[pilingual]

Makes sense. Just as a thought experiment I was trying to figure what would be required. You’ve solved the maintenance issue, here’s what I see is left:

1. Placement. A system that posts to Zillow, Craigslist. It seems like photo or video walkthrough is an all but done deal. With keycode locks a real estate agent could escort a potential tenant through once they’ve been validated via credit score.

2. Payments. Seems easy enough to build this software.

3. Evictions. This seems like an entirely legal process, so having a lawyer on retainer for a metro might work here.

I think the biggest issue with property management companies is simply that their incentives aren’t aligned with the owners. If they have a maintenance person on staff they have to pay that person somehow. I’ve talked with other indie owners/managers and keep hearing the same thing: “imagine you are in that business. Do the math, and property management doesn’t earn much.” It seems ripe for disruption.

Edit: the only thing that is missing is someone to keep an eye on the property in general. Not quite sure how to handle that other than have one person who handles an entire metro.

[wilbo]

The real value of a property manager is having someone who is invested in increasing the value of your rental property asset. In multi-family this is easier because the value is directly tied to the net operating income. Increased rents and lower operating expenses = higher property value.

Single family gets more tricky because the value is more closely tied to the property value and not the rental income. I think this is where the inventives are often misaligned. Even so, the best property managers will handle a lot more than just filling units, collecting rent, and handling maintenance. They understand the goals of the owner and will adjust their management strategy to meet those goals (eg income property or a quick sale in a few years).

To add to your list: tenant retention (highest cost is actually unit turnover), setting rent to the right amount based on local comparables, and keeping in compliance with the ever changing rental laws.

[pilingual]

Great insight!

Tenant retention, while an issue, is a very minor one in comparison to peace of mind regarding the aforementioned issues. With scale and automation, I’d expect to save on the placement fee. In any case, I wouldn’t even mind yearly turnover if I had my other issues solved. Perhaps it’s just me. (My time is valuable and I’ve spent way too much of it dealing with the property manager and contractors when the property manager failed to deliver.)

I’ve heard varying things about setting rent. An investor/manager in the Bay Area told me setting rent too high is bad, and I think his reasoning was you wouldn’t have a pool to choose from. Another person had a system of just setting the rent ridiculously high and lowering it every week until it was filled. Comps can be tough, and usually the market speaks loudest here.

Keeping in compliance with laws seems to confirm there’d have to be a full time employee familiar with the region.

[dd36]

The issue with turns is turn cost plus lost income. For anyone without multiple properties, the cost of a turn is usually significantly more than they would recover with a high turn rate but increased rents. This is why institutional investors push rents aggressively but mom and pops don't. To a mom and pop, a long term renter is valuable. As where a large investor isn't concerned about cash flow issues from turns because they can spread it over many units. Look at the public REITs, some have near 40% turn rates, which is insane. But that's what you get when you ask for a 5% rent increase every year. As where the mom and pop is just happy that you renewed and they don't have to worry about a cash pinch.

[pilingual]

Your comment and x0x0’s are informative, thanks!

I guess I’m just optimistic that there is a solution which won’t require such high cost of placement fees, in addition to other costs. It seems hard to argue that the current PM system is efficient. Maybe it’s just the case that there are good PMs and bad ones.

[dd36]

The companies I worked with never paid placement fees. You don't really need incentives when housing supply is tight.

[x0x0]

Yearly turnover costs you probably a month each time, plus increased maintenance costs -- you're going to have to eg replace carpet, paint, and do other light maintenance a lot more often to keep a place in show condition. It also costs significantly increased human effort to manage. And you dramatically increase the chances you get a problem tenant. iow it's horribly expensive.

I'm skeptical of the quality of anyone who sets rent super high. If you do that, you will get difficult tenants. Setting the rent even 5%-ish below market -- $100 or so on a $2500 unit -- gives you the ability to be way more picky around your renters.

My experience: managed over 20 units for 5 years as a part-time gig.

[x0x0]

Keycodes are a nightmare. That's how you facilitate craigslist scams.

[pilingual]

How do you mean?

[x0x0]

Lazy real estate agent can't be bothered to show a unit and just give callers a key code.

Scammers get the code and relist the unit on craigslist $100-$200 below. They try to get people to pay the security deposit and first months rent to them.

Even if you don't care about helping scammers, you're also getting duplicate listings slightly under the cost of the actual listing, taking traffic away from your craigslist ad.

[dd36]

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