Welcome to our live show!

Fantastic. What's up, Peter?

Not much. You are tuning in to the Crane Podcast. It's a brand new show with Mark Brower and I. We keep it tight. It's 30 minutes. We jump through 1 or 2 or 3 stories, uh, from the property management industry last week or 2. Mark, I want to talk today about something that was released by Ray Hespman, the CEO of PropertyMeld. He shared on LinkedIn a graph that stopped me in my tracks. And it has to do with owner churn.

Yes, Ray's really big about owner churn. Yep.

So you and I both own residential property management companies, and PropertyMeld, uh, we use PropertyMeld and they help us coordinate maintenance. And so PropertyMeld has on their platform millions of rental units across many, many hundreds, probably thousands of property management companies. So they have millions of units. Millions, millions, millions. Millions of units.

It's just a, it's a big number. That's a big number. So, so he's got a sufficient sample size is what you're gonna tell me for what he's about to do.

I mean, I was hoping for a billion before I could, you know, assess the statistical validity of what he's doing.

Statistics 101. You can have a really small sample size. All right, let's go.

What? Yeah. So, um, basically because he has all this, uh, data, he's able to pull out these interesting trends., and in a way that I don't see any of the other platforms sharing. So it's fascinating to me. Okay. Um, and basically he shared a graph a couple weeks ago that showed in year 1, like the first 12 months of a new owner who starts with a property manager, how many of those owners are retained for the full 12 months.

For the full 12 months. So just to clarify, we're not talking about someone who cancels after 12 months and 1 day.

Correct.

You're talking about you lose this contract inside of the first year.

Correct. Okay. And because this is a podcast, I know not everyone's watching the video. I'm just going to read it and then we'll talk about it. So it goes back to 2021. In the year 2021, 83% of owners were retained through month 12 of owners who started in that year.

This is third, third-party fee managed. Data.

Correct. Okay. So that, and if you do the math on that, 100 minus 83, that's a 17% client churn in year 1.

That, that sounds really high.

Really high. Okay. And in 2022, it got even worse. We dropped from 83% to 76%. In 2023, it dropped to 75%. Okay. And 2024, it was 76%. And in 2025, it jumped back up to 81%. This is—

this is unbelievable to me.

Yeah. So what I— the way I would describe this data is I call this like secular churn. It's like, you know, whatever's going on at your management company, if we average all the management companies, there are trends here that go beyond just whatever's happening in your local market, right? Or with your specific company. So something about the macro environment or the way all of us property managers were operating caused our owner retention to drop in 2022, '23, and '24 and jump back up in 2025.

Okay, can I, can I, can I give a framework on this?

Yeah.

When I went back and got my MBA in 2008, one of my favorite professors was visiting from University of Chicago, and he taught an elective class that I took called Portfolio Allocation Theory, and he helped us— he, he, he taught us about two types of risk: idiosyncratic and systemic risk. And systemic risk, you cannot diversify away from. It just is what it is. It's at a macro level. The world blows up, everybody's going to suffer. Idiosyncratic risk, you're going to diversify your holdings, and you can significantly reduce your risk while incre— having high returns. So when I, when I'm thinking about this data that you're presenting right now, I'm thinking this is indicative of systemic stuff, right? Because you're looking at the data in aggregate. This is not idiosyncratic, like all of a sudden all these property managers all at the same time change their business practice, right? So, so to me, this would be driven by market forces, right or wrong? Do you see this differently?

No, I agree. So there's two possible explanations and it could be both. Market forces and changes to the overall property management industry. So like you— like legal? No. Here's— let me explain. So like from 2024 to 2025, we jumped from 76% to 81% investor retention. So in other words, churn went down for everybody on average. It could be the case that throughout 2024, property managers adopted better tools and got more responsive to maintenance and handled customer service better because they switched to pod-departmental hybrid instead of pure departmental. Right, Todd? And so if that's true, we all got better together and that could cause a decrease in owner churn across the whole industry.

I'm not buying it.

