New Findings for PM after $3B of Repairs Coordinated: Property Meld CEO Ray Hespen

Now, the problem is us as human beings, we believe data 10 times more than we believe somebody's word. And unless you're talking to the broker owner of the company where you have an immense amount of trust in their skill and ability, which a lot of us don't have that luxury, you have to find a way to present data that say, here's what's happening and why. So one of the things that we're seeing a lot of property management companies do is really lean on data. We've got a cool, you know, insights thing that we've released where it starts to surface a lot of the data. And even like benchmarking in market, that people are starting to take that and go, we're actually at market on costs. And this is against 680,000 units about these types of repairs and like making sure that you're prepared and armed because really you're starting to sit there and go, if you go to another property manager, it's probably going to be the same or maybe worse. If you do it yourself, you're going to be paying retail prices. Good luck. It's going to be higher.

Welcome back, listeners. You are listening to Peter Lohmann's podcast. If you can't tell, I drink a little coffee before the start of every episode, and today's no different. We are on with Ray Hespin, founder and CEO of PropertyMeld. Is it founder or co-founder? Do you have a co-founder?

I do have a co-founder. The dude's a stud. David Kingman. Yeah, I'm a co-founder with him. Yeah.

All right, cool. I love hearing about like the silent co-founders, cuz usually there's one who's more like in the public, like that's me. And then I have like a co-founder as well who's more, um, not in the shadows, but takes the back seat and is more focused on actually the important stuff. Um, and, uh, we're actually having him on the show, uh, this season. But anyway, getting a little off track here, Ray, if you wouldn't mind, I'd love to have you take 90 seconds and just give a brief introduction and backstory of how you came to be CEO of PropertyMeld and what you're up to today. Then we're going to dive in.

First of all, and if we had longer than 90 seconds, I'd talk everyone out of the entrepreneurial journey. But since I only have 90 seconds, I'll tell you how I got into this business. So my co-founder, David Kingman, had a really bad maintenance experience at a rental back in 2014. So long story short, did a bunch of research, tried to understand the process. And realized it's very chaotic and software could do a lot of things. So we started PropertyMeld back in 2014, 2015, somewhere around there. Since then, we've become the largest dedicated maintenance platform in property management. We service around 680,000 units as of today, and our platform does around 2 million service issues annually and obviously grows as we grow. We specialize in just making maintenance coordination one of the biggest drivers of investor returns, resident retention. We continue to just go and say, how do we just make this a leveled up experience and make it a lot more controllable? So that's what we do. And so I get to head up a lot of the things involved in that. So it's a pretty fun job, honestly.

Awesome. Love that. So you mentioned resident retention. I want to start there because I think this is a fascinating topic. What have you— so you have access to a lot of data on the backend of PropertyMeld because you actually see like number of units, you see units coming and going off the platform, you see residents, you see residents coming and going. So you're able to sort of infer lease renewal rates from that. What, as you look at the data, because I know you're a data guy, what is correlated in your data with resident retention? Or another way to say that is what's correlated with resident churn. I'd love to see if there's anything that you've been able to pull out there.

So admittedly, we kind of just said about this, I can give you some things about investor retention that's tied to it. But a lot of the times when you go dive into data, Peter, you have all these assumptions and then you end up finding that first pass that you're wrong on like 80% of them and you don't know why. So you got to let go and understand it further. So for example, a lot of assumptions in our industry is like great communicator, bedside manner, all those things are super critical for a great resident experience and that's going to make them renew their lease. And so that's why even 5 years ago, everybody's like, they just need to be able to call you directly. And I was sitting there on a panel one day at IMN. They ask like, well, what about the personal touch? And I sat there and asked the question to the audience, which it's stupid to ask a question you don't know how they're going to answer, but I felt like I had a hunch to it. I said, how many of you work with software providers in your business? And like all of them raise their hands, obviously. And they're like, how many of you call them? Like none of them raise their hands. They all use the digital form because that's the most convenient. The fastest is less time committed. I said, why do you guys think that residents are the same way? We're sitting there doing it. So one of the hypotheses that we did go into was how much are we communicating with residents? How fast are we responding to them? How, how, how? And one of the things I could not find from a high-level visibility is how much you communicated with resident had any bearing on resident sat. Nothing. Now we do know there is baseline communication that is a requirement, but there's a certain point in the threshold that it's like once you go above, does it actually create any help from a volume standpoint. And we couldn't find anything with that. Peter, if you want to guess what makes residents happy in maintenance, if you were to guess the number one thing, you probably know the answer to this, but if you were to guess the number one thing, what makes residents happy in maintenance?

Speed to repair would be my guess.

Spot on. By the way, I know most people in their gut know that answer, like, and they go, well, yeah, obviously. But it is the best correlation, like the absolute best correlation. And not only that, like what we've kind of discovered in our data is not all repairs are created equally. So kind of like your email inbox, nobody treats their email inbox— some people do who have zero inbox, first in, last out, all that sort of nonsense. But like most of us who have 1,000 unread messages, are sitting there picking through and be like, I need to get to that one. That one can wait. I need to get to that one. That one can wait. Maintenance is also the same. If it's a plumbing issue, if it's an electrical issue, if it's an HVAC issue, the timer starts and has a different end time for each of those types of repairs.

So those specific three— plumbing, electrical, HVAC—

as examples, there's tons of different types of work, but they all have different speeds of repair requirements. We're getting a resident sat is favorable. So for example, you have 3 days. If your HVAC repair takes longer than 3 days, there's almost zero chance you're going to get a positive rating.

And just to put a fine point on this, that's regardless of how much communication is happening. And that's sort of what I had always assumed is like, as long as you're keeping the resident informed on next steps and what's happening, they're usually— or I assumed they were willing to tolerate an extended timeline. It's when you leave them in the dark that they really start to get upset. But it sounds like your finding is no, not really. It's actually more about literally the speed of the repair.

