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Property Management Mastermind Show

#162: Churn: The Good, The Bad, and The Neutral Ft. Melanie Thomas

Jan 27, 2023 by Brad Larsen

What's the deal with tenant and owner churn? In this episode, Brad and RentWerx CEO Melanie Thomas dig deep into a concept that usually strikes fear in every property manager: Churn. But what if they told you it can actually be good sometimes? Take off your skeptical hat (just for a bit) as these two explore different types of churn and discover why it isn't always negative! 

Connect with Brad's team at www.rentwerx.com!

Brad Larsen: Hey, everybody. On today's episode, I've got Melanie Thomas here, the CEO of RentWerx, and we're going to be talking about the good, the bad and the neutral of churn.

ADVERT: Welcome to the Property Management Mastermind show with your host, Brad Larsen. Brad owns one of the fastest growing property management companies in San Antonio, Texas. This podcast is for property managers By property managers, you'll hear from industry leading professionals on best practices, new ideas, success stories and lessons learned. This is your opportunity to learn about the latest industry buzz surrounding property management, as well as tips and strategies to improve your business.

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Brad: Welcome, everybody, to another edition of the Property Management Mastermind podcast. I'm your host, Brad Larsen. And today's guest I have the esteemed CEO of RentWerx with with me today, Ms.. Melanie Thomas. And we're going to be talking about churn. And so, this is something that she and I deal with on a daily basis, weekly basis, when we look at our numbers at RentWerx and to kind of give you guys some background, too. So, I'm the founder of Rentwerx, and I was lucky enough to be blessed with Melanie years ago, and she's worked from the absolute ground up as a straight commission leasing agent to our CEO running the company. And she's kind of become a pretty famous person inside the NARPM community. She's got more designations than hair on her head. It's pretty amazing. It's like alphabet soup designations. And so she's a fantastic leader of our organization. And so anyway, giving you some background, we've been looking at these churn numbers and I'm like, we need to have a podcast on this because what we're looking at is one, enlightening to infuriating and three problematic to where we can identify some holes and potentially make some fixes. So backing up a little bit, I wanted to talk about churn in a couple of different ways, but I really need to introduce Melanie, give her a few minutes to say hello and and then we can dive in more into the churn factor. So, Melanie, how are you doing today?

Melanie: Very good, Brad. Thank you for having me. Well, as you mentioned, I've been with rental property management for almost seven years, going on eight here. And I started as a leasing agent. And, you know, it's just been a nonstop growing opportunity for me and for the company. And thank you for having me today. I appreciate that and looking forward to our conversation.

Brad: Yeah. So, you're also going to be a facilitator at PMMCON 2023. You couldn't do it last year for us because you kind of had a baby then that got in the way and so baby Addy is now close to one, am I correct?

Melanie: She's eight months to tomorrow, actually.

Brad: Yeah. Yeah. She's getting big. And so, you enjoy seeing all the pictures of that. And and so we were lucky to able to and to get you going for PMMCON 2023 as a facilitator and I really like that because you are a person that's actually doing the stuff. I mean, I've turned over the company to you to run on a daily basis and you know, we do our strategic planning, and we get together, you know, I check in once a week or whatever, and and I look at all the big numbers and but you run the company. Let's not sugarcoat that at all. You really do run it and it makes it work. And so, it's going to be nice to have a facilitator there that's that's down and dirty in the weeds. Some of our facilitators have been in the business for decades, but their roles have evolved into differences than what you do. And it's really nice to have that perspective because as anybody it's going to be tip of the spear. It's you and you have a perspective on everything. So to kind of get into this conversation, we wanted to talk about churn. So what does churn mean? So churn, in my opinion, means a couple of different things. We're going to talk about tenant churn and owner churn. So the tenant churn has always been one where in our industry we see some particular vendors or contributors or influencers say that churn on the tenant side is a result of you not doing something or slowing churn is the result of you doing something. So before I give my $0.02 worth, do you have any thoughts on that?

Melanie: Not necessarily. Right. So we are in a military city, so if somebody is getting military orders, we can't help that. Like there are certain things that we can and can't control. So, I agree with you or to an extent, right, Because there are some people that if they're going to move, they're just going to move. There's nothing we can do about it. So, when it comes to KPIs and holding the team accountable, there's just some things that we can and cannot do. So. It's hit or miss there.

