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Weekly Updateshow does your bottom line look today? What about your clients' bottom lines? A great number of economic troubles are facing the world of professional property management, including premature breakages of residential leases; tenant businesses closing their doors or asking for temporary reductions in rents; high turnover costs; increases in marketing expenses; forced reductions in staff, decreases in management fees and leasing commissions, and more.
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In order to survive the turbulence, "getting back to basics" involves improving your bottom line by diversifying your services, and analyzing your operations for ways to cut expenses. These tasks may mean the difference between your successes and failures as our industry continues to meet the challenges of a major recession.
FIT THE PROFILE
Many of the steps your property management company must initiate to survive in these challenging times will be similar to the steps needed for your clients. Stabilizing or increasing income will mean more hours working with your staff to improve their marketing and leasing skills, and it will require an analysis of who your current residents are. You can begin by finding out whether or not you need to market to a different resident profile.
It is not difficult to create a resident profile report. Extracting information from the initial resident application will provide most of the data, such as number of adults and children, annual salaries, type of employment, distance to work, and number of cars. Once the first resident profile report is developed, on-site staff can revise the report on a semi-annual or annual basis to determine the changes due to resident turnover.
You can also make revisions to your current residents' profiles due to personal and business changes during the year. As rental rates increase, the annual salary requirements of your residents will increase. By reviewing your resident profile, you can determine if your current residency will be able to absorb their rental increases. Changes in rental rates have a direct relationship with the resident profile. Is your marketing strategy meeting your goals of attracting residents who can afford living at your community, today and next year?
It's important to find out what businesses are located within a one- or two-mile radius of your building that can support the community. Often, specific rental incentive programs for these businesses need to be developed and promoted through various marketing tools--from postcards, to flyers, to letters, to human resource departments.
To make such programs more successful, telephone calls and actual visits to businesses are vital, allowing more direct communication to "sell" the benefits of the apartment community to employers who could promote the property through their internal newsletters, magazines and company manuals. Some management companies go even further, meeting people in their business parking lots with donuts and hot coffee while they hand out their flyers.
Changing or adding to your existing amenities will also impact your resident profile. For example, if your apartment community has a tennis court that residents do not use, review the resident profile and results from a survey, you may find that you can and should convert the tennis court to a basketball court, or something else that residents will use and appreciate.
SHARPEN YOUR COMPETITIVE EDGE
Once you understand your resident profile, it's a good idea to shop the competition. Mailing flyers on a regular basis to tenants or residents at nearby apartment communities, office buildings or retail centers, is an effective way to capitalize on your competitors' weaknesses. The average resident will move within a one-mile radius of their current dwelling unless there is a significant increase or decrease in their salary. Adding your property to the many leasing Internet sites (more potential residents are choosing this venue), as well as improving your signage to attract potential renters who drive by your properties, are tried-and-true ways of marketing properties.
Marketing database companies should be able to provide lists of both residential and business addresses in specific locations. Companies that can inexpensively mail your flyers and postcards, as well as companies that can facilitate e-mail blasting to multiple recipients, are valuable resources.
A property management company can also market to potential clients by sending solicitation packages (postcards, flyers, use of Internet and Web advertising) that provide a quick and attractive overview of its operations. Send only as many solicitations as you can and follow-up with telephone calls the following week. You should also look at the legal sections of newspapers and magazines to find out who is seeking permits to build properties. Contact lending institutions and the courts to let them know you manage foreclosed properties, or that you offer services in receivership.
Just as you must review your resident and business tenant profiles for your clients' portfolios, you must also review and evaluate your current management services and clientele. Perhaps it is time for your company to consider single-family management. Once the market conditions change, single-family properties become inventory for sale. Have you thought about managing homeowner associations? Associations not only provide a source of management fees but also compliment a single-family management and residential sales department within your firm. What about adding expert witness services? You may have staff members who can provide this service to the legal community.
There are many options to explore when it comes to diversifying your services. Make sure you review all the possibilities.
REVIEW & REDUCE
Along with increasing and diversifying your services you also need to focus on the second part of getting back to basics--reviewing operations and expenses to find ways to cut costs.
Your first step is to examine your 2008 financial operating expenses. Every line item needs to be reviewed with the following question in mind: "Is this a cost-effective expense?" Start with the property and personal taxes. Are your insurance premiums competitive for the coverage you need? A management company can significantly reduce costs by simply changing its insurance carrier. One Nevada company, for example, cut its workers' compensation costs from $55,000 a year to $26,000 a year by switching insurance.
You also need to look at your utility costs. Find out if there are any local programs from the utility companies that will allow you to reduce your expenses. Nevada Energy, for example, has a program that helps owners and tenants save on electricity costs. They install a very sophisticated thermostat with setbacks that allow the utility company to adjust the consumption of electricity during peak hours. Your water district may have a similar program to better control water consumption.
In addition to analyzing operations for potential insurance and energy savings, management companies should also search for ways to streamline office costs. One management company made a major investment in a new computer accounting system for both their management company and their clients. The new system allowed them to reduce their office staff, and lower office supplies and postage. They now e-mail almost all documents to their clients, from bank statements to financial reports, to board of director packages. The new system has also increased productivity for every employee and has provided the district managers with instant information, allowing them to make better and faster decisions that benefit their clients.
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Computer systems can significantly reduce costs and time constraints in another area of operations--maintenance. Proper inventory of supplies and equipment can be more easily identified and itemized by using the right computer software. Ordering equipment by e-mail or by fax, and having materials delivered to your property allows maintenance staff to spend less time doing back-office work and more time where they are most needed--at the community, maintaining vacant and occupied units.
Maintenance costs can also be cut by making smarter purchases and through negotiation. Using washable paint for the entire apartment, for instance, allows for touch-up painting as opposed to full painting for many turned units.
Buying in bulk has typically been a problem for companies due to lack of storage. But with commercial and residential construction at an all time low, management companies now have more clout with contractors and supply houses. Try making a deal with the supply house to purchase appliances over the next year at a discounted cost per appliance. You can also opt to standardize your carpeting. Buy in bulk and have the carpets stored at the supply house where you can have access to them when needed.
Another great way to make operations more efficient is to send maintenance staff to seminars or vocational programs to help them increase their skills, from becoming HVAC certified to maintaining swimming pools. With employee training, many services can be performed in-house and reduce the cost of outsourcing maintenance. You will not only save labor costs but also avoid the mark-ups on materials used by contractors.
When assessing operations, your company should also consider refinancing loans or lines of credit. Both the management company and your clients' properties can benefit with the lower interest rates that are now available. One management company was able to reduce a monthly mortgage payment by 35 percent by negotiating with a new lender that had recently purchased a failing bank. The company first negotiated with the new lender to pay off the mortgage at a discounted rate and then found another lender to fund the pay-off. Not only did the management company improve the client's bottom line but also earned additional fees as a result of the refinancing of the property.
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