Spencer Sutton - Thursday, January 28, 2016
Duke’s property management company manages over 1,100 single-family rentals and 1,400 multi-family units.
Because it was so helpful to us, I’ve provided the whole transcript of our conversation. In our effort to be transparent, Duke does some things differently than how we manage here in Birmingham, Alabama.
We love to learn and I think it is healthy for all of us to get a different perspective.
Duke was kind enough to answer questions like . . .
- What was your biggest mistake as a property manager when you got started?
- What was the key to growing your business so big?
- What are some of the benefits to using a large property manager over a “mom and pop shop”?
- How do you use technology to make your business run more efficiently and provide a better product?
- What are some unique ways to market a property?
- What keeps a house from renting?
- What are some things an investor should expect from a property manager?
I hope you enjoy and learn as much from this conversation as we did . . .
Matthew: Okay, let’s get started, the easiest question will be tell us how you got started in the business?
Duke: When I got started working after college, I worked a couple different jobs; one in the mortgage business and one in financial service. I also went to grad school and studied finance and real estate and started getting the itch to invest in real estate.
I read everything I could and bought four rental properties. My next step was to find a property manager to manage those properties. I couldn’t find one locally that I thought did it the way I wanted it done. I thought that it seemed like they were doing it in a very old-fashioned way, and customer service was nowhere in the mix.
So I decided to start my company. I always thought I wanted to start my own business, and it was kind of the start of the line at that time. I said, “Hey, this is a business that needs to be started,” and I think I would like it. I’ll be in and around real estate which is interesting to me.
So I opened the door, hung my shingle, and had just my four properties on day one. From there, just picked up one, then picked up two, and picked three and kind of grew from there.
Matthew: When you say customer service was kind of old-fashioned, what do you mean by that?
Duke: I felt all the systems were built around making it easy for the property manager or the broker, whomever. I thought property management was always a side job at sales brokerage.
The firm sold houses and they’ll just park their customers in the property management division, hire some idiot to run that division, and they didn’t really care how happy or unhappy their clients were. If they’re unhappy in property management, fine, go ahead and sell it.
That’s what they wanted to do in the first place. Just to give you an example, I Googled “Richmond Virginia Property Management” when I got started looking for a manager, and I went to the first 20 listings that popped up. Only about four of them were actually single-family property managers.
And of those four, only two called me back.
One was decent, to be honest with you. The other one was supposed to meet me for lunch and never showed up, and I never heard from him.
Property management in the Richmond market was just a very scattered and haphazard back then. Does that answer your question?
Matthew: Yes. Do you think it still is today?
Duke: I think a lot of folks are coming around and becoming more customer-centric, because there is way more competition. When I think on my time in the industry and how it’s change in the seven years I’ve been in it, I think, technology has improved drastically to automate a lot of the things we do, which makes our businesses way more scalable now than they ever were previously.
And, when the market crashed, a lot of rental properties flooded the market. People couldn’t sell a house, so they chose to rent and those two things happening at the same time, just increased the amount of property managers that entered the space.
Whenever there’s a lot more competition, people work harder for that business, so I think there is a much more, not completely customer-focused, but there’s lot more firms that think about it from a customer’s point of view versus just their point of view.
Matthew: Alright, so moving on to question two, what’s the biggest mistake you made when you get started?
Duke: This is not a commercial for NARPM, but probably not joining NARPM sooner. When I started off, I was trying find some mentors, people to chat with, and I couldn’t. There just weren’t any people in the industry back then that I wanted to pick their brain.
I would reach out to people, but I couldn’t find anybody that had really good information to do it — how to grow business, how to scale it. And so I was trying to do things on my own. I was taking wisdom from other industries, but I was recreating the wheel on the property management side of things.
I was creating my own inspection checklist, and my own renewal checklist. And that being said, it was a good exercise to go through. But I was taking weeks to do things, that I could have gotten from NARPM here in just an email, so I would say, I would have joined NARPM about two years earlier.
Matthew: Alright. What was the key that helped you take your business to the next level?
Duke: I think it’s probably two keys and that’s one of them… No, I’ll say three. So right around 2009, 2010, when I joined NARPM, I went to my first conference and after the conference, I came back and made three decisions.