Okay, I mean, maybe, but surely you would agree that over 5 years something has changed about how the overall industry handles their owner clients. We maybe we got better, maybe we got worse, but I think it's unlikely that the whole industry on average there was no change at all about how we interface with clients and that would impact owner churn. So maybe it's a small impact. Maybe the secular impacts dwarf, you know, that impact. But I just want to throw that out there as like a potential, uh, something that— and Ray likes— Ray will speak to this more because I'm going to talk to him more about this data. Ray, I think, has data that will help us explore this further. But what do you think?

I mean, it's hard for me to buy the argument that all of us got better at the same time as an industry, especially since in 2021, ostensibly, we were the best, and then we declined significantly for the next 3 years, and then we pop back up in the 4th year. So, so like, like, are we really, are we really moving that, or is there, is there some forces in the marketplace with interest rates or difficulty selling properties or some other motivators?

I think it's fair to say that that was the majority of the impact here, is market forces. Like, like you just had interest rates, a lot of people sold. I mean, we experienced high churn in those years. Owners were selling. It's like every day there was some notification in Slack about a property owner deciding to sell.

Yeah, you hate that stuff.

You hate to see it.

You know, you hate to see it. I'd love to see it.

You'd love to see what?

I'd love to see my owner selling.

Why, Peter?

The owner selling the property is the best possible outcome of our property management relationship. That's a separate topic, though.

Well, let's talk about that for a minute because we're not— we're going to run out of— we can't talk about this one thing for 30 minutes. So please say more, Mark.

Well, you and I have talked about this before. My— I feel very strongly that every single property manager should have a division that sells properties. And when you sell that property, it's like the easiest layup in the lap listing of all.

But like, if that's— if it's better to sell a property than manage it, then just do sales? Why would you— why would you waste your time managing at all?

Okay, uh, because it takes— we're actually just managing properties so that we can sell them. Hear me out, hear me out.

I thought, don't you have this whole thing about like you gotta like help the owner withstand the pain of being a landlord so they can see the wealth on the far side of that?

And everything Yes, yes, yes, yes. So this— I know this is contrary to some of the things. Look, not everybody's cut out to be a landlord. And the people who are not cut out to be a landlord or need to sell for other reasons, they need the capital for other things in their life, or they've got a better place to put it and get a higher ROI, or, you know, they're, you know, just— there's all the— all these factors, right? So we should act like real estate investment advisors. This goes to our asset management discussion. If everybody sold their property, if everyone I manage for sold their property tomorrow we would net $5 million. We would gross over $5 million in revenue, and it would be a 75% margin to the bottom line. So, I know this is never going to happen, right? This is never going to happen. Guess what? That's more than double what my property management book value, enterprise value of my company is right now. So, by, by illustration, the outcome of selling every single property we manage as soon as possible. If you do a discounted cash flow analysis, net present value, Finance 101, and you're able to get a 70 to 75% margin on that real estate commission like we are able to do, that is the best possible financial outcome for your property management business.

I have never thought to do that analysis. That's really interesting. Oh, and you make me feel surprising. Well, no, we don't do brokerage, so I would have never had a reason to do that. But is that assuming like whatever, 6%, you know, commission?

Yeah, yeah. So average commission for us, yeah, conservatively is like $10,000. And I have a staff real estate agent, so $7,500 of that falls directly to our bottom line. And it— and that there's such a high-trust environment in those listings and the owner's already out of state and it's just like, hey, we need to do this to the property, we need to list it at this. There's really high motivation to sell, there's less haggling, there's less emotion involved, and you can, you can just— and it's a, it's a fantastic listing.

Yeah, $7,500 a door is certainly more than anyone would pay you. Yes. To buy your management kind of 2 to 3. I would say 3 times. Yeah, yeah, 2 2 times probably. Um, huh. I don't know what that means.

I'm like, well, well, here's the thing. When I, when I first did this analysis, I got into this business thinking like, um, I want a residual revenue business, you know, that's recession-proof and all these other reasons. And then I did this analysis one day because I thought like, I came from the transactional world. I came from commercial real estate where you're only as good as the last deal you did. And when that's done, you're done. You got to start over. And so I ask you this. Yeah, yeah.