Brad: Yeah. Yeah. And so some of the talk is always about providing them with, you know, free dry cleaning and back rubs and these. Yeah. You know, make all their hopes and dreams comes true. Now we do some things that do contribute to that. So, let's talk about that in reality, because Mark Cunningham said it best. I mean, as far as tenant churn, you have near zero influence on that, right? But if you do the basics like the basic blocking, tackling, performing maintenance, allowing them to pay their rent on time, all that good stuff can turn into basically good paying tenants. Because, you know, I've said this for years and years, that it's the job of a good property management company to take a marginal tenant and turn them into a very good tenant by allowing them the means to pay on time and the stick if they don't pay on time. I mean, that that sets the precedent that if you have a zero tolerance just on rental payments, that you're going to make a marginal tenant turn into a great tenant because they know they can't get away with anything. And so there are some things we do. Like I want you to talk about the dinner in the movie project that we've been doing for for several years.

Melanie: Yeah. So, you know, it's a it's a program that we offer to the owners and the residents essentially, is to just give a thank you to the tenants for paying down their mortgage. Right. It's a nominal fee that we charge. Of course, the PM company makes some off of that for the time, the stamps you know, the actual documents that are involved. But it's such a feel good for the tenants. You know, they appreciate the fact that the owners and the property management company is coming together to thank them for being a: on time paying tenant and doing what they need to do as a tenant so we have seen that just be an exponential thrust forward in Google reviews. And just overall the good feeling around the holidays, right, the warm and fuzzy. So that just is insurmountable when it comes to the long-term longevity of your tenants and just tenant happiness owner happiness. When the tenants want to renew and they're happy, so do the owners.

Brad: So yeah, we stole the idea from the late great Kevin night and so at Liberty Management they were out buying gift cards. So, to paraphrase this program a bit more, just to give you an idea of what one of the things we do for our tenants is we go to the owners and we charge them a little bit of a dinner in a movie fee and they can opt out if they want that. And that's, you know, we always cringe at the Grinches out there that I'm not going to spend I'm not going to spend x X to buy my tenant anything, even though they're paying me, you know, hundreds of thousands of dollars over the life of their stay. I'm not going to pay him anything in return. And that drives me up a wall. But we charge the owners and we do that in the October, November time frame. That way, if they back out, we don't get double charged. And also, so we go out and buy dinner tickets or excuse me, a dinner certificate, like a gift card and then movie tickets. We package that up into a handwritten note to the tenants and we send that to the tenant in and around before the Christmas time frame. And it's kind of like their Christmas treat from the owners. The tenants really appreciate it and a lot of different ways. Yeah, we make a little bit from it, but it's not it's not a margin, you know, not it's not any anything big.

Brad: And I also want to make the point that we do work with other management companies in the city. Like several of us got together, four or five, six of us, and we went to a large a restaurant tour here, El Chaparral, and we were getting gift certificates from them for the gift cards at a discounted rate. So, there's nothing wrong with working with your competitors to form something like this to get a better rate, because instead of buying 500 or 1000, we were able to buy 2000 503,000, 5000. I can't remember the number, but I just want to throw that out. There is that's a really good program for an effective way to slow the tenant churn. Right. I know it's like you said, you said it best. I mean, if they have military orders, they're not going to, you know, try to get around that, to stay in the home they're in to continue renting. But there are certain things where, yeah, you want to do the right things and that's one of them. Along with just good software, they can pay on time. You know, they can get maintenance requests entered, they can get maintenance requests completed, their inspections are done timely, the renewals are done timely. That's all basic stuff, gang. So there's not much else we can do on the tenant churn. Other than the things we talked about. Any other thoughts on that?

Melanie: Yes, Google reviews, right. Like when we send these out, the response that we get from owners and tenants for the PM company. Right. The reviews that we get of these are just like insurmountable. Like you can't put a price on them, so you're paying a nominal fee for these cards, but what you're getting back is tenfold. Yeah, so that's definitely something to keep in mind. So if there are other property management companies out there that don't want to spend the money, spend it, spend it.

Brad: So you are the Google Review Queen. All right. So, I'm going to give you some some props. You're the props. Right now. We are close to, what, 2000 reviews or something. Tell me what we got going on.

