Technology is coming to Main Street
I have a confession. I am addicted to real estate. I started investing in real estate while I was playing football and began working in the industry on a fulltime basis when I retired from the NFL in 2005. I invest in real estate because I believe it is the best way to build wealth and tax-efficient income. Over the coming years my primary investment strategy will be to continue to accumulate investment properties.
A few years back I realized that the only way I could realistically continue to acquire investment properties was to find a better property management solution. I interviewed many of the traditional property management companies in the San Francisco Bay Area and found them all completely inadequate. I simply care too much about performance, fees, accurate reporting and trust to hire them. They charged too much and didn’t add any value. Even more fundamentally, I found their offerings stuck in the 20th Century, given what I knew about how real estate should and could be managed.
In my time as the CEO of Starwood Waypoint Homes (NYSE: SWAY), I learned about how technology and scale are transforming the property management business and experienced the benefits firsthand. I believe that great technology is meant to make our lives easier not more complicated and allow us to create value for both our investors and residents. It is also the key element to enable scale, which can also provide a lot of cost and value benefits.
Given my busy work schedule and demanding family life (I have three kids and an attorney for a wife), I knew that managing my properties myself was not an option. If I was going to keep my dream of growing my portfolio alive, I was going to have to do something more radical.
In 2016, after Starwood Waypoint Homes merged with Colony American Homes, I decided to move on. My partner from Waypoint Homes, Colin Wiel, and I wanted to build the company that the real estate industry needed most: a 21st Century property management company for individual investors. We had built our last company to help “Wall Street” investors make money in real estate, and this time felt like we could help “Main Street” investors.
In the context of residential property management, I believe 21st Century technology-based solutions can add a lot of value for Main Street investors. Here are some of the things that I believe technology can do for property management companies:
Enhance Labor Performance
Property management can be a very people-intensive business. Management companies need good people to manage because they have to deal with a lot of difficult resident and property issues. At Waypoint Homes we addressed this problem in two ways: we hired an all-star team of real estate professionals to execute our operation and then enabled them with tools to do their jobs even better. We found this to be a winning formula that allowed us to produce the best operating metrics in the single family industry.
There are a number of different technology-based tools that can enhance a management team’s performance. Property management professionals can be most effective if they have easily digestible information at their fingertips. For example, when a resident contacted us about a work order, we found it to be very helpful for our team to receive the notice electronically in a format that connected to the resident’s account. By means of an electronic notice we could view related resident files, all related work order communications, and the history of the homes, which include all past work orders. This allowed our team to be proactive and respond quickly and intelligently. We learned that our residents actually preferred contacting us via a text message or by sending us a message through our Resident Portal because communication was faster and easier and they knew we were highly responsive.
There are so many other ways in which technology can make property management professionals better, but the point is that as we continued to equip our team with technology-based tools, their performance improved. As an owner of real estate, I would never entrust my properties to any company that didn’t leverage technology in this way.
Create Transparency With an Operating Platform and Dashboards
Why can’t owning real estate be more like owning a stock? With my stock portfolio I can go online at any point and see how my investments are doing. Why can’t it be like that for Main Street real estate investors? At Waypoint our management team had that same type of transparency into our real estate portfolio, so I know it is possible and extremely valuable.
To an owner or manager of real estate, accurate and timely information is everything. One of the big questions when we entered the single family rental market in 2009 was around our ability to efficiently manage a large pool of distributed rental homes. The fundamental issue was whether we could build a system that gave us visibility into the metrics we needed to manage efficiently. This need for transparency was a challenge that we took head-on.
At Waypoint, we built a proprietary management platform that we called Compass. We used this management platform to capture data from our team, residents, and third parties, which gave us a great deal of valuable insights into how our operation was performing. The Compass dashboards provided a viewport of all metrics we needed to efficiently manage our homes and deliver results to our investors.
With all of the great technology-based tools available today, it makes no sense to own or manage real estate without a high degree of transparency. Personally, I would never hire anyone to manage my real estate investments if they weren’t using these types of tools to manage and provide accurate and timely reporting to me.
Enable a More Efficient Marketing and Leasing Process
At Waypoint we spent a lot of time focused on driving down vacancy as much as possible. We quickly learned that the key is to make the marketing and leasing process seamless and easy for prospective renters. This pushed us to focus intensely on the way we measured and managed every phase of the marketing and leasing cycle. We discovered that in many parts of the leasing cycle we lost potential renters because our process was not streamlined and efficient enough. For example, when we tried to schedule showings, we often lost prospects because our leasing team couldn’t set up a convenient time to do a showing. We also lost prospects playing phone tag during the application, screening, deposit, and lease signing phases.
To eliminate this leakage we built and leveraged technology that allowed self-showings where after some light screening we gave prospective renters a unique access code that allowed them to view homes when it was convenient for them. Once these prospective renters saw a home they liked, they could use their mobile phones to apply, to get screened and to sign a lease quickly and efficiently. This technology-enabled leasing process allowed our sales team to manage more prospective renters and move them through the pipeline more efficiently, which allowed us to fill vacancies faster and our portfolio to produce better returns. At the same time, prospective renters were happy as well, because we simplified their lives by allowing them to more easily find a high quality home.
Achieve Economies of Scale
The final point I want to make about the benefit of technology in property management relates to scale, or experiencing the benefits associated with a large company vs. a small company. Historically, residential property management at scale for individual owners has not existed. It hasn’t happened until recently because no one thought it was possible until we did it in the single family rental space. Managing efficiently at scale is only possible by leveraging technology, systems and data, which is a very new concept in our industry.
Main Street investors have been disadvantaged because they did not have the option of choosing a large property management company. Wall Street investors benefit from the value that large management companies can offer, so why shouldn’t Main Street benefit too? By the way, to me a large property management company is one that manages 10,000 to 20,000 or more units, which is enough size to justify investing in technology, command better pricing, have enough inventory to allow a “one stop shop” experience for renters, and hire talent that can deliver better results. I know there are some that feel that hiring a large property management company is a bad idea, but that is not the case.
Large companies can gain certain efficiencies, which allow them to charge less and deliver more. At Waypoint we saw that the incremental cost of managing 1 additional house on a portfolio of 2,000 in a specific city was very low because we were already operating at a large scale. Because the cost to manage is lower to a large company, they can charge less.
Small traditional property managers charge too much because they don’t have the benefit of scale. Also, property management companies that achieve scale in a market can attract and retain a captive audience of high quality vendors that will respond quickly, deliver high quality work, and charge less. Vendors only do this when a company is large enough to give them sufficient volume to build their business around. At Waypoint we achieved this level of scale and the associated benefits of great pricing and great service. Hiring a large sophisticated property management company can create this benefit for individual investors too.
Technology in Real Estate
In the 21st century, technology has been changing the business landscape in every industry and every part of the world. For some reason real estate and in particular the property management industry has been slow to adapt technology. Wall Street investors have benefited from these advancement for years, however, the offerings for Main Street investors are few and far between.
It is now undeniable that technology is coming to the real estate industry, and I believe in the next several years we will see meaningful improvements in how residential rental real estate is owned and managed. As an individual investor, you need to decide whether you want to participate and benefit from these advancements or watch from the sidelines. As I look to continue to grow my real estate portfolio, I know that I will not be sitting and waiting, because I believe the company we are building next can solve all of these problems for me and for others. My addiction to real estate is alive and well.