Does this imply then that you could go to your owners and give them— and give them a choice? You could tell that— you say, listen, Mr. Owner, I'm going to give you 3 choices. We can continue as is. I'll sell your property right now for a flat $7,500 or $10,000 commission.

Yeah.

Or if you plan to be hold long term If you pay me $7,500, I will manage your property forever for free.

Oh, I like that. Oh, I like, I like the creativity.

Pull it forward basically, and like, you know, now if they sell in 2 years, that's on them, right? But you're— dude, this is crazy. Would that work? Am I off here? No, it would never work.

Nobody's gonna pay you $7,500.

I bet some people would. Like, this is like Hermosi-esque where you're like Yeah, most people won't. Absolutely.

Alex Hermosi, it's—

most people won't.

But I bet you, like, guarantees.

Yeah, I bet you like 5% of your owners would do this because they're like, oh yeah, no, we love you guys, we're going to manage forever. And like this, if they're going to do the math and be like, well, if I, if I hold it for 7 years, I'm actually making money.

Like, we have the gold, the platinum, and then the lifetime.

Lifetime. It's like, you ever go to a gym where they sell a lifetime membership?

Yes.

Yeah.

Peterson Academy sells a lifetime subscription.

Okay, so how long— $7,500 in management fees, like, how— what's the, what's the payback period on that? So divided by, let's say you're making like $200 a month divided by 12, that's 3 years. Yeah, I bet you so many owners would take that deal.

But you know what, the, the net present value of $7,500 today is at least 4 to 5 years of management fees. By the time you apply like a 20%, you know, discount rate.

Correct.

And, and that's your— and that's your 20% churn anyway, so you're not losing any money there.

Well, you're still going to make money on all the tenant fees and stuff like that.

100%. And you're, you're actually supercharging the cash flow of your business, and you're going to bring in so much cash that you could do expansion and other things with it.

Well, we don't have cash problems, but yeah, that's a fascinating That's the quote of the day. Okay, we need to get Todd on this. Todd, you need to run an experiment. I want a full write-up.

I don't care.

Like, this is crazy. We just invented a whole new pricing model.

Well, I loved your recent post, by the way, that the different percentages based on how involved the owner is.

Yeah, that's a classic.

Yeah, it is a classic. Never gets old though. Property managers love talking about it.

I know. And I like— I had, um, Andrew use AI to like make it, you know, much more like for our industry so it hits harder. It's good.

I love it.

Okay. Okay. Back to this graphic though. So, so you're basically positing like, you know, industry-wide changes and improvements effect is nominal. This is almost certainly like secular market forces. Yeah.

Can we attack this though? I'm sorry. There's no— no disrespect to Ray or his data. There's no way in hell this data is accurate, that 20—

I agree with you—

20% of people are canceling before their first year anniversary industry-wide. What is the quality of property management in this nation? Like, like, those of us—

well, let me throw you with this. So Profit Coach's study showed that the average churn is 19%. Now his data right here is showing it's 22%. Hold on.

No, no, you're apples to oranges. 19% over one.

Yeah. No, sorry. You're right. Profit Coach's data showed 19% over the lifetime, like on a lifetime. PropertyMeld's data showing 22% in year one. However, two things to think about here. One, Profit Coach, their survey is naturally going to skew toward the better operators because if Profit Coach is anywhere in your orbit, even if you're not a customer, you're more than like more than likely a NARPA member. You may be a customer of theirs, et cetera. So I think you're better than the average. Sure. So their average truly was an average. The other thing— and if you look, Ray, this is actually commented on in the post, what you're talking about. The other thing is vast majority of the churn does happen in year 1. Like, an owner investor who makes it to month 13— and we've done this analysis on our own data— is highly likely to stick around for the next few years. So, so like, it's not as far off as you might think.

Well, then we should be talking about like how to just absolutely blow people away with the onboarding experience. Yeah.