- Number one was to get a good enterprise software solution, we use AppFolio, and just get some kind solution that stored all your data, automate things. That’s kind of no-brainer these days, but back then, not everybody was doing that.
- Number two was decide the structure of the business in a way that was going to be scalable. And so for us that meant, we decided to structure it as a portfolio manager model, I drew out our org chart and it helped me grow when we went to 5 employees, then 10 and 20, so structuring in a way that I could envision scaling it.
- And then finally, back then, we hired a business development person. Almost every property management company back then was considered a “mom and pop shop,” and a lot them still are. But for most people, the words “business development,” all that meant to them was when someone would call the management company, the owner of the company would drive up to the property, see it, sign them up. There was no structured marketing effort and outreach and there wasn’t full time salespeople or business development people. So back then, I didn’t know anyone that had an employee like this, so I tried to be one. I was out networking and doing business development maybe 10 hours per week and we were growing. But I figured I’m doing 10 hours a week, why don’t I get a person that’s better at it than me and he’s gonna do it 40 hours in a week, so we hired one. And basically, long story short, instead of growing 100 units a year, we grow 300 plus units a year for the next five years.
Matthew: What are the benefits to an Owner of using a bigger company like yours versus a smaller mom and pop shop?
Duke: There are pros and cons of both. There are some pros to having a little small mom and pop shop where you call and you get the owner on the phone. He or she drives up the property.
Honestly, these are real competent small property management that manage 40 properties. That’s not bad. The cons are when the small person decides to go out of town on vacation, the business shuts down. There’s nobody there. They’re relying on one person or a very small group of people to do things. The bigger companies, you can have in place that if my property managers go out of town, that property will still be managed without a hiccup.
That’s one aspect.
One other simple one, our website gets about 3000 to 5000 hits per week, a lot of those are from tenants looking at properties, so our website, gets our properties more exposure in our market.
I also think that a bigger company has more time to work on the business. I can work on the business more than working in the business, so I can constantly work to improve processes. We don’t do anything the way it’s always been done, or the way we always have done it.
Every process, we’re always constantly evolving and improving. If I was a really small company, I would never have time to improve the processes and create a better experience for our Owners and Tenant.
A small business couldn’t scale, take on 40 to 100 units really fast, whereas we can. Our client, our largest client, bought 1000 units in the last three years. We picked him up without a hiccup, because we have that size and scale, we can do that.
There’s probably more, but that’s just the ones that comes to mind first.
Spencer: That’s good information. I wanted to ask you, what’s been the biggest… You said you don’t do things the way a normal property management company would — innovation and things like that.
What’s probably the biggest game-changer for you in the way you manage your business or process that you thought out of the box and has improved, allowed you to scale or just improve efficiency in your business?
Duke: I’ll give you two examples. These aren’t huge, but I think this way of thinking is a game changer. Two examples:
1. The renewal process. Back when I started, every property manager in town didn’t have a renewal process. Their process was, “Don’t say anything to the tenant, hopefully, they won’t notice that their lease is gonna renew. And then once the lease renews, tell them them, ‘Hey, you’re stuck for another year, because you didn’t terminate the lease.'”
That was an unethical way to do it, it was a sloppy way, and you’re not maximizing rents. Maybe you could have increased the rent 3% to 5%. We had landlords asking us to do that.
Other property manager’s aren’t doing that. We just said, “No. That’s not ethical. It’s not good for the clients.” It’s definitely not good for the tenant, but it’s not good for the client either. It’s never good to trick someone into a whole year of living there. So we built a whole renewal process where it starts 120 days out before the lease ends.
Step one is doing market research and figuring out should we keep the rent the same, should we increase it, what are things renting for nearby?
With that information in hand, go to the owner, say, “Mr. Owner, we’d like to renew for another year. We think you should increase by $25 and here’s why.” Then you go into the tenant and negotiating, not just sending a letter, but having form of conversation, email conversation, whatever that tenant prefers, to renew for another year.
