The property management industry is highly fragmented. Most companies have only a few employees, while others operate independently. As a result, it’s important to stay on top of your business. You must always know how you’re performing relative to your peers; and the best way to do that is by tracking a number of property management KPIs, or key performance indicators.
Below are the property management KPIs that you should be collecting data about and evaluating on a consistent basis.
#1: Properties Won vs. Properties Lost
An effective property manager will always be monitoring their business development efforts. It’s a two-sided coin: On one side, a PM needs to track how many properties he successfully acquires within a year in order to ensure a consistent stream of revenue. If, after pitching to a potential client, your business development efforts are unsuccessful, don’t be afraid to follow up and ask for feedback to improve down the line.
On the other side of the coin is the number of properties lost. Client turnover is inevitable. The average property manager sees 10-20% turnover in any given year. Again, if you lose a client, follow up to understand why. Obviously, you want your wins to outweigh your losses—but remember that sheer volume is not the be-all and end-all. If you take on too many new clients and cannot deliver on your promises, your performance will decline, and your losses will increase over time.
On a related note, you should monitor your customer acquisition costs. You can do this by calculating your total sales and marketing budget for the year, then dividing that number by the total number of new units acquired during that time. Calculate the customer acquisition costs per unit to see how you stack up year over year. This will provide you insight into how effective your business development techniques are, and whether there’s room for improvement in order to drive those costs down without missing out on new opportunities.
#2: Occupancy Rates
Every property manager should know the occupancy rate of their portfolio at any given time. In a strong rental market, particularly in urban areas, occupancy rates should be around 95-96% at any given time. This might be lower in suburban or rural areas where rentals tend to be in lower demand.
That said, monitoring your occupancy rates is only as useful as your ability to compare your numbers with the market average. For instance, you may think that an 80% occupancy rate is good until you realize that nearby units are 90% occupied or more. If you’re beating the market average, this is a great selling point when pitching to new prospects. Every property owner wants to know that you can keep their units occupied. Now, if you’re significantly higher than the market average, this begs another question: Are you charging enough for rent? Be sure to evaluate occupancy rates in the context of other property management KPIs.
#3: Average Arrears
Having a lot of arrears (outstanding debt that is owed to you) on your books can really impact your company’s cash flow. This is particularly true if you’re paid a percentage of revenue collected as opposed to a flat monthly fee. You should always be trying to minimize arrears. Moreover, companies can learn a lot about the performance of individual property managers by monitoring arrears: Who is most successful in collecting rent? Who seems to be having trouble? Look into any situation where payments are consistently 7+ days late.
#4: Tenant Turnover
Unless you’re managing rent-controlled properties, it is common for tenants to turn over every year or two. The average is 12 to 24 months in urban markets, and 24 to 48 months in suburban or rural areas. Smaller units tend to turn over more frequently, as residents tend to grow out of these spaces; subsequently, larger units tend to turn over less frequently.
If your turnover rates are higher than average, this could be an indication that the property is being mismanaged. Are repairs and maintenance overdue? Are you missing standard rental amenities? Are you charging too much for rent? Are you unresponsive to residents’ concerns? As residents leave, don’t be afraid to inquire as to why they’ve decided to move elsewhere.
#5: Rent-Ready Costs
When a unit turns over, do you know how much it will cost to get the unit in rent-ready condition? This is an important property management KPI that most companies overlook. Most will use supplies and materials that they have on hand (open cans of paint, previously used locks, etc.), and they don’t bother calculating the costs associated with a good scrub-down if the work is done in-house. Keep track of your rent-ready costs, including labor, to determine whether there are any opportunities to increase efficiency and lower expenses without negatively affecting other property management KPIs.
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#6: Average Days-to-Lease
Each day that passes without a resident occupying a unit is money that you’re forgoing as a property manager. The same is true for property owners; so keeping an eye on how long it takes to lease a unit is critical.
Now, to be sure, anyone can lease a unit in just a few days—all you need to do is lower the costs enough. Of course, that’s not an optimal strategy. The average days-to-lease should be compared to the market average (usually less than 2 weeks in a hot market); and it should then be evaluated against other KPIs, like market rents, to see how well your property management business is performing. If it seems to be taking a while for a unit to lease, take a hard look at where and how a unit is being advertised. Consider alternative listing channels or boost your marketing budget to lease units faster.
#7: Net Income
Property managers often track the net revenue generated from leases. However, it’s important to evaluate other streams of income as well: revenue from coin-operated washers and dryers, leasing of parking spaces, rental of on-site community spaces, fees charged for storage lockers, etc. Rents are just one revenue stream—albeit the most important one! —but property managers should consistently evaluate other ways to increase their cash flow as well.
#8: Repair and Maintenance Costs
If a toilet is leaking, do you rely solely on the opinion of your long-time plumber? This is often the case for property managers, particularly those who work independently, or for small shops that need to subcontract some of their repairs and maintenance. While it’s important to find property maintenance service providers that you trust, how often do you consider whether a repair or replacement is actually needed? How often do you shop around for vendors to compare pricing? Do you conduct market research to understand how much a specific project should cost, such as the average cost to renovate a bathroom?
Repairs and maintenance are usually the biggest line item for property management companies. Most property managers will be able to find cost savings to improve the company’s revenue if they look critically enough at their R&M expenses.
#9: Property Management Fees
Property management fees generally cost anywhere from 8 to 12% of monthly revenue, depending on the level of service provided. How do you stack up against your competitors? How often are you looking into what others are charging, and for which services?
Based upon the market average, you may find that you’re discounting your services too heavily. Some property managers discount their fees to get clients in the beginning, and then they never raise their prices. Even if you start out by charging rates that are toward the lower end of the market, don’t be afraid to increase prices if you adopt new technologies or tools to improve an owner’s overall ROI. Conversely, you may be putting yourself at risk of losing customers if you’re charging too much, or if the level of service that you provide has declined.
#10: Revenue Growth
Revenue growth is a good way to determine how the business is performing year over year. It paints a compelling picture of whether the company is doing well, or whether there are areas for improvement. The other property management KPIs outlined here can be used to look at that picture in greater detail. For instance, if revenue has declined, you can use these KPIs to discover why that might be the case. Maybe rents haven’t kept pace with inflation; or maybe you faced a one-time cost, like migrating to a new property management software to monitor your KPIs! In any event, revenue growth should be at the top of a PM’s list of metrics to measure.
One Final Thought
A few years ago, someone gave us this valuable advice: You can’t monitor what you can’t measure. Data collection may seem burdensome, but it’s highly critical to the success of your business. Collect data; benchmark your performance against your company’s previous years and your competitors; and then make adjustments as needed to improve the overall value of your business.Read more on Scaling