And I would think too is I think property managers underreport their churn. Like, I bet this data is real, real, because I think what a lot of property managers do is like they get a PMA signed, they start the owner, and like all of a sudden, like, you know, something goes wrong. Tell me if this has ever happened to you. And like, you barely even got the property listed, or maybe you got it. The owner's like, You're just like, you guys are idiots.

I can't believe it.

And then they cancel, right? Wait, wait, wait. And you're like, oh, that doesn't count. That doesn't count. That doesn't count. Right. That, you know, that doesn't count against my churn. That was, that wasn't actually a client.

I know. I know. I know. No, but I really love like, what do your owners sound like over there?

No, I can't repeat it. Okay. Um, no, you're right.

That's where I was going to go next. Because there's these critical points before the property is rented out. There's a massive risk of churn. And then like somehow you're telling me also even after it's rented out, but before the first year comes, maybe there's a maintenance issue. And Ray, you know, this is— Ray would be like, absolutely, it's maintenance related, right? And so then they're pissed and then they churn.

Yeah.

I think the biggest lift is you get that property leased and that person's thrilled with you. I think the biggest amount of company resources to, to, you know, um, to, to attack churn would be in that first 90 days when, as they onboard and as you get that property leased, and then white glove all the maintenance for the first year and a half. And that's probably your big— and answer the damn phone. Yeah, you do those 3 things, you're probably going to have like 15% churn or lower.

Yeah, so Ray's data shows that investor churn is highly correlated with vacancy. Makes sense, right? So if a tenant vacates for any reason, your owner is way more likely to churn. So if you can figure out how to increase your lease renewal rate, yes, by almost by definition, you're going to reduce your churn.

And I think there's a straight line of sight to quality maintenance service. There is. Yes.

Ray has posted about this quite a bit and his data showed he released a white paper at MX Summit last year showing that if you can get to 90 days with no maintenance requests from the tenant, you're basically golden. So I coined this like new lease 90 days. What?

New lease 90 days?

No, no. I called it the no meld 90. If you can get a new tenant to move in and not submit a meld for 90 days, how do you get your operation to the point where that is working? You're highly likely to have a high renewal rate, which then your churn is going to go down.

So, so don't give them their access to meld.

Yeah, that's a good— yeah. No, no, no, no.

All right.

So, we had a couple of comments in the chat. So, we're live, by the way. So, FTL Property Management— Hey, chat! —was basically saying— FTL Property Management said— he's referring to where you would sell the management. You give the owner the option to pay the $7,500 and then have free management. He said, "How do you sell the management contracts if you do this? Basically, you make your company worthless if you get paid up front." I think that's true. So, if you're planning to sell in the next 5 or 10 years, I wouldn't do this. This would be like if you're going to hold forever, it's a way to accelerate your cash flow, right? Yeah.

And you know, it's not going to be zero value, but it's going to be factored in.

Yeah, it would, it would.

And like to your point, probably less than 5% of people are going to do this anyway. So it's just a nice shot in the arm for cash.

And there is still revenue there, right? Like if you actually look at our revenue for our management company, it's only about a third from the actual monthly management fees. So we still be making two-thirds of our revenue on those accounts.

When are you going to institute a leasing fee?

I don't know, that's up to Brennan. All right, so Jeremy Pound— what up, Jeremy— says, what's up, Jeremy? The suspicion the owners would have would be that you just wouldn't do a very good job once you're not getting paid anymore. You need to come up with some reverse risk language to make them realize that doing a subpar management job was not in your best interest. So that's a good point. Like with a gym, you can do that because it's like the gym is the gym. You just go there and you're like, what are they going to do to degrade the quality?

Yeah, you'd roll this out after the first year and you'd say, hey, we're going to credit the last year's management fees. You're really happy with this and you can pay X and go lifetime at this point. Hmm. Because then they know what you've got, what they've got with you. Yeah.