And if they’re not gonna renew, find out why. Maybe you can change something or fix something to keep them there. So we built a renewal checklist that’s got about 30, 40 steps on it. Back then, the conversation was just simply letting leases renew which is what’s on my mind.
2. We disburse money to clients four times a month. Historically, almost every property manager firm would disperse one day a month. For example, they disburse on the 10th through the 15th of that month.
So if that person disburses on the 15th and a tenant pays on the 16th, that client needs to wait 29 days to get their money. And when you put yourselves in clients’ shoes it’s crazy, like if you have mortgage to pay, you have bills to pay, you need that money.
Why is it sitting there? You explain to a client, you can’t have it for 29 days, it’s ludicrous. The reason property managers do that is because it saves time and money to disburse one time per month. It’s easier for the accounting team to do that process once per month, and then there’s four times.
And the first time I explained that at a local market meeting, my local peers looked at me like I had two heads. They said, “Why would you do that? It costs money.”
Personally, I pay more in banks fees to disburse four times, there’s a lot of inefficiencies in my accounting department because they do that four days a month, instead of just one day a month.
So I think those two are just two small little aspects in what we do, but it shows you a glimpse of, to me, what a client-centric focus is. It’s building every system around the client and providing the best experience you can to that client.
With that experience, with that positive client experience, it’s hard to qualify what that does for you, but something that makes your client happier, so they call and bother you less.
They stay as clients longer.
They refer you to other clients.
They tell the realtor that sent them there, “Hey, thanks for sending me the ‘so and so’ property management, they’ve done a real great job,” so that realtor is more likely to send you more people.
So it’s very hard to quantify. Every company these days is data-driven and assumes it’s great to track data, I think that’s important. I think people to forget a lot about the qualitative aspects of the business that it’s not just about what you know from the spreadsheet, and some of the best things you can’t measure.
Goodwill in the community, for example, is a very hard one to measure. But constantly providing good experience, your clients think well of you, your tenants think well of you, and they’re more likely to refer you, and more likely to not make your life like living hell, which you can be in this business, if you don’t treat people right.
Spencer: That was a great answer. I appreciate it. I’m going to scale that answer and say that I said it and I’ll put my picture on the newsletter. I’m just kidding. Who’s your ideal client, and why did they choose you over the competition?
Duke: I think if you look, I’ve got a value prop for three uniques, we try to make it simple and explain to people. It’s people, process, and technology.
Those are our three uniques. I think it’s actually more, I think we have like 30 uniques, but if we had to make it three, that’s the three. People, process, and technology.
I do like to explain to people that hey, this is a tough business, it’s a hard business, it takes a very resilient, positive person to do well in this business for a long period of time, so we recruit those people, and because of our culture we are able to attract those people that can deliver that experience to you.
The processes, again, our systems are all client-centric, so every system is built around the client. We put time and effort into every process. We don’t just remove property, we go through our removal process.
Our systems and processes are pretty good. Our technology, we’re embracing more and more technology every year, which automates things, improves a client’s experience, decreases leasing time, all of that. Those are the three unique.
Our ideal client, really it’s two types. One is they’re like a landlord that just has one property. We have a lot of those, and we think we do this pretty well.
And the second person, the investor that has multiple properties spread out. I think a lot of large firms can manage a 200-unit apartment complex where all 200 units are in one spot.
But when you take those 200 units and scatter them all over the city, it becomes a logistical challenge. And I think because of our systems and our people, our technology, we’re good at this scattered site situations and we’re good at the logistics that are involved in managing that.
Spencer: When you said technology and automation, that piqued my interest. What’s one of your biggest technology pieces that you’ve automated?
Duke: I think the nearest is Tenant Turner. That’s a local technology startup. And it’s in our building. They are into automating, syndicating the listings, automating the pre-screening of tenants and automating the scheduling, just frees up our people so they’re not always on the phone, typing emails, setting up appointments.
We use Happy Inspector for inspections, use AppFolio for pretty much everything else. We have pretty good SEO presence in our websites. Our website gets a lot of hits, which we put our energy into that. There obviously probably more things that we could do, we’re always look for ways to improve, but those are the main pieces of technology we use.
Matthew: Alright, last question, what are some unique ways to market a property?
