One of the most important decisions an owner of a single family rental home makes is how they are going to have their property(ies) managed. Traditionally there have only been two options available to owners:
- Manage it themselves
- Hire a third-party fee manager
Today, with Haven Homes' Institutional Property Management Program, a third option is available: the ability to have your investment property managed in the same way institutional investors have.
Institutional managers have better people, processes, buying power (and increasingly, technology), that allow them to efficiently market and manage a portfolio of properties. What are they doing that makes them successful?
They Manage Real Estate Like a Business, Not a Side Gig
Many owners of investment real estate make the mistake of running their rental properties like a hobby or side business, and not as a “real” business. Even fee managers don’t provide the same discipline, because they’re actually in the business of managing fees, rather than managing the investment. How do Institutional single family rental unit managers do it differently?
- They’re Process Based, Not Transaction Based: Institutional managers view property management through the lens of process, versus being transaction based. For example, a transaction-based property manager looks at a maintenance request as a one-off thing, and asks “How much will this repair cost me right now?” Institutional single family unit managers think about the maintenance process holistically, and in a long-term way, and consider things like how a renter portal could improve their maintenance process and enhance resident satisfaction.
- They’re Well Informed About Topics That Affect The Rental Market: Treating management of rental properties as an actual business means being well informed about factors that affect a business. Topics institutional managers are knowledgeable about include:
- The real estate market (locally, statewide and globally), including how AirBnB affects the local rental market
- Market conditions in general (health of the economy, interest rates, changing demographics, etc.)
- Changes in government legislation (tax credits, deductions, subsidies)
- Tenant rights in their city/state
- They Hire Professionals for Maintenance and Marketing: People who manage single family rentals as a side gig tend to do everything themselves, from writing up unit descriptions and taking photos, to fixing leaky plumbing. Institutional managers have marketing and maintenance infrastructure (including technology) in place to streamline repair and marketing efforts.
- Maintenance: Institutional managers are focused on the end-to-end maintenance process, from the best way to receive maintenance requests from residents, to efficient routing of requests to repairmen, to analyzing data from maintenance requests over time to ascertain better ways of managing costs and timelines. Institutional managers also work with a professional maintenance team that is insured and bonded so repair work is done to local building codes and ordinances.
- Marketing: With prospects doing so much of their property research themselves online, it’s crucial that the property marketing is done by real estate marketing professionals who will create a multi-faceted, comprehensive and visually appealing representation of the property.
They're Maniacally Focused on Managing Costs
The income from leases is locked, so the only lever a manager has have left to control is ongoing costs for maintenance, administration expenses, or supplies. Institutions know when to spend, when not to, and how to get the biggest impact for dollars spent. Every penny they spend has a purpose for being spent because every penny given to a vendor is a penny that the property investor doesn’t make.
Institutional managers also have to be transparent about costs, as they have investors who are too smart to let them get away with NOT being transparent.
Here are the main ways institutions manage their costs:
- Using automated processes vs manual: Potentially hundreds of vendors can generate thousands of work orders and invoices. Managers also need to keep a complete asset inventory. To be efficient and save money (and to lessen the chance of human error), Institutional managers use automated processes, which cost 20 times less than manual processes.
- Buying power: Institutional managers with properties across multiple states have a full roster of contractors who maintain their properties. Since they have many properties that need work, that gives them buying power, and allows them to negotiate set rates.
Let’s compare negotiating the cost of a vendor (say, a plumber) in three scenarios: 1) single family rental home owner who negotiates directly with his plumbing vendor; 2) single family rental home owner who employs a fee-based property manager; and 3) a performance-based institutional manager.
- As a single family rental home owner, when you negotiate with a plumber, you have ZERO buying power and will get whatever price the plumber decides to give you. Let’s say it’s $90/hr.
- If a single family rental home owner hires a fee-based property manager who has its own relationship(s) with plumbing vendors, he enjoys the advantage of their experience, and they can likely get a better rate because they throw a lot of business their way. The fee manager has some buying power, but he doesn't have transparency. He could negotiate a $75/hr rate with the plumber, but quote the single family rental owner a marked-up price.
- The performance-based institutional manager has buying power AND transparency. They will negotiate with the plumber AND pass on the price savings to the owners of the units they manage.
They Build a Strong Pipeline of Prospective Tenants to Maximize Their Pricing (Rent) Power
Institutional managers have multiple properties in multiple neighborhoods. As a result, they always have vacancies somewhere, so they’re always marketing properties. They always have a pipeline of prospects coming in, brought in from their professionally produced marketing, and relationships with apartment locators. All this means they can fill vacancies faster, and because they have a comprehensive and stringent screening process, they fill their units with higher quality tenants.
The Difference Means Greater Returns
Institutional managers only survive when their ability to manage investments leads to greater returns for their investors. This means they must hone the technology, people and processes that deliver greater income and returns.