FTL Property Management is asking about the sample size. Ask Ray, but I swear, I think it's like you said it was millions of units on the platform. Yeah. So I'll post a link in the public chat here if you want to check out the LinkedIn post. There were some great comments as well on the post. I don't know if that chat is going to go out to— okay, there it is. Yeah. I don't know if that's going to work for people. Like I sent it through the chat, but I don't know if it's going to go out to the Facebook chat and everything.

So, so what was— anyway, go ahead.

No, go ahead.

I was just going to say, well, so what was the— what was the driving point of the post? Because it just, to me, it raises more questions than it answers.

Like, what are we supposed to do with this data? Uh, so what we're supposed to do with this data is because Ray's thesis is basically like investor retention is tied to maintenance performance in a big way, totally, both indirectly through the lease renewal rate and directly through the maintenance costs that the incurring. So he's got ideas on, you know, how to control that and keep it low. And, you know, there's a lot you can do really. Go ahead, go ahead.

No, I was just— do you want me to share my recent AI experience with our maintenance system? Because I'm freaking blown away by this. So, um, and I don't know if I want to name drop who we're using at this point. We've been onboarded for 60 days, and I, um, And, and it is the service and the responsiveness to residents with our AI maintenance solution is so good that it's producing multiple 5-star Google reviews a week. And this is something, this is something I've been after for years to help manage our reputation, and it is now producing multiple 5-star reviews per week.

Now hold on, Mark, I thought 5-star reviews are supposed to be unsolicited, completely natural You're walking through the wilderness and you stumble upon a Google profile and decide to leave them a review.

Are you trying to distract me from my story? I've got a great story to tell. That's a side note.

I'm just holding you accountable to what you told me about—

I'm not talking about that right now. That's a different topic. Oh, okay, okay. Anyway, anyway, so, so as an owner with my own properties being managed by Mark Brower Properties, I had what would be considered by most property managers a pretty sophisticated, deep, like complex repair issue. It was a flood at the property. Mm-hmm. And I was able to, and the, so the AI texted me yesterday and it said, hey, we need a $2,400 approval, uh, you know, for some work, the, the, the restoration build back work. And I was able to just in chatting with this bot, get way more detail at a much more professional level than I would've ever expected from a property manager, including photos. Including a breakdown of the estimates, including detailed information about what service appointments happened on what days and what was accomplished and what the plan of action is. I even argued with it and I said, I shouldn't be giving approval on this build back until we do a final inspection on the damage after the source of leak is fixed. And it said, you know what, you're right, noted. And that appointment is scheduled for July 31st. It blew my mind about how good this interaction is.

Is there a reason we can't say the name? It's Mason. Okay. Yeah, Mason.

Love these guys. Totally love them. They're cool.

Um, yeah, that's fascinating. We haven't tried them. Um, we are going to be testing out, um, PropertyMild Max On Call. I think starting next week we're going to be doing like a trial.

What's your renewal rate right now? Because I'm wondering if our service is impacting our renewal. It's going to be different by market, but our renewal rate's like above 75%.

Percent right now. Our lease renewal rate— let me go to our website and check out our scorecard.

Oh, heck yeah! You've published your scorecard on your website, Peter? I love the transparency here.

Where is it? So beautiful.

Uh, I aspire to that. Let's get that going.

Our scorecard. Here we go. Lease renewal rate, 72%. Yes!

So I shouldn't be so thrilled about that. Like it's industry-wide, we're really high right now, aren't we? Well, that's normal for SFR.

Yeah. You know what?

If you can prove, we just hired a new BDM and I was talking to him yesterday, some training. And I said, if you could measure how much better your renewal rate is than the competition, you can quantify like Ray has done, how much money that saves your owner on a monthly basis And if you're good enough, then their management fee is eclipsed by the financial savings. And that is a really compelling— that's like Ray's whole thesis.

That is his whole— yeah, he would be so happy to hear you say that.

Yeah, it's super compelling. Yeah, it is super compelling. Yeah, I mean, how much do you charge for property management? It's free.