It's all about the speed. The, the communication as a baseline is responsible for speed of repair. Like, foundationally, you got to be good communicators to get repairs scheduled. So, there is a baseline, but the whole thing is once you kind of reach, and it's kind of like that study if you've ever done it where there's like a dollar amount where you earn and you actually don't get incrementally happier for every dollar after. There's a requirement on communication, but then incremental is just like, I get it. Thank you. Thanks for being nice, but it's hot in my house. I don't care how much you're telling me that you're working on it. So, just kind of to make sure that It's not— the communication's important, but a lot of people think, well, if I communicate a lot, it's going to make them happier. Or if I talk on the phone, it's going to make them happier. It's like they actually want their air conditioner fixed. Okay.

So you're— that, that, I guess that intuitively makes sense, right? People want stuff fixed and it would be really interesting. Maybe you guys have the data on this. Maybe you've shared it of like for the specific trades or specific issues. This is like the cliff where like if you get it done within this time window, you're generally good. But if it goes over, no matter what you do, you're, you're in bad shape. And you've articulated that that's different for different types of repairs. That's— that would be really good info for property managers to know, right? Like almost like a ticking clock, like, oh, we just got an electrical issue, we have 4 days, or we just got a plumbing issue, we have 2 days, like sticking down.

So I'll just kind of give you some quick stats. So like 3 days is HVAC, 4.5 is plumbing, 5 is electrical issues. Now, there's subcategories in each of those that are really important. And so we're trying to help find those. People can have a slowly cooling air conditioner for longer versus one that is completely not cooling, for example. There's subcategory nuances. If I don't have a working toilet in my home, that's a lot worse than a drippy faucet. And so there's some nuance there within it, but as general rules, just to give a Like not all are created equal, you know, high-level guidance there.

Yeah. And I'll just throw out some quick stats. If you're listening to this and you're like, who's this guy, Ray? Like, what does he know about— is he just making this up? No. PropertyMeld, you already mentioned 680,000 units, 2 million service issues performed on the platform. I can't remember if you mentioned that or if I got that from somewhere else. And then, um, last year, and then I also saw a stat, $3 billion with a B worth of repairs facilitated on the platform. So lots of data here. This isn't like a survey. We called 50 residents and this is what they told us. This is like, you know, the real, the real numbers. So, um, it's interesting. Those, those, like the number of days that you articulated, like 3 days for this, 4.5 days for that. I think the instinct of a lot of property managers is like, okay, how can we now stay under those? My instinct as a property manager is how do we reduce our residents' expectations? Like, how can we, how can we, how can we—

Both important ways to attack the problem.

Yeah. I think that's trying to push a rope uphill. So maybe we won't be investing a lot of time in trying to reduce our residents' expectations. Next question. So you're mentioning here resident satisfaction. You call it resident sat. That's a very Tim Cook way to talk about this. He's always talking about CSAT on the Apple, like, earnings calls and stuff. Yeah, resident satisfaction. So, but is resident satisfaction correlated with lease renewals? And that this is an area where I've, I've hypothesized that it's not really very correlated with lease renewals because there's so many other factors that go into a resident deciding to renew their lease or not. Have you been able to dig into this at all?

Yeah, so I would actually like to go to the resident changing expectations first, if you don't mind. I think that's a really good one, but I'll tell you why this is an absolutely losing battle and we're going to have no choice.

No.

Yeah, I'm sorry. It's because of the consumer experience continues to get better with technology. And so the expectations can— the expectation goes up. It's kind of like, you know, you think about us, we drive a vehicle on a car. Everybody needs to know how to fix a tire, replace a tire on a car, right? Like it was 10 years ago, it was like the thing. I have not had a tire fail on me in I don't know how long, right? They found ways, they're expensive, but I don't have to do that anymore. And so The expectation changes. Well, if you think about even pizza ordering, FedEx deliveries, you're always kind of like, well, when's it going to show up? I don't know. Like, but now everything is peppering us with, here's when you know, and it actually feels weird not to know.

And so I like not knowing.

Do you? I, it's like a little surprise.

All of that data to me is just, it's irrelevant. Like, it's going to get here when it gets here. What does that affect? How does that affect my life in any way? If anything, it's just another distraction. It's another thing that having to keep up with and keep track of. I don't, I resent that. I push back against it.

Okay. How about taxis? You remember waiting for taxis?

Yeah.

And where are you at?

Yeah. Okay. Now that is a lot more relevant data. I would argue that knowing when the taxi's going to get here is actually useful.

Dude, I remember being at the bar, right? Like, hey, are you guys coming? And I'm like, Midwest nice. I'm trying to be nice to this dispatcher and be like, they'll get there when they get there. Awesome. I'll just, I'll just wait outside in the cold after the bar's closed. It's like not okay anymore, right?

Those dispatchers were so hard to understand too. Like the lowest possible quality audio. Like just, you could barely understand anything that they were saying. Cause they're talking so fast and there's like, you can hear the other chatter in the background going on. It was, it was crazy.

Okay. So if we go back to that, like there's a lot of things we're getting conditioned for pizza. I'm with you. I don't really care. Packages, I don't really care, but my 8-year-old daughter really does when she's got roller skates on the way and we're having to as a family answer that. And like, so Domino's, when it's happening, you know, we've been conditioned now. And so the reality is it's not going to uncondition things. It's going to elevate everything around and the expectations.

So, but what if we work together and we work together as an industry to reset expectations? And I'm joking around here, but I actually do think that because Like, what about homeowners, right? When you own a home and you call an AC repair guy or you call a guy to fix your garage door, they could be a couple weeks out and they don't give you like the play-by-play. Some of them do, but most of them aren't giving you the play-by-play on when they're getting here and where you are in the schedule. And like, so I feel like these renters, they're asking for something that they're not paying for. They're asking for like Amazon level of responsiveness and data availability tracking, but they're not— I don't know if I'm explaining this well, but there's just something for me about the dichotomy between being a renter and being a homeowner. How is it right that renters' expectations are above what a homeowner gets to experience? Something about that feels wrong.

