The Official AppFolio Blog

Do you manage multiple properties? Are they all making the profit they ought to? If not, could it be that you’ve overextended yourself? The truth is, when you bite off more than you can chew as a property manager, profit margins can suffer.

The profitability vs. cash flow question is one that many property managers have to tackle at some point in time. The good news is, if you have enough properties to manage that you’re spread thin, it means your business has been growing and you’re probably collecting more cash. But it is important to consider how this affects the profitability of your business.

The Profit vs. Cash Flow Dilemma
When you find that one or many of the properties you manage isn’t turning an adequate profit, you need to ask yourself why. Usually, there’s no single reason. Instead, a series of issues generally explain why a property is bringing in less money. Some of those reasons can include:

• Maintenance issues
• Problems with rent collection
• High number of vacancies
• High costs for people / employees
• Don’t have enough time devoted to reporting on and measuring important metrics

Solving the Dilemma: Focus on Technology
If you discover that you’ve got a problem, you can either cut back on the number of properties you manage, or find ways to improve the performance across your business. The biggest cost to profitability in our industry is the number of employees you need to manage your portfolio of properties.

But really, what you need to do is find a way to improve your efficiency. When you cut down on the time, effort and money it takes for your team to manage the portfolio you’ll be able to handle a higher volume of properties with better profitability.   Relying on new and improved software  (like web-based property management software) is one of the most important investments you can make to improve profitability.

We recently spoke with Bill Nye (CEO of Caviness and Cates) and the owner of Bill Nye Training to better understand his view on how property managers can increase profitability.   He really credits his investment in AppFolio’s property management software with helping his team manage more units without investing in additional employees. “We immediately saw a great impact because we could do so much more with our corporate staff.”  His plan is to grow from 1300 units to 2000 units without adding staff to his corporate headquarters – you can see how this will make a dramatic impact on profitability!

John Mosby is a president of M3 Property Management and a partner at M3 Multifamily. His companies own and operate apartment communities in the 100- to 300-unit range. John uses AppFolio’s property management software, and a while back he was kind enough to let us interview him about his experience with our tools. Check it out.

If you don’t have time to watch the whole video, here are just some of the nice things John has to say about AppFolio:

We recently interviewed Kayla Morris Roeder and Kendra Morris, Vice Presidents of Cambridge Management Group, Inc. in California and they talked to us about how much time they save using AppFolio. By using online applications, ACH payments, and emailing the owner’s packets, they are able to perform routine tasks much faster. Property managers take their computers with them on the road and can access the web-based software from anywhere, which has freed up one employee in the office. Kayla and Kendra save so much time that they are able to take longer vacations! Now, that’s amazing.

How They Do It

1. New applicants from out of town can take care of everything in advance online and have the key to their new place waiting for them when they get into town. This makes things more convenient for military families and gives Cambridge Management Group a competitive advantage.
2. The leasing flow is streamlined using online applications, ACH application fees, and online screening. Managers have the ability to have the lease signed, collect the deposit using ACH, and move the renter in within 24 hours!
3. Maintenance personnel take on the responsibility of doing their own documentation with the computer during the walk-through inspections during move-ins and move-outs. The work order is automatically triggered after a move-out in AppFolio and instead of writing the information down on a piece of paper and then entering that information into the computer when they get back to the office, it can be done on-site in real time.
4. AppFolio closes out the month every month automatically and posts the rent. They used to have to be in the office personally to close the month out by hand. This functionality in AppFolio has been a huge time savings for Kayla and Kendra. They used to have to export all of the owner packets and attach them one by one to specific emails for owners but with AppFolio it is just click a button to email out all owner packets.

This story is best told by Kayla and Kendra of Cambridge Management Group, Inc. directly so we recommend you watch their short video on the AppFolio Case Studies page. We want to say how happy we are that they are able to save time using AppFolio and request that Kayla and Kendra please send us a postcard from their next vacation!

For some people using a new software is a painful process, filled with longing for “how things used to be;” for others it is a thrilling process, filled with excitement and anticipation about all the enhanced possibilities.

It’s stressful to go from being the knowledgeable pro in an old system, to working in a new system. It is further compounded by the fact that the business has to keep running while the learning is occurring and mistakes can really impact the business!

