In this episode, Slocomb discusses the most important question you should be covering with your property managers or property management company on a regular basis. He also shares the key data points to touch on in these conversations to establish internal accountability and make sure your property’s strategy is constantly evolving for growth.
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and today I have another bonus Operations episode for you. We're going to discuss the leasing process, again, in this episode, similar to the last one. But in this episode, what I have for you is a question that you need to ask your property manager. Hopefully, you're asking this when you're vetting them for a future project; you definitely need to ask it if they're already managing for you, especially if you think that the leasing process is taking too long, and your property is sitting with too many vacancies.
This should add value to all of our listeners, but especially those who are involved in asset management, and anyone who is involved in directly vetting or communicating with property managers, to ensure the execution of your business plan. Let me drop it on you now.
The question is, "How often does your team meet to discuss the leasing data from my property?" and "How often do you adapt your leasing strategy to the new data?" There are a few moving parts here. It's kind of like a double question. "How often does your team meet to discuss the leasing data for my property?" And then "How often do you adapt to new data?" So there are several aspects to this question. One of them is that you're asking the property management company about their internal accountability to getting the property leased, and ideally, getting it leased at top of market rents. How often they meet - hopefully, your property management is meeting on a regular basis to discuss their leasing data. And I'll explain what I mean when I talk about leasing data here in a moment... But really, this meeting that your management company should be having is about seeing how the market is responding to their listing, their leasing activities, their marketing, and then how they may need to adjust in order to get quality people into your apartments, paying quality rents faster. Internal accountability to make sure the process is yielding results.
The leasing data that they can be tracking - there are several things, and there are lots of KPIs, key performance indicators, ratios and things that can be measured here. I'm not going to dive into any of them in particular, but some of the things that your property management company should be tracking are the number of inquiries coming in on a property within a given timeframe. If it's per day, per week, per month - they should know how much inquiry activity there is, and whether or not it's rising or falling, ideally week over week, but over some given time period or interval of time.
How many contacts are being made of all of those inquiries, all of the people who just clicks "I'm interested in more info" on Zillow or Apartments.com or Facebook marketplace? How many of those people does the manager actually communicate with about their interest in the property, and how that number is fluctuating over time. If your manager has a pre-qualification system like mine, where they have to answer certain qualification questions just verbally before they get a showing, then you can measure how qualified prospects are generally. Are most of them very well qualified? Are most of the people who are inquiring, inquiring about an assistance program that you don't accept, or are they saying that their credit or their income or some other factor is below your standards?
How many showings are being scheduled? How many showings are actually happening? How many no-shows are there? Again, the purpose of the pre-qual is to make sure that you're only scheduling higher quality showings with people who are more likely to show up... But it's the number of showings being scheduled and the number of showings occurring going up or down, or staying the same?
Next - and this is vitally important - what feedback is being received from in-person showings? I'll come back to the value of this piece of data in a moment, but it is very important that your management company be collecting feedback from in-person showings. That's going to give them the best idea on how they can adapt a strategy if an apartment is not getting leased as fast as they were expecting.
Next, of course, they should be measuring application requests or application links sent, applications received, how many are processed, approved, declined, and then lease signings and deposit collections, or however those things work in the state where your investments are. This is the data they should be tracking. Your property manager should be able to speak on these data points with you and how they're fluctuating over time based on how often they meet to discuss them.
My management company meets weekly on Wednesday mornings to have this conversation about these data points. I of course discuss with my team contacts, pre-qualifications, the number of showings being scheduled, the showings that are happening, those that are no-shows... It's very important to me, especially to hear from my team about the feedback from every single showing. To see if there's anything about the condition of the property that is actionable, that would make it easier to get leased, that is also affordable, and to figure out how our apartments are stacking up for our prospects in comparison to the other properties that they are looking at. Chances are our prospects are looking at every apartment in a given price range, within a given geographical area, so they know better than we do what our competition looks like... And they won't, of course, give us an apples to apples, but they'll say things like "This is just not as nice, or just not as big as I was expecting." And of course, I should have stated earlier in the episode that your property management company should only be trying to pivot their leasing strategy if things are not going according to plan, if apartments are not leasing as quickly as expected. The feedback you're looking for here is the negative feedback, the things that highly-qualified prospects are finding wrong with your property, ideally that are actionable and affordable for you to fix. If not, then likely the reasons why you're going to need to reduce your rent, or improve the marketing of the property to get more prospects in the door.
Break: [00:07:29.15]
Slocomb Reed: On that note, when your management company has a regularly-scheduled meeting where they discuss the leasing data and whether or not a pivot in the leasing strategy is necessary to get back on schedule with getting properties leased, there are four actions that can be taken by the management company in order to improve those results. The first action is of course to reduce the list price. It's not the answer that we as apartment owners want to hear, because of what it will do to impact the NOI of our properties and those properties' values, but it may be the case that simply reducing the rent on your apartments in the short-term is what is needed in order to get back to optimal occupancy and get your NOI where it needs to be, and you can pivot again in the future to increase those rents, when other circumstances change.
The next two actions are either improving the condition of the property, or improving the marketing. If your feedback from your showings is telling you that there's some sort of functional obsolescence about the property, that there's a certain amenity or other attribute of the apartments that is just not up to par, or that is preventing people from being interested in moving forward with an application - that could be actionable, and it might be actionable in an affordable manner that makes sense and yields an ROI. Getting those rents that you are expecting, having to spend a little bit of money to get there; the other is improving the marketing of the property. Again, your management company should have a marketing strategy in place. The best way to check on that marketing strategy is to pose as a prospective tenant, go look for an apartment like yours in the area where yours are, see if you can find your property, see what it looks like when you find it, and then when you inquire, see what process you are taken through as a prospective tenant in order to get you into the property to see it, and to apply and sign a lease.
The last action - and I will say, especially with my team meeting on a weekly basis, I often decide that this is the best action available to us... The last action is wait for higher-quality prospects. Because we meet on a weekly basis, I feel like if we're meeting more than weekly, more frequently, then I may decide to react to too small of a dataset, and make rash decisions... But also, meeting weekly means that sometimes we just don't have enough information. Or frankly, the weather has been such in a week that we have remarkably low or remarkably high showings. And speaking from personal experience, I often feel like we need another week's worth of data before we make a decision, or possibly another two weeks of data before we make a decision, depending on the quirks of the property and how many prospects I think are going to need to go through to find the person who wants this property for all of its quirks.
But again, because my company has a regularly scheduled weekly meeting where we go over our leasing data, and often adapt our leasing strategies when things are not going as quickly as hoped, I can afford to wait a week to aggregate more data.
So again, the question you should have your asset manager asking your property manager, especially when the leasing process is not going as smoothly as expected, vacancy is a little too high, apartments aren't being filled as fast as the expectations that were set when you hired your manager - ask them "How often does your team meet to discuss the leasing data from my property?" and "How often do you adapt your leasing strategy to the new data?"
Best Ever listeners, I hope this bonus Operations episode has added value to you and your investments. If you did gain value from this episode, please do subscribe to our show. Leave us a five star review and share this episode with a friend who's an asset manager, or who communicates directly with property managers and would benefit from hearing what I have shared today. Thank you, and have a Best Ever day.
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