Melanie: 2100 at this point, Brad, I am pushing those things nonstop. Any time our staff is talking to applicants that have been approved, owners that just got an approved application, vendors that just got a, you know, good job. Like we I am constantly incentivizing or rewarding our staff for getting these reviews. So that just speaks to the SEO and that's a whole nother conversation that we can go through. You know, I'm the vice president of NARPM for 2023 and I talk to people all the time about SEO and they want to grow their company, but they don't focus on reviews. That's a big deal, right? So. It's just a never-ending cycle. And here at RentWerx. I feel like we have it down to a science. So, you know.

Brad: Well, couple of key points that I want to bring up on that. So, one, we incentivize our team to get good Google reviews. You know, we you can throw the number out there if you want. It's not a big deal. But if they get a good five star review that mentions, you know, pick a name in our company, then we offer them a little bit of a bonus. It's a quick little spiff and you might see them get four or five reviews in a week that dropped their name. And so they get a pretty good spiff bonus from that. In addition to you personally taking on the one star reviews and gang, there's no better way than picking up the phone. I don't know if there's any other way to get around it. Meeting them in person would be an idea. Great. But a phone call from the CEO of RentWerx. Hey, we just got your some feedback on the on your review. I want to talk to you a little bit about it to see what we can do to resolve this, make it right. You know, how do you approach some of that? Because that's a learning lesson learned learning lesson for the people out there that need to hear how you tackle the one stars.

Melanie: Absolutely bad. So, what it comes down to is like, did we make a mistake? Right? Did we was there a lapse in processes? Did somebody make a mistake? If we are in the wrong right, one of our core values is customer first. If we did something wrong, I'm here to make it right. So, when I'm talking to these owners, you know, if I have to pay them a little bit because the touch up paint was at the best or, you know, they're upset because, you know, a quote was a little bit too high. Like my job is to level set with these owners. And so, I feel like I've done a good job about I guess, like I said, just level setting with them. And we're people to people. We send bom bom videos. We're not just this big corp organization like we are people. And so, we're sending bom boms and we're saying, Hey, I am the person. Look at my face like, you know, this is what it is. And sometimes mistakes do happen and we make it right. Right. Like that is one of our things. Customer First, we make if we did make a mistake, we make it right. And that is one big thing that I focus with all the staff.

Brad: Yeah, it's a big thing. So, I mean, you've got to hit those one star reviews head on. And we've even engaged a service, and I did a whole podcast on this too, where if we have one of those one star reviews and, you know, that's maddening, and you and I have seen this many times where they walk in, they leave a one star review with a just made up email address and no comments like there's no comments on the one star review and that thing will stick. And do you know how bad that is to your overall ranking? Because it might take us ten or 15 five star reviews to negate the one star review. So it's sometimes no matter how good you want to be and how much you want to make it up to somebody, you get these these fake one star reviews that stick for no reason, and there's no other way to to work that except to try and reach out to Google. And we paid the service that comes in and does that. So anyway, I mean, we can talk reviews all day long, but that's all diving back into the to the funnel of churn, meaning that tenant churn. So, we know there's only so much we can do on that. And I don't want to spend too much more time talking about it because we really want to get to the meat of this conversation and talk about more owner churn because, you know, we've been doing some numbers recently and we're really trying to identify what that means.

Brad: So according to the NARPM accounting standards, there's churn of clients. Client churn is your owner churn. So, you have good, neutral and bad. And so, we're going to try and define that and then we're going to talk kind of more down and dirty in the weed numbers that rent works because I want people to hear that no matter how good you think you are, you cannot stop churn. And once you hear some of the reasons that people leave and some of the stories that Mel can tell, it's just you'll relate to it and you'll roll your eyes and say, okay, I just need to understand that you have to have a business development process to bring in doors because you are going to have natural churn no matter what. Now, keep in mind, we're also we're victims of the market. The market was super hot the last couple of years, and we're also victims of military city USA, where you get people coming in and going out right all the time. So people are buying and selling all the time. And there's not

Melanie:  like COVID, right at the beginning of last year, we were having issues with vendors and we kind of still are with them working and getting vendors to actually work, you know. So we had a little mass of owners that were wanting to exit management because we couldn't get people to work.

Brad: So yeah, now let's talk through the churn. So let's, let's hear your definition definitions for good, neutral and bad go from there.

Melanie: So for me, bad is, you know, owners that have switched management, they're upset over maintenance miscommunication there was a bad sign up or you breakdown in our processes. For me that's bad. Do you have any other.