I found it interesting to learn that part of the challenge of adopting a new system is actually biological. From the biological standpoint the challenge comes in forming new thought patterns and habits in the brain called “myelination” process. It’s the process of your mind forming a kind of sheathing around the neurons involved in a habitual thought or behavior, which makes the electrical impulses of thought travel faster. In a way you can think of it like wearing a new path into a field. The path has to be walked over many times before it wears to the ground, and once there takes a while to grow back over. It is the same with forming pathways of new thoughts / habits in the brain.

From a psychological standpoint it has to do with how willing and prepared you are to make the changes. Your positive attitude can make all the difference.

Here are a few keys to success with a new software in the first 30 days.

Expect the First 30 Days to be a Learning Period
Go into your first month knowing it is going to be your learning month and accept that means not being perfect, not knowing everything, and possibly having to find your way around to start. By going into your starting period with an expectation of learning, rather than mastery, it can take a lot of the stress and pressure off and changes the focus to positive growth.

Have a Plan
Ask your provider for training and a plan to get your started. At AppFolio we provide a “1st Month Success Guide” that outlines week-by-week actions to take to begin using the software. We include repeating actions and one-time setup actions you to help you customize the application. We also send weekly emails during the first month that act as reminders and links to more training resources.

Take the Time to Attend Training
In most cases, moving to a new software means gaining new features and functions, without training it is substantially more difficult to learn how to use basic functions, much less more advanced features. Yes you can take months of trial and error to learn the system, but a few hours spent in training can save hours, days and weeks of later frustration and hassles!

Start Small and Focus On One Task at a Time
Try to start using the system by performing small tasks and repeating them multiple times in a row to help form the new habit. For example: do a batch entry of checks, create multiple work orders together, begin the process of several move-ins or move-outs together. Focusing on simple tasks and repeating them multiple times you can help them get established as new habits and then build on them to continue to grow.

Share Learning Together
A great practice for offices with multiple users is to have a daily briefing at the start or end of each day where everyone can share questions and answers to help everyone grow in knowledge more quickly.

Practice, Practice, Practice
Nothing will help increase skills with a new system like using it. The more you practice the more you ingrain the new thought patterns and help firm up the new habits around using the new system. This can be done to some extent in your live system, but many people don’t want to do things in the system that will affect their actual data. To help with this AppFolio offers a dedicated practice site so users can log in and try any task or feature without fear of affecting their live data.

Celebrate Your Successes
In the business of day-to-day operations it is easy to forget to take time to acknowledge what are actually great accomplishments in learning. It is truly a great success to go live with a new system and another to complete a first full month of operations. Be sure to recognize those successes by doing something that acknowledges the great achievement.

Know It Will Be Okay
Think of all the things you have learned to accomplish in the past – walk, run, throw a ball, roller skate, drive a car, etc. – you even learned your previous system when it was new to you. So have faith in yourself, you can and will learn the new system, just be sure to understand and prepare for it as best you can and then just give it a little time. It will be Ok.

Once you get over that first 30-day hump, you are basically home free. It’s like a rocket launch, where most of the fuel is burned up just getting up to reach escape velocity. After that you’re back in the drivers seat and cruising again!

Bill Nye, CEO of Caviness & Cates, shares his secrets to growing his portfolio to 2000 units without adding staff

Tell me a little about Caviness and Cates and how it has grown over the last few years?

The portfolio has more than doubled in the last few years. Just 2 years ago we were only around 400 units and now we have eight properties, we’ve built and own each one. We are almost finished with our ninth property and with this one we’ll be at 1290 units total. In the next two years we’ll be closer to 2000 units.

We have kept our corporate staff at a total of 4 employees (including myself). Including on-site managers, the Caviness and Cates Property Management division has a total of 26 employees.

Tell me a little about your role with Caviness and Cates?

I am the CEO and I’m responsible for overseeing leasing, marketing and day-to-day operations for all of the properties. I’m also a member of the Apartment All Stars and operate Bill Nye Training. I have about 30 speaking engagements a year and my training covers all aspects of property management – team building training and consulting is my niche. I also do some financial management and maintenance best practices.

What are they keys to profitability in your business?

Manage people costs by investing in technology.
The biggest cost to your profitability is the number of people you need to manage your portfolio. Originally when we thought about growth we thought we would have to grow the corporate staff. But now with our technology investments we can grow our portfolio without adding people and costs!

