases. We had made a shift at Memphis Invest to start purchasing nicer homes and to do much more extensive renovations than any other Memphis Investment companies. This shift allowed us to present a higher standard of home for both investors and tenants.
Nate also saw this as an opportunity to increase occupancy rates and occupancy periods. He reasoned that a nicer home with a longer rental period, even at a higher rent, would rent faster and stay occupied longer if the service the tenant received matched. What has ensued has been fantastic. On average, 97 out of every 100 properties that Premier leases to tenants are leased on a 2-year contract. Furthermore, Nate instituted policies and requested that we hire additional staff to ensure that tenants calls and requests were being answered and cleared in a fast and professional manner. All of those adjustments have combined to make it very easy for prospective tenants to say yes to a 2-year lease because they have a high level of trust and faith in Premier Property Management because of the hard earned reputation they have developed.
This last chart shows our rental progress by month. It shows the total number of properties rented each month by the Premier Property Rental team. It then illustrates how many of those properties were rented on a 2-year lease, which you can see if nearly every property every month. Then, we show you how many of those properties were rented higher than the current average rent in that zip code for our company. (In case you haven't realized yet, we are fanatical about tracking data!)
This data allows us to measure our effectiveness at being able to increase the ROI for Memphis Invest's clients. The single biggest factor that influences ROI is rental rate. An increase of $100 in the rental rate on a property can raise the rate of return for an investor by 1 full percentage point on a $100,000 investment property purchased for cash. A small increase an be significant.
So, as a company, we are constantly tracking and measuring the on-going rental rates in each of the specific areas of Memphis that we suggest our clients purchase investment property. This allows us to accurately forecast, before a property is rented, what that property will eventually be rented for on a 2-year lease. Simply being aware of these numbers and constantly working to improve and measure improvement, are essential actions that have to take place at a quality property management company.