The Science of Growing Your Portfolio
Learn the steps to get your property management company's portfolio growth down to a science.Get the Guide
The property management industry is highly fragmented. Some companies have only a few employees, some operate independently, and others have massive portfolios. No matter your business size or plans to scale, however, it’s important to stay on top of the health of your business. You should always know how you’re stacking up against past years’ performances as well as those of 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 follow and evaluate on a consistent basis—along with some tech solutions to help you do it.
#1: 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 moving to a new office or investing in a whole new IT structure. In any event, revenue growth should be at the top of a PM’s list of metrics to measure.
#2: Properties Won vs. Properties Lost
An effective property manager monitors their business development efforts. It’s a two-sided coin: On one side is the number of properties won. Property managers need to track how many properties they acquired successfully within a year to ensure a consistent stream of revenue and to create an accurate budget for client acquisition.
On the other side is the number of properties lost. Client turnover is never good, nevertheless it’s inevitable. The average property manager sees 10 to 20 percent turnover in any given year. Knowing how many properties you’re losing and why you’ve lost them helps you modify your business practices to improve customer retention.
Obviously, you want your wins to outweigh your losses, but remember that strategic growth should be your goal. Sheer volume and adding new services is not the be-all-end-all—you need to deliver on your promises and grow in the directions that will benefit your ideal customer.
You can analyze your new business and churn by creating a simple spreadsheet with the name of your client, the date they signed, amount charged for services, the date they left, and the reason why.
You can also use a property management software solution to create custom reports that help you analyze wins and losses and plan for growth in the future.
Pro tip: If after pitching a potential client your business development efforts are unsuccessful, don’t be afraid to follow up and ask for feedback so you can improve your approach down the line. And if you lose a client, follow up to understand their reasons for leaving.
#3: Property Acquisition Costs
On a related note, you should monitor your customer acquisition costs. You can do that 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 give you an 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.
#4: Occupancy and Vacancy 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 to 96 percent at any given time. This might be lower in suburban or rural areas where rentals tend to be in lower demand. (But as we’ve seen in the last few years, that isn’t always the case.)
According to The 2021 Industry Report by Buildium and NARPM, 45 percent of surveyed property managers across the country reported units that were staying vacant longer than normal. But, by August, that rate was decreasing, with just 28 percent reporting longer vacancies.
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 percent occupancy rate is good until you realize that nearby units are 90 percent 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 at a healthy rent.
If you’re significantly higher than the market average, however, this begs another question: Are you charging enough for rent? Be sure to evaluate occupancy rates in the context of other property management KPIs.
Pro tip: Property management software with analytics built in (such as Buildium) can help you stay on top of your vacancy and occupancy rates—and allow you to compare your leasing performance to your peers.
#5: Average Arrears
You should always be trying to minimize arrears. Having a lot of arrears (outstanding debt owed to you) on your books can really affect 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.
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.
Pro tip: You can see how many residents have paid in full by their due date and also the percentage of people who didn’t pay on time each month with property management software that offers online payment analytics.
#6: Tenant Turnover
Unless you’re managing rent-controlled properties, it’s 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 grow out of the space; subsequently, larger units tend to turn over less frequently.
And although this year has been an uncertain one for residents, according to Buildium’s 2021 Industry Report, tenant turnover shouldn’t be much higher than average. In fact, residents seem to want to stay where they are rather than hunt for a new place, a process that has become more complicated with COVID-19 regulations.
But, 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 rental amenities that are standard for your area? Are you charging too much for rent? Are you unresponsive to residents’ concerns? As residents leave, don’t be afraid to ask why they’ve decided to move elsewhere.
#7: 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 turning over a unit, especially 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.
Pro tip: One new cost of making a property rent-ready is a deep clean that meets COVID-19 regulations in your area. Don’t forget to include it in your rent-ready costs.
#8: Average Days-to-Lease
Each day that passes without a resident occupying a unit is money that you’re forgoing. The same is true for property owners, so keeping an eye on how long it takes to lease a unit is critical.
Now, anyone can lease a unit in just a few days—all you need to do is lower the rent enough. Of course, that’s not a strategy you want to rely on in general. The average days-to-lease should be compared to the market average (usually less than two weeks in a hot market). 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.
You may also want to evaluate your lead-to-lease process. According to Buildium’s Industry Report,
The infusion of new technology into the leasing process has had beneficial effects all around, allowing tasks to be completed more efficiently as property managers, leasing agents, and current and prospective residents keep a safe distance from one another.
The renters we surveyed told us that they’ve appreciated their property managers’ efforts to allow them to communicate, pay rent, sign documents, and take care of other rental processes from their homes. At the same time, property managers have unlocked new efficiencies and found ways to offer the same level of service as they did in person, convincing many of the benefits of leasing technologies even in a post-COVID-19 world.
#9: 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 regularly consider other ways to increase their cash flow, as well.
This is a good opportunity to assess where you can bring in additional revenue streams. According to Buildium’s Industry Report, over the last year, cleaning, construction and renovation, insurance services, legal advice, and outdoor services were the most popular services property managers added.
#10: Property Management Fees
Property management fees usually run anywhere from 8 to 12 percent 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 on 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.
#11: 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 a must 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.
One Final Thought
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
See More in Scaling