We started with changing our property management software to AppFolio and we immediately saw a great impact because we could do so much more with our corporate staff. One of our future goals is to grow outside our local market (North Carolina) and it would be impossible to manage out-of-market properties without a solution like AppFolio.

Our goal is to use every feature offered by AppFolio – it just makes more sense to me. We offer online rental applications to all – we are planning to set up kiosks to allow our prospects to apply online from our leasing offices and pay rent online too. We do like having that personal touch with the residents.

Track important metrics closely.
Now, it is so much easier for us to see and measure performance by property. We can watch our metrics in detail and keep close tabs on expenses and income. I can access these reports from wherever I am and this keeps me very connected to our performance.

Specialize and maximize roles.
Now that we’re as efficient as we are, our support staff in the corporate office can do even more. I believe our on-site managers #1 job is to deliver a great experience for our residents. I’m not worried about giving them access to too much information – we hire great people and trust them.

What profitability mistakes do Property Managers often make?

I think there are a few common mistakes in our business:

Not measuring often enough.
I like to take a weekly (and sometimes daily) look at our important metrics so I can see early if something is not on track.

Not measuring the right things.
I compare it to how we raise our children. We’re always listening to report cards, the doctor, etc. Companies don’t always take the time to analyze how profitable they could be. For instance, I pay very close attention to our operating expense ratio. Everyone knows about NOI, but to me measuring your operating expense ratio to NOI really tells you what your NOI means. We look at ratios and percentages much more than raw numbers.

Not valuing the people investments.
Our team of people (payroll burden) is the number one operating expense. We can honestly say that through the changes with AppFolio we will be able to build out our next three properties and not add anyone to our corporate staff. When companies ignore the opportunity cost of becoming more productive, they miss out on huge benefits.

We interviewed Nick Scarabosio from Jackson Group Property Management in San Francisco, CA. We wanted to understand how they run such a successful and profitable company with only three full time staff positions.

Tell me a little about your office, how big is your team and how many properties you manage?
We’re running our office with about 3 full time positions. We currently manage 537 units, a mixed portfolio of apartments, single family and condo associations. While the typical staff to property ratio in our industry is around 50-100 properties per staff member, we’re at 179 properties per staff member.

How much has your portfolio grown over the last few years?
In the past 5 years we’ve grown over 200% in 5 years, so this is about 30-40% increase every year. And we’ve actually gone down in staff every year.

How do you grow your business / add units?
We actually don’t do much outbound marketing to new owners. Our website and word of mouth is how we grow. I don’t spend our marketing dollars on print advertising – we use Google, free business listings, and social media sites like Foursquare, Yelp, Facebook, etc.

How do you keep such a lean ratio of staff to properties? What do you think are the keys to profitability for your business?
There are a few reasons:
1. We maximize our use of technology. We use AppFolio’s web-based property management software and are using every single feature – online rent payments, accessing data from our mobile phones, online applications, the website, etc. We take full advantage of technology streamline our tasks.

2. Everyone who works here knows everything and has access to all data. Instead of specializing in different positions, we hire people we can trust and cross-train them to solve problems. We all have quick and easy access to info – it has to be complete information and on a single solution. If you run your business out of multiple systems you can easily mix up info and make mistakes entering data into multiple systems. When you have so much going on, you have to minimize the amount of errors.

3. Because we’re mobile and we all have flexible schedules, we can spend much more time in the field and this time is 100% productive because we can access our data all the time.

4. We’re always looking for new ways to streamline tasks. For example, we used to have to post to Craigslist, Homerentals, Rent.com, etc – posting vacancy ads 5 times each is a full time position!

What technology do you use in your office?

• We have a company policy that as much as possible tenants use the Internet to contact us. We have forms on our website, we respond really quickly to emails, we encourage them to pay rent online (contests, etc). Our goal is to really reduce the number of incoming phone calls.
• Everyone has smart phones so we can do our work from anywhere – I can respond to tenants when I’m doing an inspection on another property rather than waiting to get back to my desk.
• I have apps on my phone that are auto-responders so I can write canned responses. We spent $1.99 for “Text Expander”, it allows you to cut and copy messages- this definitely saves a lot of time.
• We use AppFolio’s web-based property management software to its fullest extent. When there is a new feature that makes tasks easier, we implement immediately. We have over 37% (and growing fast) of our tenants paying rent online – you can see how this really saves time.
• We use an application called “Market Circle” for billing clients. It is web-based too and like all of our applications, I can use it from my iPhone.