Duke: I might not be the best person to answer this question. When I started, I always let clients drive that more than I should. I always say, “There’s a property near VCU,” for example, which is a college. They would say, “Hey, put some fliers up the VCU billboard for students,” and I would go do that. I would deliver fliers to businesses nearby.
Back then, Craigslist was becoming popular, internet was becoming popular for listing properties, but before that, it wasn’t so.
Since then, it almost makes no sense to do all these other aspects of marketing because 95% of the world is gonna find you on Craigslist, Zillow, HotPads, probably one of those sites.
It just makes more sense to take good pictures, provide a great description, and blast it out to those places. And then focus on being responsive and let people reach out to you. I’m not sure that we do a lot of other unique ways to market property other than that.
Spencer: Yes, I’m gonna spin the question then, what are some things that will keep a house from renting?
Duke: To keep a house from renting: bad pictures, bad angles, not well lit, not a quality camera and lens, I think that’s the big one. A description that doesn’t highlight… maybe you’ve heard the expression. “Don’t be a feature freak. Be a benefit buddy”, meaning, don’t blast people with features that they may or may not want, but explain the benefits of those features to them.
So instead of saying large family room, large deck. If you can say something like that you can say, “Can you imagine yourself entertaining family and friends here with this great set up?” I believe in explaining the benefits to folks versus listing a number of hip features. I also think not being responsive and professional when people reach out to you, and you got to answer the phone or get back to them quickly.
If you set up a showing, get there on time. Make it very easy for them to apply. It’s got to be simple and easy. And then once they all apply, follow up with them quickly, explain it to them quickly, and move on quickly.
Paperless applications and paperless leasing and all that stuff that we’re doing that these days, I think that’s pretty manageable these days to make that process as easy as possible for the potential tenant.
Spencer: If you don’t mind me asking one more question, because you mentioned that you deal with investors a good bit, it sounds like you can integrate them into your system pretty effortlessly. What do you see as the biggest mistake property managers make when dealing with investors?
Duke: Sure, I think small property managers don’t really understand the benefits of giving someone a discount when somebody or some group has 10 or 20 or 100 properties, I think that’s crazy. I think that any product in America, you get a volume discount for, and there’s a reason for it.
I’ve hear people will say, “Well, they have 10 houses, they want to reduce my pricing, but they won’t reduce the services.” But there are some efficiencies, only having one owner to report to who has 10 properties, versus 10 owners that each have one.
There’s efficiencies in signing up 10 properties. If I have one client with 10 properties, that’s only one property management group that I need to sign up. I don’t need to go to 10 different houses, meet 10 different people, follow to with 10 different people to get an agreement signed.
That is number one is understanding how to price it right. You got to price it so you’re still affordable, but not offering volume discount is pretty silly, in my opinion.
Secondly, I think investors are more likely to appreciate systems and on top of that they can’t pay retail for maintenance. Whereas the owner who has one house, you send a reputable HVAC vendor over there because he only gets one maintenance issue a year, so he doesn’t need a full time maintenance guy. But a guy that has 40 houses or 80 houses or 100 houses might need a partial or a full time maintenance person, because they can’t afford to pay retail rates for maintenance.
Finally, the third barrier is reporting. I think you got to be able to be organized, report the data properly to them, report in a way they want it. You may have to customize your reporting a little bit for them. You got to make their reporting easier, so they understand what’s going on.
Spencer: Awesome. Perfect! Duke, man, that was awesome! Thank you!
Duke: Sure, man, I hope that helped. I appreciate you guys doing that and let me blabber on for a little bit. That was fun.
Spencer: Hey, how many houses and how many apartments do you manage, like what is the makeup of your portfolio?
Duke: I think it’s about 1100 one to four-unit properties and 1400 apartments.
Spencer: Okay. Perfect.
Duke: It’s somewhere in that range.
Spencer: I just wanted to know. We wanted to know how to describe your business, so perfect.
Duke: Got you. Cool man, I appreciate it, Spencer, Phil, Matthew. I appreciate it.
Spencer: Thank you.
Duke: Have good day!
Spencer: You too.