Yeah, so it's the reality of doing the thing. The pizza, if you've never ordered pizza for yourself, And you're sitting there saying, I'm ordering pizza, I'm expecting it here in 2 minutes. It's like, no, no, no, it actually takes time to go into the oven. They got to get it out. Like, I need to temper your expectations. I think that's a very— I think that's a very fair point, especially if you've never experienced it, coordinated it yourself or anything else like that. I think there's a reality that the free market will always march towards, you know, speed, quality, price.

Right.

So at the end of the day, like, inevitably people are going to keep finding ways to deliver faster, better, at lower cost. That is how our free market goes. And so there is a point though there of Peter, and I think we've seen it somewhat in investors and I hear a lot of people talk about it, is like making sure the expectations are set in the beginning and how do you do that really well. I think that's a great topic of conversation and maybe like you're not saying let's take their expectations down, but are we truly doing a good job setting them. And so, I think those are two different things I would argue because what is it? Is it Pareto's Law? 80%? You're trying to make 80% happy. I always joke that there's residents that'll be happy regardless of what you do. They're the Midwest nice people like us. And then, there's the residents that if you handed a resident a gold bar, they'd complain because it wasn't in coin form, right? And you're like, we don't care about those. We're building it for the 80%, right? The normal residents and how do we do that?

But anyways, so the resident experience lease renewal question, if you have that data.

So I'll tell you, multifamily has actually done a really good job at this because the nice thing about multifamily, in single family, it's predominantly a lot of retail investors. So I don't have energy or calories to go do these studies, but the moment I've got 5,000 rental units spread across 20 communities, I can start sitting there going, we need to start having a consistent way to do exit surveys, right? Like in a way to do it to where we find the answer, not the stuff that we just actually just want to put on our website, right? So Kingsley, this was a while back that I remember reading about it and I don't think anything has come up since. They actually walked through major multifamily study around exit surveys, first and foremost is life changes. Like I'm growing a family or I need to move. Like there's nothing we can do about that. Like the second one was rent price. Like it's getting too expensive, which you could argue maybe is actually a good thing. Like, you know, usually we're imposing those, like we're sitting there going the market inflation, all that, we're driving that up. Sorry, you can't pay. And so that one's not as much a net negative as long as you can keep vacancy rates in the right spot. But then the third one, which is the first operational one, was the maintenance experience. And you can imagine if it's parallel to owning a home at least or close to, I'm paying a premium, or historically it's been a premium to rent, that I would sit there and expect that my life is a little bit easier. I've been sold that I don't have all the problems of homeownership, but it's actually worse. And I would love to fix it, but you're not going to let me, you're not going to pay me back, and I'm not going to get anything off my rent. That's when it starts to become a thing in my opinion. And I actually got to talk to the gentleman, I'm trying to remember, he's the CEO of Invitation Homes for a while. I think I'm mentioning the right name guy. He also kind of validated in a big study that they did and headed up And they even got more granular, like maintenance requests within the first like 30 days and noise. So anyways, nothing is pointed against that as one of the big reasons as to why people leave. It's the number one operationally controllable reason lease terms happen.

Okay, but you have the resident satisfaction numbers and you know how long the average leases are, so wouldn't you— couldn't you pull a report that says, how correlated are resident SAT with lease length?

Yes. Have I? No.

I noticed you didn't do that to prep for this podcast, right? I was— I thought you were going to come with the slam dunk and show me.

I'm sorry. I'm sorry. I actually asked about it when we had our conversation at what's-it-called. So I've got the data people sitting there doing. I was like, I want cohorts of this. Here's what I can tell you that I do know that we have data on today is the fact that if you do have investors They churn at a disproportionately higher rate for people who have lower resident sat, which is probably fair to also say that, that probably that lease churn is a metric right in between that is creating decision points. So now there is some assumptive data that's on there, but the reality is, is being able to res sat all the way to lease length is probably a little more difficult. And then, you know, one of the things I also kind of got a little snarled and I don't know how we kind of figure this out. We got customers that have A-class, B-class, C-class properties, and we do have to find a way to separate that somehow. I just have learned that dynamic is really important. So, but I think we'll find enough.

All right. So Let's actually stay on investor retention for a few minutes. Um, this is a topic of high interest to all the professional property managers listening. Of course, the other way to talk about investor retention, the inverse of that, is churn. Um, we're all trying to, to lower churn. So you mentioned that resident satisfaction is correlated with investor churn, with property owner churn, and that lease renewals are probably in the mix there. And I think I've heard you say, or someone else articulate, that turn cost is highly correlated with investor property owner churn. Was that you?

So I could, could have been me, but I'll refine it if it was me. The annual maintenance, the annual maintenance spend as a percentage of rent roll is a high correlation to churn. So And Marker did some studies, M-A-R-K-E-R-R, really cool group that does analysis for multifamily portfolios, single-family portfolios. They actually did the breakdown of what NOI is for an investor. And it actually starts to make sense if you look, if you really start to move one of those buckets up, there's a natural gut instinct that even retail investors have that sits there and goes, once it clips a certain percentage, 12% is the answer, by the way, that you start exponentially increasing risk of churn for an investor.

Okay. So when spending as a percentage of rent exceeds 12%, you're saying that that is kind of a cliff where investor churn starts to go up significantly. So to translate into numbers, so let's say you have a property that rents for $1,300 a month. I think that's our average rent right now. Over a year.

I wish you would've picked an easier number. Like, could we just do $1,000?

No, we're going to make this hard.

I have to calculate it out.

So that's $15,600 a year. So 12% of that would be $1,872. So if you're spending more than $1,872 a year on that property, the owner is more likely to churn out. That seems, that feels low to to me. That seems like something that would be easy to do in any given year.

You would think so, but you got to remember turnover costs are in there too on maintenance.

No, what I mean is like, yeah, that's— I'm agreeing with you basically. It feels like that's a pretty low dollar threshold in that in any given year I'm highly likely to go over it.

