Last modified on October 25th, 2022
By Megan Eales Monroe

What are the top challenges facing property management companies today? 

In 2021, AppFolio worked with the National Apartment Association (NAA) to learn about the top challenges facing property management companies. Now, in 2022, a new set of challenges have emerged for property managers, including record inflation rates, increasing wages, and rising costs due to global supply chain distribution issues. So it’s no surprise that in the second edition of the Property Management Industry Pulse, we found that reducing and controlling costs is one of the top challenges facing property management companies. 

In this episode of The Top Floor, we sit down with Stacy Holden, Senior Director and Industry Principal at AppFolio, to see how property managers can dial up their operational efficiency by reducing and controlling costs. We also explore how they can lay the groundwork for more effective budgeting and spending in the future.

 

Meet Our Guest:

Stacy Holden has over 20 years of experience in multifamily property management and currently serves as an Industry Principal and Senior Director at AppFolio. A former controller at one of the largest property management firms in the Northwest, Stacy has first-hand experience in property management and is an expert on how organizations can leverage technology to solve urgent business challenges. Before AppFolio, Stacy spent several years in the real estate technology group at Intuit.

 

Episode Transcript:

Megan: In 2021, AppFolio partnered with the National Apartment Association to survey property managers from across the United States. The goal of that survey was to better understand the top challenges property managers faced, especially after the unprecedented shutdown of the global economy in 2020. 

At that time, in 2021, the most pressing issue for property managers was HR, Staffing, and Recruitment. We even took a deep dive into those issues with Paula Munger and Leah Cuffy from the National Apartment Association on season 2 of The Top Floor. 

But, of course, the challenges property management companies face change from year to year. So, we decided to survey property managers once again in 2022. 

While HR, Staffing, and Recruitment are still among the industry’s top three challenges, it turns out that operational efficiency is now the number one challenge for property management businesses in 2022. More specifically, survey participants said they struggled most with operational efficiency tasks that included “finding high-quality vendors,” increasing material costs,” and “reducing costs.”

To help pave a path forward and find solutions amid record inflation, global supply chain disruption, and global conflict causing rising commodity prices, I sat down with Stacy Holden to have a discussion on what property management organizations can do right now to combat and control rising costs.

Megan: All right, Stacy. Well, to kick us off, can you introduce yourself? We are familiar with you, you’ve been one of our most frequent guests on The Top Floor. So hopefully our listeners know who you are, but we would love to hear it from you one more time.

Stacy Holden: Well, thank you Megan, for having me back again. My name is Stacy Holden, I’m the senior director and industry principal with AppFolio. I’ve had the honor of being with AppFolio 10 years this year, but prior to that I used to be a controller of a full-service brokerage house, which included property management, acquisition, disposition, and leasing. So really excited to be here and again, thanks for the invite.

What the 2022 Property Management Industry Pulse revealed

Megan: Yeah, we’re excited to have you. So we’re here to chat a little bit today about our 2022 research, the Property Management Industry Pulse. We’re excited to have a more regular cadence of research to bring to our audience. This is our second year doing it. So to start us off, can you talk a little bit about what the Property Management Industry Pulse research is?

Stacy Holden: For sure. We originally wanted to understand the challenges of our property management industry following basically the shutdown of the global economy due to the pandemic. So what we did is we ended up partnering with the National Apartment Association and ended up serving over a thousand different management companies to find out what kind of impacts such an unprecedented event brought to our industry.

Megan: So one year later, fast forward, why did AppFolio want to revisit this research?

Stacy Holden: Well, Megan, as you and the whole audience knows, things are changing now faster than ever, and certain things we’re normalizing but we wanted to see what and if anything had changed in the eyes of the property management industry, and that’s why we went back to refresh the data based on the same questions.

Why “operational efficiency” is one of the top challenges

Megan: And it really did look like a lot has changed. So we saw in 2021, the top challenges were all around HR, staffing and recruitment, really a lot of that “great resignation” theme was top of mind. But in 2022, we saw the top challenge was operational efficiency. So before we get into the differences between the two, first off, can we try to define and dive into a bit what operational efficiency refers to?

Stacy Holden: Sure. So when it comes to operational efficiency, think about what you use and what you do to get through every day from the alarm clock to grocery shopping, to finding the mechanic when your car breaks down. We all use various items and take various actions. And as people, we’re always looking to be more efficient in how we get through the day. So think of those tasks coming from a property management perspective, things like the number of emergency responses that you make in a day, or tracking projects over various vendors. Those are just a couple of examples of operational tasks that fall under that category that we called operational efficiency in the survey.

Megan: So within that operational efficiency category, we asked survey participants to rank the most challenging activities that they were facing. And one thing popped out. So can you talk a bit about some of the findings around reducing and controlling costs that came from the report?

Stacy Holden: Absolutely. So both in 2021 and 2022, finding high quality vendors took the top spot. Now, I think we can all agree that there’s a shortage of skilled trades people in the US today. And it’s difficult to not only find those skilled vendors, but when you do find them, getting the response and the time that you need is super challenging. So this is by far the top challenge in both years.