Brad: Yeah. No. If we fire them, they fire us. That could be classified in there as well. But we kind of meant that a neutral one sometimes, especially if we fire them. Right. So this is what I want to bring this up, because the NARPM accounting standards is vaguely Ok in there. And then I basically deemed you that you have the final authority to classify them however you like. So if you feel that, hey, this was a owner that was unresponsive. So I'm going to go to a great example after that about a non responsive owner and what you did with them because you were talking about in pre show. So in in the bad realm of churn classification, we think we have that somewhat. Okay. So let's hear that paraphrase again of what you think a bad classification is for a bad loss.

Melanie: So a bad loss is owners that are switch management companies, you know, they're upset with either maintenance or owner statements, miscommunication or otherwise, or they were just either a bad sign up or there was a breakdown in process.

Brad: Okay. So the neutral. Yeah, let's talk neutral.

Melanie: So, we fired them, right? It might have been a overpricing refusal of imminent maintenance issues, infringing on tenants rights to fight enjoyment. An owner death or estate issues or an owner moving back in. We classify those as neutral, however. Right. We're December and so we have a few owners that have told us they're moving back in. And I find out months later that they have sold with another company. So we're faced with reclassifying those. Right. Those owners didn't want to tell us that that was the case.

Brad: So that's really we're going to hit a couple of examples because we I have the spreadsheet that we've done up. And, you know, we look at our numbers, especially for our losses, and it's just sickening. But when you start digging into each one of them, you're like, Ok, I get it, Ok I get that one. Ok I get that one too. All right, maybe it's not as bad as I think because you're looking at the overall numbers and just it's like, oh we spent all this on biz dev and you bring in ten and you lose seven, you know, and that seems to be the track we've been on for ten years and we're not the we're not the unicorn in our marketplace. I think everyone in our marketplace goes through the exact same thing. So it's not like we can fix anything overnight. Snapping our fingers now a good loss. Let's talk through that. Let's talk through some of our sales successes.

Melanie: Yeah. So the good loss is I mean, we've had quite a bit of those. So that's where our sales team, you know, the property manager or the owners of the homes that we manage have said, hey, we want to sell whether it's a tenant in place or not, our sales division is able to capture those sales. So that's another good portion, right? Like other property management companies should be doing the same. We have a drip campaign and other things that we do to get those sales. And honestly, looking at these numbers at the end of the year, we could probably do a little bit better job and we're having an annual meeting with our sales person and Brad and myself and we're going to get those for 2023, right Brad?

Brad: Yeah, no, we brought in a really good sales team. We have Damian Manning. They're leading the charge on that and we hired Debbie Lariviere and she came in and consulted with them for the first half of 2022. Really got them in line, right? And so I was very excited about that. So we can talk through some numbers. I think it's kind of interesting. So we sold 41 homes or was it 43? It was. I thought it was, yeah. So we sold 43 homes with a volume of, I think pushing 19 million out of the sales volume of homes that we manage. Those were homes in our inventory. And so rather than those going to another brokerage, we sold those homes for that amount. I should have done some deeper analysis to see how much how many of those sales actually stayed inside of our inventory. So that's the next level number we need to look at. Let's assume for fun it was half of them, right? So let's say we kept 20 homes out of the 43 in our inventory. That's pretty dang good. And if you want to think that's over conservative, cut it in half. We kept ten homes in our inventory. That's fantastic, right? That's that's stopping churn right there. And so we're talking now about churn, and that's a good way to stop it.

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Brad: Now, the other side of that that's driving you and I insane is 41 of those homes. We had 43 in house, but we also found another 41 homes that sold outside of our organization. Talk us through that a little bit.

Melanie: Yeah. So, I mean, honestly, we can't avoid the, you know, my sister, my brother, my cousin, my aunt, my uncle is a real estate agent now, and they're going to sell our home. Right. So there's a certain portion of those, but there are a certain portion of those that are an opportunity for us. We send out drip campaigns and emails and texts, send notices to the folks that are doing these transactions. So it's just. It's an opportunity for us to captur those sales. So I don't know if we need what we can do extra. But you know, we have our January planning to come up with those plans because it's a lot of money out there. And if you know our brokerage, can you imagine the other ones out there that are? Job is we are we are actively focusing on those things. So and we're losing this amount. So can you imagine the other ones that aren't?