What profitability mistakes do Property Managers often make?
I think the number one mistake is not appreciating that profitability is directly related to time. I tell clients that the perfect relationship for us to have is that unfortunately the only time we call is when there is an issue at the property. If you’re talking to the client more than once a month you’re not doing a great job, you’re answering questions they should have the answer to from your reports or other online info. In our business, the number one drag on profitability is all of the little time consuming tasks that add up.

What’s next for Jackson Group?
We try to do things as cheaply and as efficiently as possible. I always think there are even more opportunities to increase our profitability. I tell everyone the harder we work, the more we make. We were able to give raises this last year in a year where many people got fired.

We’re still a service-based industry so you have to be available and responsive. My ultimate goal for Jackson Group is we won’t have a brick and mortar office – the more time I spend shaking hands, meeting people the more money we make. We would do everything online if we could!

History is filled with failed products. New Coke, the Edsel, smokeless cigarettes, and WebVan are a few of the more famous flops. There are thousands of others that you have never heard about, but they all have one thing in common: Customers weren’t willing to buy them because they simply didn’t solve the right problem.

At AppFolio, we expend a great deal of effort making sure that we get it right the first time. Whether it’s a feature like integrated online rent payments or our pricing, we work hard to understand our customers’ real needs before we build our products.

Validating Customer Needs: Market Validation
We call this process “market validation,” which is a way of saying that we listen closely to discover customer problems and then validate that customers are willing to use our proposed solution before we code any software. In other words, we adhere to the principle of “Ready, Aim, Fire,” rather than “Ready, Fire, Aim.”

If you are an AppFolio customer, you may have participated in this process at some point – it might have been a phone call from us to get your opinion about a proposed idea. We may have asked you to look over preliminary mockups for a future feature. Or perhaps you responded to a few questions through our user forums.

In today’s economy, companies rarely get a second chance. Which is why many of the newer, smarter companies are using similar ways of validating customer needs such as Customer Development (www.steveblank.com) or Lean Startup, (www.startuplessonslearned.com). Whatever the name, all of these methods recognize that your insights as a customer are a lot better than our assumptions about what you need.

Solving Property Management Pains
In fact, we used our market validation process before we wrote a single line of computer code for the AppFolio Property Manager product. After talking with hundreds of property managers we were confident that if we built the right product to solve their problems they would readily switch to our Web-based solution.

Some examples of the pain we heard loud and clear from property managers (and subsequently solved): Stuffing and mailing hundreds of envelopes every month; Managing overflowing stacks of paper; Spending hours installing and managing software; Entering the same information twice into different systems; Handling hundreds or thousands of rent checks each month.

For each of these problems we also discovered the minimum feature set that gets the job done. This allows us to deliver the feature quickly, cost effectively, and in an easy to use way. It also avoids the feature bloat common in other software.

By engaging our current and future customers early in the process they help us create great software that works well the first time. The result is enthusiastic customers and a team at AppFolio is that is proud of the product they create. And to boot, there’s little chance you’ll hear about AppFolio hitting the bad product dustbin of history.

It is amazing to watch how quickly we all have come to use the Internet to ’see what our peers think’. When I go out to dinner I often check reviews on Yelp, when I stay at a hotel I look for reviews on Tripadvisor – I rely on these reviews to help me make my choices! The same applies when you’re evaluating a new software. In our marketing we rely heavily on our case studies and sharing our customers’ real experiences when switching to AppFolio.

We recently profiled an AppFolio customer, Real Estate Management Group, located in Montana. Our case study focused on their experience with AppFolio with integrated ACH rent collection as they converted from using PropertyView’s Peak Property Management software in combination with PayLease to collect rent online from their residents. Sadly the original case study we published contained an error. We incorrectly highlighted a savings of $5K/year in reduced costs when converting from PayLease to AppFolio’s online rent payment. The actual cost savings of the amount paid to PayLease is $2,800/year. When we found out about the error we quickly posted an updated case study.

The case study identified many different areas of cost savings throughout their business:

We are glad to have the chance to update this case study and to apologize to PayLease!