Welcome to The Real Estate Venturist. Every other week, this newsletter will give you a behind-the-scenes look at what it’s like to be a real estate entrepreneur. As always, this is not investment advice and merely my opinion.

Jack of All Trades, Master of None

Only once in my 20-year real estate career have I heard someone gush positively about their property management company. He liked them so much that he wouldn’t even tell me who it was. That little secret has since become a thriving property management firm in the Twin Cities.

At best, owners are merely satisfied with their management company. It’s like choosing the middle circle in a survey of 5 choices. The prevailing attitude is: meh.

It’s both an easy business and a difficult one. Onsite staff—property managers, leasing agents, maintenance people—have to want to do this work. Depending on the property, they can be bombarded with resident complaints, overdue work orders, or tenant hardships that turn into evictions or collections problems. And they’re expected to handle it all efficiently, with a smile, so issues don’t grow.

It’s “easy” because the basic tasks are straightforward: lease apartments, collect rents, spend less than you take in, fix maintenance issues quickly, and deliver good customer service. So why do these simple tasks get mucked up royally at times?

Because property managers must be salespeople (leasing), accountants, financial managers, customer service reps, maintenance problem solvers, and event planners. I’m sure I missed 10 more duties this super person is in charge of. It’s no wonder people are the root of both success and failure. When there’s a weak link and no real systems in place to identify issues, the vicious cycle begins: occupancy drops, ratings get worse, work orders pile up, delinquency rises, cash flow tightens, and ownership fires the management company.

People, people, people

I just switched management firms at one of our properties. Replacing them was absolutely necessary, though will likely be a pain for a few months. That’s just the reality. An entirely new staff must be hired. Accounting systems will get migrated to different platforms. Contracts will be updated and/or renegotiated. And often occupancy gets worse before it gets better.

While interviewing companies, I asked mostly the same set of questions. Nearly every firm gave the same canned answers. Only one did not. That’s a problem. Very little differentiates one firm from the next. When so much rides on the onsite team, you can’t just take their word for it that they’re going to find the right people. Similarly, it’s even worse to pick a company based on who will charge the lowest fee.

Finding the right people is incredibly hard. Most firms don’t use personality assessments like Predictive Index. They might use them for their corporate staff, but not for their onsite staff. They’re looking for experience. Instead of trying to hire hard-workers who want to be there (regardless of age), they’d rather look for someone with experience. If you can find someone with both, great. Having been through this process countless times, I can tell you that’s rare.

Every company swears they have “systems” to support and train their people. Their special way of doing things. That’s what makes them different. Except it doesn’t. They’ll point to the number of units they manage or some marquee client: If Blackstone trusts us, shouldn’t you? Trust me, Blackstone has fired plenty of property management companies before.

Then, there’s the regional manager who’s the backstop to ensure things don’t get out of hand. These regional managers are busy people. Often they’re in charge of five or more properties. They can’t focus solely on one property because they’ll get behind on their other assets. If this person isn’t good at setting expectations for the onsite team, who will? Their boss? No, their systems will do the trick…right?

What Really Resonates

I hired the company that answered my questions differently. They have a unique approach to hiring and their systems seem quite rigid and purposeful. It’s not what I’m used to, but I want it to work.

The tenants are noticing, too: staff picking up trash, longer office hours, triaging maintenance, and being visible and welcoming. That’s easy to do during the first couple of weeks, but the real test is maintaining this pace. I hope they can do it.

They’re not the only property management company operating differently today. One prides themselves on hawk-like expense control. They claim to operate at a lower cost per unit than their competitors. Others have a true edge with technology, not just making the owner pay for every new “proptech” solution. Still others specialize in a particular market (San Francisco), quality level (high-rise, boutique) or renter type (affordable housing). For example, in markets with rent control, narrow and deep local experience is powerful.

Don’t get me wrong, this isn’t a small versus big company issue. We use a large national manager on one asset, and they’ve been both good and bad. When we have a strong property manager and regional manager, the property performs well. When one of those positions is lacking, performance suffers.

Whoever solves the people problem will have clients lined up. Technology only goes so far, and good old customer service and culture still win. Sadly, too many firms fall short because they treat hiring—the most important decision—as if it were a minor issue that can be corrected without consequence. The ones that get it right, though, create properties that thrive, residents who stay (and pay), and owners who never have to wonder if they chose the right partner.