So I would say normally if you were to go 2019 and before, you know, because again rent price has not kept up with maintenance cost problems and that's been why everyone is focusing on this investor churn. Wow, I'm losing a lot. Why? It's like, yeah, like if you look at HVAC costs, they've gone up 45% in the last, you know, 3 years. And you're sitting there going, has my rent went up 45% in the last 3 years? You wish. It's not. It's expensive and everybody knows it's expensive, but the investor's really getting saddled here. And so that's creating some of the challenge of like why a lot of people are really focusing on investor retention. I feel like I'm selling an uphill battle because I'm having so many drop out. How do I stop that? And I've heard more, more conversations about investor churn in the last probably 12 months than I did the entirety of the previous 8 years of being a property manager. It's pretty— yeah.

Yeah. So we're actually almost back to the same, the same type of dynamic that we were earlier with residents, which is If investors are churning out due to high spending, we can either reduce the spending or we can lower the expectations of our property owners. In other words, explain to them why this level of spending is normal and that it doesn't mean that they are losing money. It doesn't mean they've bad— they made a bad investment. It just means that costs are up a little bit. Rents will catch up. You're still got appreciation. You're paying down your principal. So what would be your recommendation to a property manager who is struggling with investor churn? How do we, how do we broach this conversation with our property owners?

So really what you're competing against a lot of the times is a pro and is an investor thinking another property manager can do it better or self-managing. That's actually the competition. They own the house. There's nothing they can do. They could potentially sell it. Not a super fun market right now. So So the thing that I would say, and it's the same reason why I like adoption and some of the things, especially with people that have a bunch of retail investors. I know you and I disagree on the terminology there, but let's go retail investors. You own 1 to 4 homes. Maybe I'm accidental landlord, retail investor, right? Is really about the last time that they had changed a hot water heater may have been 5 years ago, 10 years ago. In their mind, they do not know what's happened. On the maintenance. They've been disconnected from it. They have somebody sitting in between them. So they're saying, no, it's gotten really expensive. Now, the problem is us as human beings, we believe data 10 times more than we believe somebody's word. And unless you're talking to the broker owner of the company where you have an immense amount of trust in their skill and ability, which a lot of us don't have that luxury, you have to find a way to present data that say, here's what's happening and why. So one of the things that we're seeing a lot of property management companies do is really lean on data. We've got a cool, you know, insights thing that we've released where it starts to surface a lot of the data and even like benchmarking and market that people are starting to take that and go, we're actually at market on costs. And this is again, 680,000 units about these types of repairs and like making sure that you're prepared and armed because really you're starting to sit there and go, if you go to another property manager, it's probably going to be the same or maybe worse. If you do it yourself, you're going to be paying retail prices. Good luck. It's going to be higher. And so really going after and arming with the data that sits there and goes, I agree with you, hot water heaters have been insane, but I'm just showing you what market is across the entire nation or across our entire region.

This is it.

This is not me telling you. This is this third-party data source. Telling you. And so more data is really the key in those conversations.

Yeah. And I have to say, there is a lack of data overall in our industry. I know you guys are doing a great job with surfacing a lot of this, honestly, for the first time for a lot of us. But historically, it's been really hard to go to a property owner with data because our industry is so fragmented and every single house is different and every— even regions of the country have different types of equipment and So I wish I could point to, well, given your property size, age, and location, here's a study of 10,000 similar homes that have been professionally managed for 30 years. Here's the spending you can expect. And we're actually tracking 5% below that if you go back 5 years. We don't have that ability right now. But think about how powerful that would be to show an owner I know this is painful in the moment, but look, we're— this is right on track here. And if we keep going, let's look 5 years down the road. What's this property worth? What's the rent going to be at? What's your spending going to look like? So I think there's, there's huge opportunities there.

I think in the short term, too, even just conveying the lease and turnover and how you're combating that is really important as well, because I think like if you just look at pure costs, like home warranty is a perfect example. Is one of the worst products in our industry to like really hit, and it creates lease churn, like, and people have to work around it, and it creates bad resident experience. And I can, I can give you quantitative results how bad it's destroying like the resident experience. It's like an order of magnitude of like 30% less of a resident experience. The speed of repair is significantly higher. There's a lot of interesting things there. But sitting there going and educating that, hey, you're making the choice based on maintenance costs to do two things: keep their costs under control, but keep that resident in place because guess what? The moment you lose out a month of rent is $1,300 out the gate, right? And not only that, but we got to paint, clean carpet, do all whatever. That's going to be another $1,300. Would you rather me, you know, and you're not really asking them, you're being the consultant in it. Our job is to get your costs down cumulatively as low as possible. And that means that as well. And so Making sure that just like any business, you really put your best foot forward. So using the data on how you're doing on resident sat, how you're doing on speed of repair against the market, how you're doing in cost management against the market, whatever your thing is, being like, this is what we're going to talk about our investors. Here's what's going well this week. Here's what we're focusing on. And you do have to find a way to do it en masse because I'm assuming, Peter, you've got plenty of retail investors or maybe you've got a different name of an investor. But it's hard to have that many conversations. And so you do have to find a way to do it en masse. And I think there's some cool products popping up that are trying to really take a stab at that.

Yeah. So sticking with investor churn, property owner churn for a moment, there's some really cool work being done by Profit Coach around benchmarking some of the milestones in various property management processes, one of the things they're looking at is they're calling speed to lease, which is basically how, how long does the property sit vacant for total in, in that you're adding up both the time to turn and the days on market essentially. I would be really curious to, because I'm, because again, PropertyMeld has this data, right? The day the resident moves out to the day a new resident moves in on your platform. I would bet there's high correlation with long speed to lease, meaning takes a long time, with investor churn. In other words, property management companies who are able to get the unit making money for the owner again quickly, like let's say their speed to lease on average is like 3 weeks versus a property management company that's taking 6 or 8 weeks. My hypothesis is that their churn is significantly lower. That would be a fascinating data point to pull out from, from your data set.

You know, that would be— I wrote that one down. It's almost like it kind of goes in order where it's like, how frequently does it happen is a decision point of an investor, like, or, or it happened, therefore I've already lost some, period. Now you're sitting there trying to hang on to the ones that are interested in staying with you and like, and now the time clock is ticking to make sure that you retain the most. And so that's a, that's a really interesting metric and it makes a ton of sense. I think that would be pretty easy to pull, candidly. Speed to lease. And Profit Coach is brilliant, by the way. I love what they're doing for our industry. I love what they did with our accounting standards. I've talked to them about maintenance accounting standards. Great, great group.