Megan: So why do you think it’s become so difficult to find these people? Are there any factors that have made this shortage worsen over the past year or two?

Stacy Holden: I think it’s people really getting off the hamster wheel during the pandemic. Again, unprecedented where everything, pretty much everything has shut down. And I think a lot of people took a look at what they were doing and then maybe trying to do something different. I think that’s one thing. The other is there were various assistance programs that came through both federal state and local governments that allowed people to take pause and really look at their careers and say, “Do I want to do something different?” 

And so I think especially around the trades, there was a lot of shift, number one. And number two, there’s a lot more demand. And what I mean by demand is, think about everybody who’s staying at home during the pandemic. Well, what did they want to do? They wanted to get things fixed. They couldn’t get anything fixed because trade people were also staying at home. So once everything started to loosen up, now we have this huge demand for skilled trades people and not enough to fill that demand.

Why controlling costs is so difficult in 2022

Megan: So true. So it seems like it would be fair to say that reducing and controlling costs is always a concern for property management companies. So what’s so different about it in 2022? What’s making it the top challenge right now?

Stacy Holden: Well, to coin a phrase of one of the movies out there, it’s kind of the perfect storm. So what I mean by the perfect storm is that one, we all have supply chain issues each and every one of us, then there’s the inflation and the rising costs. Then we also have wage demands from employees. So to make sure that we have the right type of employees, sometimes in a lot of industries, because we have more jobs than people, the rising cost of those salaries have also been part of that storm.

Megan: Yeah. So it’s really several factors kind of coming together and making this emerge as the top challenge. So to dig in a little bit more specifically, in what specific ways are reducing and controlling costs a top challenge at property management companies right now?

Stacy Holden: Well, I think number one, everything just costs more. I think it’s simply as put as that. And to get the right level of output or the right level of quality, you have to pay more and because those resources are scarce, they can demand more costs. So I think it’s all of that right now, from a property management perspective, that is super challenging. The other thing that adds a challenge is the flexible work, if you will. So everyone is focused on this hybrid type of work from home versus work from the office. Well, property management people, in particular maintenance people, there’s not a lot of option. You have to fix things and you have to be on site to do that. So again, that causes the higher demand for wages and the higher demand for people to actually want to be on a physical site, which is again, that perfect storm that leads into these challenges that our industry’s facing today.

Megan: What are some other cost stressors today in addition to those and how are they affecting the bottom line at properties?

Stacy Holden: Well, I think if you take a look at the basics of what, for a lack of a better phrase, makes the world go around, it’s energy. And our energy prices are in a wild swing of fluctuations. Think about how much gas prices have changed over the course of this year alone is wild swings back and forth. And so, in fact, I believe it was in June of this year, the Bureau of Labor Statistics, the Energy index, if you will, it rose over 41% in 12 months. With gasoline alone increasing almost 60%, I think it was like 59.9 over across the same time span. Well, that impacts everything. That impacts what’s made, that impacts what’s transferred or transported, if you will, from one place to the other, and how things are consumed. So when you have the fluctuation of just the energy prices, let alone the perfect storm of everything else, that’s impactful when it comes to challenges.

Megan: Yeah. They’re really compounding. And it’s what you were saying also reminded me too of materials costs and appliances and parts being backordered and that’s driving up prices even further. So it really is a perfect storm like you were saying.

Stacy Holden: Correct.

Megan: So with this so top of mind right now, I think it can be easy to get tunnel vision and assume that this is how things will remain, but do you see this focus on reducing and controlling costs remaining one of the top challenges for property management companies into the coming years?

Stacy Holden: I would say for at least the next 18 to 24 months, for sure. There’s still a lot of unknowns and a lot of things we can’t control. What’s happening over in Britain right now, just the confidence of the Queen died and the confidence in their economy is in flux. You have a potential increase in the Fed rate, once again, that will also have an impact. Plus there are situations such as the war within Ukraine and sanctions. If there’s fuel sanctions that are actually put into place, that will also impact fuel costs to rise again. So I think at least for the near future, it’s something that has to be top of mind.

How residents are affected by reducing costs 

Megan: I think this question of focusing on reducing costs is often framed as being an opposition to the resident experience. If you reduce spending, you’re trying to bring down costs and that automatically means that you’re cutting corners on the resident experience, but that doesn’t have to be the case. So to start out this conversation, how does this focus on reducing or controlling costs tend to affect the resident experience?

Stacy Holden: Oh, I think the resident is definitely affected both in a long and short-term perspective. So think about this, if a resident is responsible for any kind of repair cost, just the increase in labor and the increase in supply costs, those are going to be directly passed on to the resident. So that’s going to affect them in the short term. In the longer term, that’s going to impact them when it comes time to renewal. We’ve seen across the country, rent increases continue to rise. And so someone seeing a rent increase is almost a sure thing. And especially that case in recent articles that have come up regarding the secondary markets, they’re going to see those rent increases for a while. So I think both short-term and long-term, the residents are definitely impacted.

Megan: Yeah. I’d love to dig in there a little bit more. What about day-to-day interactions with property management staff? Are there other cascading effects that this can have in terms of the service level that they expect to receive?