Brad: So let's think through that in numbers, gang. Let's break this down to some common sense. So there's 41 transactions we missed out on with a volume of 14 million, right? So arguably, that's around 300 to 40000 in gross commissions missed and so Ok. Be conservative out of the 41 cut that in half and cut it in half again what if we could have kept ten more of those homes and sold those ten for 3 million in volume and made another 100,000 towards the company? Right. That's that's how the math works. And so we are doing the drips, we are doing the notices. But Damian and his team, they're going to start getting policies and procedures tighten up a bit more because we had a real good conversation about this with Peter Lohmann and he and I debated the merits of reaching out to your owners and providing them an unsolicited CMA compared to market analysis for sale on a consistent basis. Now I think that idea is fantastic. There are a lot of management companies that are out there doing this type of stuff already. Mike Connelly is whom I learned it from out in San Francisco, and they're sending out unsolicited CMAs every six months, and I firmly believe in that. But the follow up has to be there as well.

Brad: You just can't send them an email and hope it gets to them. I think there should be a phone call with every six months, almost every owner and you hit them up with two things. Are you interested in selling? No, not right now. Are you interested in buying more rental properties? Right. There's two different factions. You can take them down. It's not just sell, sell, sell. If you're going to sell, bring it to us. If you aren't interested in selling, are you interested in buying? Do you want to be part of our pocket listing program? Do you want to be notified if we come up with a good deal? And do you want to just kind of we can set you up a search and start looking for homes right now in the open market on the MLS, there's all kinds of ways you can take them down and that's what we want to enhance for 2023. Our team's been good so far. I don't really have a lot of complaints, but again, if we can get 25% of the 41 sales that we missed, if we can get another ten sales under our belt for 23, that's what we want to strive to do. You're constantly trying to get better.

Melanie: 100% agree, Brad. So when are we going?

Brad: What? Have you not agreed?

Melanie: When are we going to get to the table? Not agreed. No.

Brad: Yeah. You smack me around a lot? Quite a bit. So. No, I like it because what we wanted to talk about now is we spent some time on the goods. But I want to give some people an example of the weird ones. The ones you could classify as neutral. The ones you can classify as bad. And I wanted to let people know that it's not all us. It's not all sales. It's going to be some crazy folks out there. And it makes me think of James Wise. You remember you remember that guy from Ohio. So he's got the Holton Wise show. Holton Wise show. James Wise and I did an interview with him and he's it's almost like his method is so abrasive that he's become that guy that you either love or you hate. Remember us like this? We looked at Black Rifle Coffee. Black Rifle coffee took the total right side of the market of coffee. They embrace conservatives. They're gun toting, veteran loving America, loving coffee providers. And they totally went to the right side of the spectrum and they forgot about the left side. They don't we don't care about the left side of the political world.

Brad: We just want to go after the right side. Well, that's what James Wise has done, is he's gone after the that particular type of an owner and just some of the things he posts on his website and the Facebook. He posted one today where there is a tenant with a bug infested property and there's video of it. And I hope you don't have a big lunch prior to watching that because that thing will make you throw up. It's just disgusting. So I got off on a tangent there, but I wanted to make people realize it's not all us. There are some weird things going on out there. So as we take a look at our October 22 losses on our spreadsheet, you know, you had a really good story about this one particular owner that you've been managing for years and years, the Oak Ranch Address. And you know which owner this is. I don't want to drop names, but can you tell us more about that story just to highlight some weird stuff out there?

Melanie: Yeah. So we stopped managing his property and it had been over almost five or six years that we were paying his. Utility fees and he was paying our management fees. And we weren't quite sure what he was going to do with the property. So we had to determine like, Hey, Mr. X, we've been managing your property. Like, let's this is the plan. And he decided to terminate with us because we turned off his utilities. That we'd been paying for and rent works had been in the negative for many months.

Brad: But he straight up ghosted you, right? He was non responsive for months and months, ghosted.

Melanie: He had been racking up bills. Racking up bills. So I finally said, put the kibosh on it. He either reaches out to us and turns out, Brad, that he was living there the whole time. So we had been paying the management bills. He had been telling us that he was out of state, but he was not living in the property and we were just paying his bills, floating him, floating and floating and not charging him fees. And so I finally put the kibosh on it. And when I told him he owes X amount of dollars for utility bills. He terminated with us.