Awesome. All right. So we've been talking a lot about investors, property owners, and what correlates with churn. One of the things I spend a lot of time thinking about, and I know you and I have talked a little bit about this, is like, where do our responsibilities begin and end as it relates to the performance of the property? So take a given investment property, 123 Main Street. How much money is it making this year, last year, next year for the property owner? Are we responsible for that? Are we taking accountability for the net operating income, the NOI of that asset, or is, is Is that not something that we have control over? Basically, we can put a good tenant in there, take reasonable steps to address maintenance issues as they come up, be proactive about lease renewals. And beyond that, hey, Mr. Owner, sorry it didn't work out for you, but we did our best. Some people would call like that higher level accountability would almost be called like asset management. What are some of your reflections on that?

You know, I— what's really interesting and I think has been really awesome is I've tended to understood the property management game a little bit better because I am also in recurring revenue business in software. And so I think mapping those, I was like, oh my goodness, there's so many similarities here. Like hanging on to customers is crazy important. I want to have longstanding customers where I have good margins, deliver a great service, all that. And so I think if we start at this like high level and I'll tell you, this churn conversation has been super interesting because I've talked to operators that have anywhere between 8% churn to like 30% churn. And obviously I love the data that you put out on your newsletter that's like kind of like why this is important. And so if you just start there at that range, like, and I wrote a thing down on why our industry has a little bit of a challenge with funding can be because we don't hang on to investors well. We're a, we're a high churn business. And if you want predictability and long-term gains, like you need to not have a rely on your go-to-market to keep your business alive. So if we start there, churn is highly variable, and then we sit there and go, what are property management growth goals, which everyone has? I want to grow X amount of doors next year, X amount of doors this year. And you understand how those two connect. I want to grow net number of doors. Then you sit there and go, well, how do I impact that? And so I think there's an element of living in the reality of the human being and being like, this is the thing that is causing it, how can I impact? I'm either going to, and I think you and I have a conversation of like, do I either A, do better at expectation setting, or B, find a way to change the outcomes and have them believe that I am responsible for the reason their investment is better performing than it has been. And, but I think starting out there, 8 to 30% was kind of mind-blowing. I talked to a lot of operators that are trying to get 12% and it's like, You talk to Mark Cunningham, who's a very, very intelligent guy talking about this, and he'll sit there and be like, ideal customer profile, boom, knock it out. And then you talk to like Tiffany Rosenbaum, also a great influencer in our industry, and she's like, I bring them all in, but then I just make sure like through the onboarding, they're continuing like getting expectation setting and getting agreements through it. And then you talk to somebody that's not in there and it's me and I'm sitting here going like, let's do a bunch of preventative and drive down their costs. And admittedly, I'm not an operator, and I think everybody knows that. But, um, uh, but like people are trying to change that, and I sit there and go, those two can be great implemented scale, but you can also keep being accretive by operationalizing, managing retention and maintenance costs, ergo their NOI. And I'll give you one story that really like tipped it off for me. This was really embarrassing and I've told this story a million times, so I don't know if it's embarrassing anymore. I probably told it 6 times or 7 times. This was like 2019. I was at the office in Property Mountain.

I was—

we had a group of people, it was either a Christmas party or something. And don't ask me why I asked this question during a gathering, but I was like, how many of you own rental properties? And there was like 6 or 8 people who raised their hands. And I'm like, how many of you hire a property manager? And this is embarrassing, none of them. And I'm sitting there going like, we literally serve this industry. Why don't you? And I actually kind of explored this. And the number one reason is it's too expensive. The perception is it's too expensive. And so I asked the question follow-up. I said, if your take-home money was approximately the same or close, would you hire a property manager? Like, yeah. This sucks. Like, nobody likes it. And so if you can get that belief to where I can create an equitable outcome against you managing it yourself, the entire self-managed landlord industry would probably evaporate and become professionally managed.

Okay. So it sounds like what you're saying is if it was possible for a professional property manager through various cost-saving measures Could be some improved resident retention, could be optimizing rent, could be reducing maintenance costs, could be reducing turn costs. But if through some combination of those mechanisms, they could lower the property owner's cost to cover the management fee, in other words, essentially make professional property management free for the property owner, like net of everything. What you're articulating is if we could do that, The industry would explode because the 70% or so of folks who are self-managing, that Iceberg report's getting a little old, by the way. Hmm. Would be interesting if somebody updated that. Hmm. Ah, interesting. Let me think about that. Then like that would be so dynamic, like it would be explosive growth for the industry. And I, is that a good summary of, of—

It is. And I think there's— that's— it's hard to do because you have to have— even in our platform, we've got 450,000 retail investors that are customer service or like, you know, somewhere around there. It's hard because you got to have that conversation 450,000 times. But, but yeah, if people believe that their next best alternative is self-management, which a lot of them are, we tend to fight over who's already agreed that property management is a good investment and we sit there and trade. Investors and we go sit there and go like that, like, we're not— one, we got to find a way to stop that because losing a customer is expensive. Gaining a customer is expensive. That bucket's already hard. But then there's this whole other giant one that has absolutely no chance of delivering cost-value benefit like professional property management does, that we've got to sit there and convince. But the answer to both of those both of those buckets that I talked about is helping manage the costs or delivering value that they believe is equitable or better than either an alternative of self-managing or their— And so the thing that I kind of go back to in that is property managers uniquely can, because there is not a single other business or dynamic or industry principle that has of scale that does not create economies of scale than somebody doing it by themselves. There's no other single one. And you look at retail, like if I was to sit there and post pricing of what average invoices are online, which I think I do occasionally, dude, retail homeowners or just the homeowners would be like, oh, I didn't get charged that. It's like, yeah, good luck. You're never going to get the pricing that property managers do. They deliver repetitive work to vendors in exchange for lower costs already in economies of scale.

