Happy July to our JWB friends, family, clients, vendors, and staff! This month on The Not Your Average Investor Show, we spent some time discussing why “normal” property management services just don’t work for you, as the rental property investor.
As with most things in life, if goals aren’t aligned, one party typically loses. In “normal” property management, this is an unfortunate truth as well. It’s a shame that so many potential investors who see the incredible opportunities for earning above-average risk-adjusted returns on investment passively in rental property investing are so fearful of a poor property manager and resident relationship that they give up on their investing journey before they even start.
At JWB, we are not trying to be “better” at property management. We are DIFFERENT.
Let’s first look at the approach to signing long-term leases. As an investor, your goals are to earn the best risk-adjusted return on investment, which comes from positive cash flow along with the additional four profit centers of rental property investing. What we know to be true is that the longer residents stay in your home, the better your positive cash flow.
To illustrate this point, I put together a 5-year case study (see below) showing the differences of signing 1-year vs 2-3-year leases. Just look at the differences in lifetime total cost of tenant turnover, maintenance %, and vacancy %!
So why don’t most property management companies sign long-term leases? It comes down to the goals and incentives. Property management companies make a lot more money by putting new residents in your home often than they do in monthly management fees or renewing those leases. It also is a lot more work for the property management company to find residents who want to sign up for a 2- or a 3-year lease as well.
Keep in mind that “normal” property management companies earn 25-50% of their revenue from tenant placement fees alone. If you were to ask that “normal” property management company to sign 2- or 3-year leases, you’d be asking them to cut their revenue in half and to work twice as hard. Good luck with that!
This is a classic example of a misalignment of goals and it leads to higher maintenance and vacancy costs, lower cash flows, and a poor experience for the investor.
JWB IS DIFFERENT
JWB is a different kind of property management company. We do not make the majority of our overall revenue from tenant placement fees. We knowingly give up millions of dollars per year in these fees that we could charge if we were to sign 1-year leases, but it doesn't make sense for us to do that.
At JWB, we are not trying to be “better” at property management. We are different.
Why? JWB makes the majority of its money through selling turnkey rental properties. Other “normal” property management companies only have their property management services to monetize, so they must maximize their fee structure and minimize their property management workload in order to make the model work.
With the understanding that JWB’s business will only grow if our clients keep coming back to purchase additional rental properties from us, there is a big incentive for us to achieve your return on investment goals. The best way to do that is to sign long-term leases, treat our residents like gold, and re-sign those residents forever.
And that’s what we do! In 2020, we signed over 1,000 leases. The average duration of the initial lease was 26 months. 71% of residents re-signed when it was time to renew their stay with us. The average total duration of resident stay with JWB is currently 54 months.
Having goals that are aligned is a beautiful thing. We make more money when you make more money. That’s the way it should be so we can all win together.