Brad: So that's that's a great example of stuff that's not our fault. And we looking through our October losses, there's a couple of them in there I wanted to bring out because I'm trying to illustrate to the audience of property managers that it's it's not always us. Can we do improvements here and there? Absolutely. We're never perfect. It's always about communication. But I also wanted to like, you know, you hear people out there that they think they have the cure for stopping churn. Well, there is no cure when you're dealing with people. People are weird. So another good one. Another good one is there's we had this home under management for eight years, Cedar Bluff Ranch, and the family is moving back into the home. So how the heck could we have controlled that? I don't know how many you know, you could buy them roses and chocolates every day, but they're going to move their family back in the home. You can't control that. They weren't just happy with the service. So that's like a neutral loss. That again, highlights that some of these are just out of your control. And the only way to stop losing homes on an annual basis is to add more than you lose. So luckily we've been able to do that. We've been slowly growing over the years, but it kills us when you add, I don't know, for fun, let's say you had 300 in a year, but you lose 200 in a year. And those numbers are fairly accurate to what we've been seeing.

Melanie: Absolutely, Brad. And then you see just those bad sign ups, right? We've always talked about the operations and the sales rub. Like sometimes operations is willing to sign on people that maybe don't own the homes or maybe there's an estate issue or maybe there's a heirship issue. So they maybe sign them up, but then operations is sitting on them for several months. And so, I mean, we just get the full spectrum of them. I mean, we have had this year maybe 2 to 3 owners that were upset with us because. Signs have disappeared from their properties. Like they're not in the best areas. Right. And so people are stealing the signs and they decide, you know, obviously, you know, that RentWerx property management, if we go to a property, we're doing a video tour, right? Like the owner is going to see that we went to your property. And so there's the proof of the sign and the sign has been repeatedly stolen. We have the proof, but the owners are willing to fire us because the signs missing. Like, it's just mind boggling. Like we have done our job and you just want to fire us because, you know, a vagrant or somebody down the street or a competitor has stolen our sign. So we've also had owners that, you know, we have a lot of HOAs here and they want to do a very custom sign outside of our Rent Werx sign, RentWerx isn't going to pay for it. And so they fire us because we're not going to pay $300 for the hose. Personal sign. So, you know, it all comes full circle and we can continue to go down all the reasons why.

Brad: I think we should, because it's kind of it's kind of fun. People out there realizing that no matter how good you get, you can't control these. Now, maybe we could have controlled the HOA thing, but not really. And there's never about this communication up front junk. You know, that's that only goes so far. Our communications are so good in writing. We do a very good job in person. And you can tell an owner, for example, specifically, we've lost owners for this. Hey, Mr. Owner, you're going to have code compliance. Code compliance for the sixth time, code compliance, 10th time code compliance coming up. What does that mean? That means we've got to put deadbolts on all your doors and install smoke detectors and and fix up your home with all these different things that are going to make it code compliant. Oh, but it's going to cost you two, three, 400 bucks up front. Not our fault. It's just how it is. And they don't realize that until they get the first bill, then they fire us. Right. How many of those have we seen? And you look back at that, it's like, no, we beat it up to it's in person and we sell it to them in person.

Brad: Our Biz Dev team walks them through it. It's in our management agreement that we have to do this to the property. It's just it's just maddening that they don't give us the opportunity to manage because they were upset that they had to bring the property to code. And the owners say, Well, I could have done the smoke detector myself. Right, okay, how do we know that's done? Do you have documentation on that? So if there is a fire and then here comes a lawsuit, you know, here comes a big old attorney saying, prove to me that the smoke detector was changed. Well, we can't because the smoke detector burned up in the fire and now we're all at peril for millions. And so those things are real. And there's just certain things that are out there that we can only tolerate so much of. I want you to talk a little bit now about the whole house didn't rent because the owners come in and they overprice it. They get wind of this new hot rental market, they overprice the home and they don't listen to us and they end up firing this. I'm sure you have two or three examples of that.

Melanie: Absolutely. Brad. So. Like, here we are, right? 2022 December. If we are pulling comps when the market was just crazy, right? Tenants forbidding each other up, if the rent was 15, somebody was willing to pay 16 or 17 like that is not the current status or the market right now. So if we're pulling MLS  statistics, they're not. What it is right now. So our job as property managers is to tell our owners those things. So we are losing a few because they don't believe us. Right. And so I've seen right, we've done this drill with all the properties that we've lost. They left RentWerx a few of them, and they've gone to competitors. But guess what? Their homes are still sitting on the market for the same price that they left. RentWerx like, I don't think. And maybe that's our thing, you know, not. Keeping our keep the knowledge right. Like it's it's the same thing Any property management company that you hire is going to do the same thing. So, you know, you want to fire us and go with the competitor. Cool. You're going to start at. Ground zero with a new property management company. And in doing this drill with all our cancellations, they're in the same spot that we they left us in.