Here's the other thing we started doing once I realized that owner churn was so correlated with vacancies. We push tenants for longer leases. So we get the owner's approval first, but we always push tenants to sign 2 or 3-year leases by default. Now we still let them do one if they want to do one, but we encourage the 2 and 3-year leases because, yeah, I mean, if, if the property's not vacant, the owner's not going to churn for the most part.

The only reason you wouldn't do that is if the market rents were increasing rapidly, and in that case you would put escalators in. Yeah, you can put an escalator in there.

Yeah.

Yep, that's That's a no-brainer. We should be doing that.

No charge for that one, Mark.

Thank you, Peter. Yeah. Well, my discounted cash flow analysis, you know, no charge for that one. Yeah, yeah. That's right.

Truly, I find that really interesting. Like, I'm still grappling with the implications that the value of your business is higher on like a discounted cash flow analysis present value. If you sold it out. If you just had the owners all sell the out from under you. Now, that's assuming they all use you for the sale though, right?

Well, yeah, that's the whole point. If you— and listen, if I could choose an owner that was highly likely to— if I could choose my ICP, which is, uh, which is they're going to stay with me, it doesn't even matter how long they stay with me, by the way, because the discounted cash flow analysis has a higher net present value the closer to the present the sale event is, which blows my, you know, blows the mind too, which makes sense, right? You're moving that massive cash payment to closer to the present. And so really the driver for maximum profitability in property management company through this lens is the propensity to sell and the number of transactions you can get from that account.

Well, here's the other thing that it implies, going back to like the choice I was stating earlier that you could offer to your owners. Choice 1, continue as is. Choice 2, um, pay $7,500 and we'll manage your property for free forever. Choice 3, sell your property and we'll only charge you a $7,500 commission instead of $10,000, because then you're still getting 6 of that, which is still more than the value if you were to sell your business. Right? Yeah, yeah. So like, you should offer like, if you sell now, we'll give you like— we'll only charge you $7,500 commission. If you sell anytime other than the next 90 days, it's just the normal $10,000 commission.

I'm going to make an argument. We should all be building out a traditional brokerage side with this angle. We want to be in front of every single person, you know, 3 months before a move event. And in our marketplace place and say we can analyze a rent versus sale scenario and help you assess what's best for you. And then if you decide to sell, put you in the strongest negotiation position you could ever be in, because your negotiation position is only as strong as your next best alternative, which is renting the property, right? And nobody else can do that for you.

Really interesting. You should do a write-up on this, Mark, for your newsletter.

Well, let's just take the transcript of this conversation and throw it into AI.

Yeah, go ahead. Okay, so Jesse had a question. This comes from YouTube. Curious, Peter, why did you choose to not offer brokerage services through your PM company? We currently don't, but we plan to offer it next year. My business— it was just kind of an accident of history. I had never done it. I have no experience helping people buy or sell homes, even though I'm a real estate broker. I always used a realtor. And so, um, we were just so focused on the management stuff. I think the right thing to do for us now would be to like hire a who, like hire a— definitely somebody to stand up the brokerage.

They would pay for themselves, you know, in spades, 100%.

Come out here. What are you doing? You're not busy, bro. I'll give you—

hey, listen, I'm always willing to consult with Peter Lohmann.

Yeah, let's go. I should make Bree do it.

Fly me out, fly me out.

Okay, uh, so that's the answer, is just The other thing, the other reason that I always told myself is that it would be a distraction and that you can only really do one thing well. And I wanted that to be property management. And like, not true. If you have a broker, you know, realtors running around in your client's ears, they're going to be like talking to them about selling, which I always thought would be a bad thing. But now Mark is telling me is actually financially advantageous. So like my whole mind is blown at this point. Okay. All right. We are at time. We're keeping it tight. We're keeping the audience wanting more every week. Why are you holding up your drink?

I don't— hashtag not sponsored. If anybody knows anybody with Liquid Death anyway, it's water, dude.

Expensive water. Go to your tap. It's the same thing.

No, it's not the same.

Gross. All right, Mark, this is fun. I like doing this with you, and we'll see you in a couple weeks. All right, peace out.

Peace.