I definitely wanna pause on this. I'm gonna push back a bit. I wanna see, I wanna dig into this. So I hear this a lot from prospective clients, especially when I was taking the sales calls. They would ask, um, they would ask about our pricing. Hey, um, do you guys have like, what's your rate for like electrical? What's your rate for plumbing? Don't you have like You're— there's this assumption on the part of the property owner that because we're managing, because we're professional property manager, we somehow have access to some amazing bulk rate on it with every trade, every single trade, everything from roofing, flooring, siding, electrical, plumbing, all of it. They feel like a lot of— a lot of the investors I talk to seem to think that we should be getting like we should be like getting 40% off retail pricing and they, they should be getting that. That's maybe I should say it that way. They should be getting 40% off retail pricing because you're a property manager and you must be doing this at a big scale. And for me, that hasn't been my experience. My experience is that the contractors and vendors we work with, they knock a little bit off the retail price for sure. We're giving them some volume.. But it's not a lot. It's not a huge differential compared to a homeowner who shopped around a little bit. And the other issue that really would irk me is that the property owners would want this great pricing, but then they would also want us to use like their guy, like, oh, I've got a plumber I want you to use. He's good. My cousin's an electrician. I need you to use him for any electrical issues. And then at the same, the same breath, they'd be asking, well, why aren't you getting better rates? With your volume. And I'm like, because guys like you keep making me use your little specific vendor. So I never accumulate enough volume with any of my vendors to be able to negotiate any significant discounts. So that's a long way of saying, are property owners entitled to below retail pricing just because they use a property manager? I don't know that I agree that that's true.

So let's, let's kind of how a property manager makes their money. Let's assume that that's fluid right now. A lot of them charge a monthly percentage, they'll charge a maintenance coordination fee, and you can slice and dice it however you want. And I would even argue, Peter, by the way, because I'm able to look at 50,000 vendors in our platform. And do you know which ones I do not see a lot of? I do not see a lot of Mr. Rooter, Mr. Electric, Roto-Rooter. The large national retail brands are not in our platform. The neighborly brands, the neighborly, or even the whatever the other ones are like these large retail trade services ones, they don't because they just pay so much less. Nobody goes to Angie's List or HomeAdvisor or these Thumbtack to go find these people because in general they're way too expensive. And so I would probably argue to some extent that they may have their buddy who can do like comparable pricing, But property managers, by the very nature of the business, like, are getting a pretty decent discount on a lot of things. And I could probably go out and— it's a hypothesis that I think you could probably go out and explore and just see if it's true. But the thing that's also probably really important that I'm hearing a lot again in the last year is vendor compliance. Like, regulatory environment is skyrocketing. And the more that people complain about housing affordability, housing availability, rent availability, we've already watched a bunch of dumb state rules and federal rules on some of the different things we have to do for rentals. And guess what? Now your liability, a lawsuit, or not having to have a resident pay rent, or all these things are starting to go up. So vendor compliance has actually been one of the big ones too, where it's like, hey, and it's really hard to show somebody how much money they're saving. They haven't been sued before, right? But, but that's starting to become part of the equation as well, is is, is that. And so, yes, this is why we don't use uninsured ones, because guess who's going to be paying the bill? You are. And I don't know, do you have $1 million sitting in your pocketbook back there behind Mr. and Mrs. Investor? And so chances are they don't. Then be like, would you like us to use a legally compliant one that's compliant with the new EPA certification licenses and all that? Or do you want us to Gotta roll the dice for you. It's like, and so that's the other component there.

But I, and I think there is, there's, there's levels here, right? So when I say retail, I think there's actually a couple levels of retail pricing. There's like the, you listed off like the Roto-Rooters, the, those neighborly brands, like the, there's joke, there's people joke on Twitter about like if a, if a wrapped and branded truck rolls up when you call a plumber, get ready to get your checkbook out, right? Because they charge just astronomical pricing. Versus like the guy in the white van with no label, you know, no branding. So I think like affluent homeowners who are super busy and just do a quick Google search and like time's more important to them than money, they're paying what I would almost call like super premium retail. Like they're paying— I mean, truly, Ray, and maybe you've seen this, like plumbers in the major metro areas. And I know some of these guys that own these businesses, They're charging like $400 to $800 an hour for plumbing work to, to homeowners, like in, in nice areas. So that's like super premium. And I would never allow one of our clients to pay those rates. Then there's like what I would call like normal retail pricing, which is not one of those companies, but not some guy you met in the Lowe's parking lot either. It's like some preexisting business who's been in your area for a long time. They're independent. They're not part of a large brand or franchise. Now, they might be part of a franchise and they're charging like, you know, in the $100s an hour for plumbing, let's say similar for HVAC. And when you go to get your HVAC replaced, you're paying $4,000 to $6,000, not $12,000, stuff like that. Like that, that's like where a homeowner who calls around shops around a little bit, like somebody they would hire. And that's what I use as kind of the benchmark. I do want to beat that for our property owners by 10 to 20% if I can. But what I can't do and what some homeowners talk about is like, oh no, dude, I have a guy. Like, I found him on Craigslist a few years ago. It's like $40 an hour for anything we need done. And I'm just like, dude, No, like there is no possible way that this person is licensed, insured, and bonded and is paying their payroll taxes. And it's like all the overhead that I know goes along with doing work. Like, that's insane. And I don't know where I'm going with this, but what do you think about that?