Brad: Here's a good one I want you to bring up. So I want you to bring this one up. This is a tower terrace from November. And the notes say they blamed water damage on us. And so it was in November on Tower Terrorist Line 17 and the blamed water damage on us. I think we talked about this before, but I thought it was a good paraphrase to where I want you to tell the story. But, you know, if I remember right, this is where there was a leak in the home and the owner was just super upset and blame us for for whatever reason. Do you have any more notes on that?

Melanie: Yeah, absolutely. So the tenant made us aware of some water issues and we were attempting to get those things situated. And in this situation the owner did not want to repair, right? They didn't want to have to deal with the insurance thing and paying their deductible. That's what we're here for, right? To mitigate the the damages with the tenant and the owner. So if we know that these imminent damages are present potential for mold or just imminent danger damages in general, our fiduciary duty is to the owners to let them know in this situation, this owner was upset because we were being proactive. Right. So. We are doing our job. And they decided to cancel with us because we brought this issue to light. That That's just not a good landlord, right? We're not seeing any addresses. We're not seeing any owners names. Do better. Do better.

Brad: Yeah, that's a that's a part of it. I mean, you look through some of these losses and the homes not renting, there's one or two of those. And that's, that's part of how the pricing model works. I mean, we do our very best to price it some of the losses that we do incur. You know, obviously there's just with any organization you have you mentioned earlier it was the sales to operations handoff, and that's we think we're doing that. Okay. I mean, it's always going to be an 80% solution. There's always 10% or 20% more room for improvement. But, you know, you sign up somebody with business development, they're all fired up. They're signed up, they're good. They're here, you know, documentations all done. And then you hand them over to the operations and at some point maybe the ball gets fumbled and the responsibility of that ball goes on both parties. It's the sales operation to ensure that they're handed off cleanly to the operations side. It's the operational side to make sure that sales is giving them something on a silver platter and it's discussed and handled immediately. Not okay, I'll get to it next week. Here it is Thursday. I'll get to it next week, Monday or Tuesday. And owner goes without a phone call or notification for three, four, five days. That's when owners walk away and they get mad at you and they're gone. And so, again, we're not perfect at it. We know there's an area for improvement. I think part of it in the churn conversation, which is what I wanted to talk about, is identifying some of the weak points that I think you as other property manager companies out there that are listening is that you can identify some of those and try to do your very best to fill in that information, to fill those gaps, to maybe make improvements where you can.

Brad: And I want to air some more dirty laundry to say, hey, it's not all about us. There are some people or people, you know, you can infer whatever you want out of that. You know, we can go through example after example of just the crazy stuff that goes on in working with owners, working with tenants. And again, some of these these owners, you know, they get to the point where they won't make repairs, they won't do what they're supposed to do. So naturally you have to let them go and then you get owners that will lie to us. That's very common. Oh, no, I'm just going to move back in. I'm going to move back in. I'm coming back. And next thing you know, the homes on the market with another property manager or another real estate brokerage for sale. And so, you know, that's that's part of the downside of this. And there's not much you can do about it is just keep open communication and do your best on some of these ideas. And so are there anyone atop your mind that you want to bring up as far as some most unusual things for owner churn, where it just was the weirdest thing ever, any of those that you want to bring up?

Melanie: Yes. So we had an owner. Are you familiar with the show Battlebots on the Discovery Channel? Like those fighting robots?

Brad: Yeah, yeah, yeah.

Melanie: Owner that had signed up with us and said that he had over $5,000 worth of battlebots in his property. Obviously, you know, we do a move out owner inspection. The owner moved out the next day we did an inspection. No robots. Well, we listed the home for rent. Multiple showings took place, and then the owner reaches out to tell us that these $5,000 worth of battlebots were missing out of his property. So that's what I have to tell you, Brad. We have just good processes in place because I could show. Look, the day you moved out, those robots were not in place. But he chose to fire us because he said. He was missing those robots when they were not there during our inspection, when he vacated the property and he ended up going down the street to a local competitor. Well, good luck. X, Y, and Z competitor because we dodged a bullet.

