Today on The Property Management Show, Robert Locke is joining us to talk about how to structure your business without growing pains. This probably sounds impossible, but Robert is going to help us elevate the conversation and explain some BIG IDEAS.

Why We Should Learn from Robert Locke

Robert started his property management company 35 years ago with 50 units. He is candid about having made all the mistakes possible in the first few years. But, he sold his large, very successful and immensely profitable property management company to a Fortune 500 enterprise.

That sale came with a nondisclosure agreement. He couldn’t speak or teach for a while after the acquisition. Today, he’s finally able to deliver his knowledge to the world, and we’re humbled that he chose to make his debut on The Property Management Show.

The Things You Think are Critical May Actually be a Hindrance

Robert started with five rental houses in 1980. He began selling properties to investors who said they would buy the homes if Robert promised to manage them. So, Crown Realty and Management was born.

After 10 years of steadily growing his business, it became clear that at every level of growth, it was necessary to let go of some of the things that had seemed so sacred and necessary and important to running a business.

When you go from 200 properties to 300 properties, you learn some lessons.

When you go from 500 to 600 properties, you learn some more lessons.

Most property managers build a system that works for where they are today. Whether that’s 50 properties or 500; there’s a tendency to design a structure that works for what you have right now. But then, if you double in size, it’s easy to crash and burn.

A critical mistake that will hinder your growth is holding onto the things that you think are essential to your management model. What works for you at 200 properties will not work for you at 400 properties. Many of the systems that were working perfectly will hold you back.

When Systems Hinder Growth: Some Examples

One property manager had a sales model where he gave every owner and every tenant his personal cell phone number. His pitch was that if people didn’t like the answer his staff gave them, they should call him directly.

This works when you manage 50 or even 100 properties. But, it won’t scale. It would be impossible to get bigger than 200 properties because you cannot have 400 owners with your cell phone number. Beware of building things into your model that will prevent you from going to the next level.

Another property manager in Savannah was managing 200 units. His model was to send the full rent to the owners every month and then invoice those owners for the management fee. That’s $60,000 of accounts receivable every month, and an accounting firm had to be hired to handle the invoicing and collecting.

Obviously, that’s not scalable. You cannot go from 200 to 500 properties by invoicing your owners every month. It became a hindrance, and the owner of the property management company had to give that up and begin taking the management fee from the rent that was collected. It required some conversations and some strategizing, but changing the system was absolutely necessary to grow. Now, that company has doubled in size and the wheels haven’t come off the business.

Everyone builds things into their systems that impede growth, and those of you who have gone to the next level can spot them. You know what you had to give up once you move from 300 properties to 500 properties. But, at 300 properties, you don’t necessarily see it so clearly.

The Mac Daddy of Slow Growth: Are you an agent or an Agent?

A lot of people who move into property management come from real estate sales, where you’re an agent (small a). They do what the owner asks them to do. The owner is in charge, and the agent executes on the owner’s directive. It makes sense in sales, but it doesn’t translate with property management.

In property management, agents think that they have to confer with an owner before approving an application. They think they need to call the owner before handling maintenance or dealing with an eviction. They think that because it’s what you do in sales. You are facilitators and scribes. You don’t make decisions and you collaborate on everything.

You have to change your thinking and become an Agent (big A).

The number one hurdle preventing property management companies from getting to the next level is the idea that you have to collaborate with your owners on every decision.

You don’t.

An Agent gets authority through the management agreement to approve and deny applicants, to handle maintenance under $500, and to file an eviction when it’s time. You can handle the wobbly deck and deal with the deadbolt that’s not working. You can replace a dead shrub, and you can do all these things without calling the owner first.

Get a spending limit and stop collaborating with owners all the time. It’s stagnating you and preventing you from going to the next level. It’s consuming your staff’s time.   

Part of the problem is that property managers often teach owners to behave this way. You have to educate your owners and earn their trust.

If you’re not familiar with Steve Crossland, listen to his podcast with Jordan Muela on The Profitable Property Manager. He is extreme about being a Big-A Agent. He insists that owners trust him to make strong decisions and to enforce them. His maintenance limit is $500, but he is very clear with his owners. If the air conditioning fails, he is going to send his tech to replace it. There’s no collecting bids and there’s no making phone calls. The tenant will not be left suffering in 105 degree heat. Not everyone is okay with that, but Steve will only work with owners who accept it.   

Owners who want to be more hands-on may not want to work with you. But, if you want to grow, you cannot co-manage. You cannot be micromanaged. You are the expert. You are the authority. Don’t waste your time collaborating with owners who don’t have the same skill and training as you.

Too many property managers are worried about losing an owner. This hinders them from raising fees or offering extra services or doing other things that will make them money. One property manager had 400 owners and he introduced a new fee that was a couple of hundred dollars per year. He lost five owners, but he made $75,000 extra that year on his remaining owners.

Don’t structure your business based on the fear that you might lose an owner.