So I'll tell you, so we survey our vendors occasionally and we ask them like, how many property managers do you work for? What percentage of work do you do in property manager? Do you like paying for leads? Like all these sorts of things. What do you use for scheduling, all that sort of stuff. And so one of the things that's pretty predominant is every one of them loves the retail jobs because they charge more. And but the big advantage and why property management, much like property management business, is this recurring work that they're going to— they know that you're going to break 0.4 things in a unit every single month. And as long as they stay on that and stay in the good graces, like they can keep working with that. They're willing to work. No, no marketing costs. Yeah, they can work through that investor. They can do that. They don't have to go on Thumbtack or whatever where they're paying anywhere from $20 to $50 a lead, which may not even come to anything. And that relationship alone is incredibly valuable. And that's why also you'll hear property managers get work with a vendor and be like, this is kind of bogus. And a vendor will eat some of it because they know that making the big customer happy is more valuable. Than if they have a one-off customer. And it's just the, it's just the nature of it, right? Just like, you know, our business. And so that dynamic does exist and they prefer that sort of business as long as they've got consistency of work, they do not have to market it and they can pick their own schedules. That's really, really important. And again, if they look at you as a customer versus the landlord that's going to call them one time, they will, they will give good pricing. They will negotiate, they will do things to say, can you give me however many a month? And just that dynamic doesn't lend to the individual landlord operator from a financial aspect.

Good stuff. I want to move on to the property management maintenance operations. So you guys have a really great graphic showing like, hey, If you're a professional property manager, you're handling maintenance requests, and especially if you have an in-house maintenance team, here's like the levels of things that you need to work on in order to be very successful, very profitable, drive down speed of repair. I know you guys have spent a ton of time thinking about this. What are some of the most important KPIs if someone's getting ready to look at their maintenance operation and wants to know sort of where they stand or what they should be looking at to improve? What are the most important KPIs to start with?

So if you want the visual, I don't know if you're going to post it on here, but if you go to club-meld.com, be sure to put that hyphen in there. Don't, don't take the hyphen out on a work computer. I'm just going to throw that out there. But, but if you do, there's a KPI sheet in there and it's going through what you're talking about, Peter, that ladder of maintenance excellence. So what I would say is It's not which are the most important broadly, but which is the most important for you is very, very important because property management companies are kind of at different levels in their operational prowess. And so the thing that it goes through is be like, everybody knows communication, but why? Like, why is communication important? Well, it actually impacts scheduling efficiency, which is how fast you can do work. Well, why is that important? Because that will tell you how many techs you need, how many vendors you need to actually keep costs down. And why does that matter? Well, because that impacts resident sat and investor retention. So it actually connects all the dots. So the way that, like we tend to say, to look at to begin with is how good is your communication and how do you measure it? Every operator should look at this. And so we tend to measure based on resident submission rate, how much communications per service issue. How fast are investors are approving things? Like how fast things are being accepted or being having a confirmed scheduled date? Like those are all indicators of like people are engaged in the maintenance process that can facilitate something. So a lot of the time starting there and then once you've got that, you can move to scheduling efficiency and once you got that, go there. But if you were looking at the 5 biggest scoreboard things that everyone can look at and go, how good am I doing? Resident SAT, resident satisfaction, speed of repair, because it's the biggest leading indicator to resident SAT, annual maintenance spend per unit on an annual basis. And we've got a couple other ones that are a little bit more proprietary— technician utilization rate and vendor health index. But those big three, everyone should be monitoring in real time. That should be in the weekly staff meeting or monthly staff meeting that you're sitting there going through it and it will at least point to, do we've got a problem or not? And then a lot of the stuff that I mentioned in the latter is like, how do you go and do something about it?

Yeah. And I completely agree, by the way. And we have most, if not all of those on our leadership weekly. We run on EOS, so we have a weekly leadership level 10 or L10 meeting.. And as part of that, we were, we have a scorecard and the scorecard has like 12 to 15 KPIs across the whole company. And the, the items you listed off are in there. I think almost all of them. I know for a fact that the resident satisfaction is in there. The median, I think we look at like the trailing 30-day or 90-day median repair days is in there. And yeah, I want to add also that Here's the thing with KPIs. A snapshot is almost completely worthless. Um, unless you have a really great benchmark that you're going against, a snapshot in time isn't helpful almost at all. What is helpful is looking at a snapshot at the same day and time every week over an extended period of time and looking at the trend. Okay. Is my resident satisfaction going up or down? That sounds like something I might want to know as the owner of the business. Is my median repair days going up or down? Sounds like something I might want to know as the owner of the business. And so that data, I think, is, is 10 times more important than the, than a snapshot. And so what I'm always encouraging my leadership team to do is love KPIs, But we need context and we need, we need, we need trends. So I don't want to see numbers. I want to see graphs. Yeah. Right. Oh. And like, that's what gets me excited. It took me a long time to really, cause I, for many years I had this instinct that data was important and I knew that coming out of my engineering background and everything. And so I would go to all this trouble to get the data and it would put it on the scorecard and then I would kind of look at it and it would be, it would be sort of like a letdown., and I would be like, huh, I really thought this was gonna be more useful than, okay, the number's 3.2. Okay. Like what? I don't really know what to do with that. I'm glad I know it, but the real power gets unlocked is when you have that over time, the time domain. Right. So that's my big encouragement to the listeners is if you are taking snapshots of data, let's start tracking that over time.

Yeah. And I'll even, I'll even kind of, if you get a chance, like the way that we built our insights pro— because you could build a million things. One, we're like, we have to build it off the ladder of maintenance excellence. And then two, there's like thematic that aligns super well, Peter. And you're like an electrical engineer, right? You're like one of the smart engineers. I'm a mining engineer. We both value numbers, right? Like we're like the— yeah, there's like one engineering type. I'm not going to list them publicly here because I don't want to get hate mail, but there's one that's dumber than mining. But, um, but, but kind of our thesis was the static view tells you, is that good or bad? Like that's what it should tell good or bad, um, how fast it's, uh, in the, the velocity, like, so like, is it going up or down?

That context is an improvement. Or like, what is that called? Like the rate of change? We're getting into calculus.

And if you really want to do derivative, the derivative vectors. Yeah, well, we could get into vectors. Let's not like bore everyone. I, I can't even remember anything past calc anyways. But, but like, is it improving or getting worse? So basically the direction And then how fast? Like, and so is it— if something's bad but it's getting better at a good clip, leave it alone. Perfect. If something's getting a little bit worse, aggressively emergency. So those 3 data points, like the static number tells you good or bad, the direction is tell you if it's improving, getting better or worse. And then the third one is, is this an emergency or is this not? Those are all that context. I'm a super believer there. We do the same thing in our business. But anyways, sorry, just want to double down on your statement.