Brad: So that's a great example of just how you can't control things like that. And, you know, we have taken on properties where we might have been the second or third property manager and you think that they are sometimes trained by that point, sometimes they're not. And we've taken on bad properties or even bad owners with big multiple properties that just end up don't work, they don't work out, they really should be self managing. And so the other thing on the big strategic nationwide front is the more litigation that that comes around with property management, the more legislation that's going to be put in place by the government. It's going to make make it very much more of a challenge for these owners to self manage. We're going to be seeing that in California is going to bleed east eventually to where it's going to be very difficult. It might turn into a renters nation more and more and more. And so, for example, Property Code 92.111, I don't think the average owner would understand that. You know, I don't think they could actually comply to that particular law, given the fact that if you do take a fee in lieu of security deposit, you're supposed to buy insurance with that. And if you don't document that perfectly, that could be implicated as security deposit.

Brad: And some sneaky tenant can come in and file a lawsuit and go straight to the law and you could be screwed over for treble damages and attorney's fees. And that's yeah, yeah. Those are things that are just that are going to pop up. So, yeah, this has been a pretty good conversation about the good, the bad, the neutral churn that's out there. And I'm glad we're able to illustrate the point to the audience that it's not all about just roses and rainbows here on the owner front and tenant front. Now we do a pretty good job of the tenants, but we cannot do a that great of a job on the owners when they don't want to help with us, you know, they don't want to work with us. One of the things that we have working now is we're striving to put together some sort of a syndication to where we can work on purchasing these single family homes ourselves through rent works. And so I don't have a perfect solution for it yet. It's a lot of moving pieces, but if you really want to go next level and stopping churn instead of them selling open market, maybe you turn around as a property management company and sell it to one or another one of your investors, or even buy it yourself and become the investor and keep it in your in your inventory under management.

Brad: So that's next level. That's next. Next, next level. And we're still getting there. I'm still a rookie on that. I've hired A.J. and Chris Shepherd. Help me with that. They're both NARPM affiliate guys and AJ is the RVP for NARPM. So we're working through these challenges together and I'm glad we had this conversation about churn. So for 2023, we're doing our annual planning here. Coming up first part of January, we're going to take a hard look at this and the numbers and say, okay, these are our goals. And so part of this conversation, you and I have had is, you know, everyone says, know your numbers, know your numbers, know your metrics. Well, these are our metrics. Sometimes they're ugly, sometimes they are sickening. But when you dig into them, they're not as bad. You don't think, okay, well, maybe we're not as bad as we think when we have an owner that that accuses us of stealing robots out of thin air, maybe we're not that bad.

Melanie: So but there's opportunities. So I'm really excited, right? There's the no brainers, right? They should never have been signed up or a bad sign up or whatever. But there are opportunities that we have identified within RentWerx, and I'm looking forward to fixing those because it's just exponential what we can earn if we can just fix these minor issues. Right? No property management company is 100%. I know people like to think we have our shit together. We do. But there are some things that we can do a lot better at and that's what we're looking forward to for 2023.

Brad: So these metrics are our benchmark. That's that's what I want to get to next is you and I are going through where we are now so we can actually set up a KPI goal for 2023 and that could be just like reducing churn by 10% or reducing your bad losses by 10%. I mean something like that to where you can quantify it, put a number to it and then start taking action upon it. So now that we know where we are, we know where we want to go, and that's going to help us fill the gaps of where we can come up with some good ideas to to maybe make some things different and better. Yeah, it's an 8020 rule, right? We are. We think we're 80% there, but we always have room for that last 20%. So, Mel, I look forward to seeing you in Nashville. Of course, I'll see you here this week for dinner. But I'm just telling you, we've got our big Christmas dinner coming up, right? We got to go. All the families are going to go and do our big Christmas dinner. But PMMCON 2023, you are one of the facilitators and I think anyone who gets into your group is going to be lucky because you're one of the few that's actually still doing it at a very low, ground level, talking to the owners, talking to the tenants, and nothing wrong with the others. They're all great. I'm just saying you're one of the ones that I really like about it because it adds that that bottom line distinctive working with the people that are working with us now. So I appreciate you coming on. I'm going to sign us off. And until next time, gang, we'll see you at the next episode.

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About The Host

The Host of this Podcast is Brad Larsen from San Antonio, Texas. Brad is the founder and owner of RentWerx, one of the fastest growing residential Property Management companies in Texas that currently manages over 700 single family homes.