I love that. I think that context is great. Okay, great. So you've talked about some KPIs here. I know that you are— you're— you are trying to standardize some metrics and KPIs for our industry on the maintenance side. Are you collaborating with anyone on that? Kind of bring us up to speed on, on the effort there.

So I think, you know, when we started PropertyMeld, I think we were still at a point of convincing the industry that maintenance operations is important. And so as we've gone through and kind of continue to find information and data, I think the industry is really as a whole is starting to put a magnifying glass or really buy into the fact that maintenance actually has a big, big impact on our business. It has a big impact on our investors. So, we've continued to drive some of those numbers that data points to. Of course, like we could invent, we have so much data in our platform, we could invent whatever we want. Like, oh, but I think part of it is that leading lagging indicator and going like, what are the right things to do? I can't say we're collaborating with anybody, but there's another group that I'm hopeful we come up to that we can really start overlaying the financial scorecard of maintenance in with operations because financials are the ultimate scoreboard. They're the ultimate scoreboard. And for us, the visibility on that is like a little rough. And so we are trying to work with somebody. We've had some feelers out on a— with an organization that's kind of interested in collaborating. But I do think we have to get there. And part of it is we've got to have a GL standardization of how it looks so that way we can say, how good are we doing from like keeping investors and residents, and then how well are we executing? Is this profitable or is this a drag on the business? And if both of those line up, then you've got, then you've got everything locked in.

So yeah, and I really want to underscore something you just said there, which is a set of GL standards and what you mean by that. So GL, general ledger, of course, years ago, Profit Coach collaborated with NARPM, came up with a standard set of accounts or chart of accounts for the corporate side of our, of our bookkeeping, of our accounting as an industry. So if you own a professional property management business and you have your books, you know, the one where you run payroll and all that out of, it's either in QuickBooks or Xero or something like that. Profit Coach and NARPM developed an outstanding standard set of accounts there, which has— they call it the NARPM Accounting Standard, NAS. That has allowed us as an industry to compare apples to apples when we're looking at standard financial metrics like revenue per unit or direct labor efficiency ratio, even things, just basic things like profitability. And then what you just referenced, which I'm very excited about, which is why I want to highlight it, we need something like that for our trust accounts. We as an industry do not have a standard set or chart of accounts for the trust accounting side of the business. So the chart of accounts that you have set up in AppFolio or Buildium or PropertyWare, whatever software you're using, if you look at 10 different property managers, they all look different and there's no reason for that. We should, we should standardize that. And what that, that would unlock actually a lot of really powerful things. For one, it would make things a lot easier for our investor clients because they could come to understand and expect a standard set of reporting with standard account names and codes. So even between property managers, that would be similar. And we could develop like training materials as an industry collaboratively to help them understand their reports and their accounting. And then for you, Ray, with PropertyMeld, you— it would then be much easier for you to code your vendor bills to the right accounts for your property manager clients. And then from there, you could do even more really cool data mining and analysis and reporting to figure out to an even more granular level where the money is being spent property by property nationwide.

It's a really good idea. I even think there's another thing here. I think the most brilliant thing the accounting standard did was it made the ability to buy and sell property management businesses a lot easier. Like us in SaaS, like we have to have our books look a certain way so that way we can compare to other SaaS companies and other things. So when people look at us, they'd be like, oh, we're all talking the same language. The interesting thing about maintenance though is we will see people get purchased and they don't understand the maintenance business well enough that they will not actually pay equal multiples or whatever. They'll— it's actually more simple to say, I want to take your maintenance stuff out But the reality is the only reason is, is because there's no good consistent way to look at it. And it's easier to just look at the rest of the business where there's a consistent way to look at it. And that part I don't understand as well, so I can't predict when I buy it. So for another thing other than a scoreboard of how am I performing, but it's also like, do you want to take one of the most valuable assets in your business? And if you got internal technicians, we could talk a lot about that. But like, you don't want to build that value and not get paid for it someday.

That's right. I mean, 40% of our revenue comes from our internal maintenance department or team.

So it's a big deal.

Yeah.

And I will even tell you another interesting stat. Over the last 12 months, we've watched internal technicians grow at a rate of 10x over the last year. So it's starting to become important. And of course, when you have more people wanting to sell, it's like they've built a very large and good business on that. It's like, yeah, you should make the money on that. And it's a huge part of that business and how you're hanging onto residents and keeping costs down. And there's a lot of reasons why that's important, but—

Awesome. Well, great. This has been great. This has been very engaging and I love getting into these types of conversations with you. For anyone else who was engaged, where can they follow along with you and PropertyMeld?

Where's the best place to do that? So one, if you go to www.propertymail.com, we actually have something you can find right on the website there, which is called the Maintenance Minute, where we talk about data trends, everything that we're doing, and we kind of get into those things, communication, engagement metrics, all those things, just to kind of learn. Obviously, check out propertymail.com if you're interested in doing something about maintenance. You can chat with us, but that's the place where you can go and find Club Meld, all those resources, KPI cheat sheets, everything else like that. So we try to— we know that by adding value to the industry, we end up bringing some great customers on board. And so it's a good resource whether you're just curious and want to learn about KPIs or you want to talk to us.

PropertyMeld.com. Awesome. I also want to throw a shout out for your LinkedIn. So if you're not following Ray on LinkedIn, just search his name, Ray, last name Hespen, H-E-S-P-E-N. Follow him on LinkedIn. He shares really interesting data and analysis as he's combing through late at night the backend of property mail. He's running manual database queries. I mean, you know that he's pulling out some good stuff there and he shares it in context on LinkedIn. So great stuff, Ray. Thanks so much for coming on the show today.

Hey, thanks, Peter.

Really appreciate it. If you like the show and want to get connected to the community, you can follow me on Twitter @pslohmann and subscribe to my email newsletter on my website peterlohmann.com. I try to share as much valuable property management content as I can on a regular basis. Thanks again for listening and have a great week.