Stacy Holden: Well, I think from a service level perspective, if… Because some property management companies are looking at consolidating their services. And what I mean by that is that depending on the type of dwelling that you live in, there could have been some local community presence that is no longer there because one cost savings could be that they’re consolidating their functions. For example, you could have been in a community that had an onsite property manager where you could be talking to them and walking into the office and making a maintenance request. Now with consolidation of functions, you don’t have that onsite person. So that could definitely impact what used to be a really good resident experience because they had someone right there that they could look in the eyeball and talk to, and now they don’t have that available.

How property management companies can keep costs low

Megan: Yeah, I think that’s tough too because as much as I know, everyone would love to be able to provide that high level of service at all times. We’ve been talking about how the costs just make that impossible to sustain. So do you have any thinking there, maybe tips or advice for management companies on how they can balance this? How they can keep costs low without having such drastic effects on the resident’s experience, get the best of both worlds?

Stacy Holden: So I’m going to answer this question a little bit differently than people might be thinking. And I’m going to say, it’s really focusing on employee retention. So when you think about it, the frontline workers of property management, like the leasing agents, the property managers, the maintenance individuals, they were really the first responders when it came to the pandemic. They were counted on to keep things running in a climate where everyone was staying at home, except for them. So employee turnover has been a big challenge because of that. And I think a lot of times, we don’t recognize the financial impact of what employee turnover can be. And it’s very costly, both in the short and the long-term. 

So make sure you as businesses are talking to your staff, meet them where they are, and focus on their retention. Things that benefit retention don’t necessarily have to cost money. So I think that’s an immediate place that business owners and leaders can focus on that actually will help reduce costs.

Megan: Yeah, that’s so true, Stacy. That actually really reminds me of the research report that we did on the employee experience, a little bit earlier this year. And of course, we saw that people did want to be paid more, but they also wanted other things that don’t cost any money to provide like better mentorship, more engagement, more challenging work. Those are all things that don’t have a price tag.

Stacy Holden: That’s right.

Areas property managers should NOT reduce spending on

Megan: So moving on, what other areas can property managers… What should they not reduce spending on, especially if they’re looking to control costs, are there any areas that you would really steer clear of and continue to invest in?

Stacy Holden: So I’m going to repeat my answer and I’m going to add one more. And what I mean by that is definitely, I wouldn’t be reducing costs when it comes around employees and employee retention, but I’m going to add a new one and that’s technology. We’ve already talked about the employee retention so we’ll set that aside. But technology investment has multiple benefits. Often, technology investments can not only produce a rapid return on investment, but in a recent survey where AppFolio, again, partnered with the National Apartment Association, we found that 84% agree that technology makes their job easier.

On the retention side, 64% of those respondents prefer to work for a company that adopts the latest technology. And employee satisfaction was 31% higher among employees that are satisfied with the technology they use. So it used to be where technology was a bright, shiny object or a super nice thing to have. Imagine if all of us were invited to go to work for the best company that we could possibly think of, but we had to start using a typewriter. Would you actually go to work for that company? And in today’s day and age and the generations that are up and coming in the property management industry, the answer is no.

How to use technology to control costs 

Megan: So where should property managers and management companies look first when trying to get a better control on cost? Specifically, how should they think about implementing technology to achieve that goal?

Stacy Holden: Yup. This is definitely where technology can, and once again, be a major contributing factor. There are so many different angles that technology can help starting at the very beginning of the cycle in budgeting. If you have technology that keeps you accountable, and what I mean by that is that you can look at your actual cost versus your budget. Not only look at it, say, at the end of every month, but have some automation in the system. So as you are about to spend money that you get a warning that says, “You’re over budget.” So for example, a procurement system where you’re looking into a catalog and you order the next dozen light bulbs and it gives you a warning that you’re over budget, “Do you still want to do that? Yes or no.” That kind of visibility and reporting is that proactive piece of technology that allows people today to really control their costs and make thoughtful decisions on where to spend money.

Megan: That’s great. Some of the recent topics that we’ve covered here on The Top Floor are really around that. Our last episode on inspections, we were talking about how uncovering these opportunities for preventive maintenance can really save money. Do you have any other examples? I’m thinking about maintenance, but also even leasing like unit turns, what are some other ways that technology can help to reduce unnecessary spending?

Stacy Holden: Well, definitely around turning a unit, if you have, that’s a very costly thing for anyone to go through is turning a unit from one tenant to the next. And so if you have that technology piece in play that the minute that the notice is given, that all the people are given what’s responsible for them to do when a unit turns, the more time and the more leeway you have to either think about replacing an appliance, or replacing carpet, or we’re just going to paint just that extra period of time will allow you to control costs versus the last minute, “Oh, hurry up. We have to hire somebody to quickly come in and clean the carpets.” You’re going to have to pay a premium because right now, with finding those high-quality vendors still being a challenge, time definitely is money in that situation. So having visibility into your units and how they turn is absolutely huge.

I’ll also go back to employees. So if you were giving employees the benefit of technology, let’s just say, we’re talking about that turn unit an example. So we do surface their to-dos, for the lack of a better phrase, and they can proactively schedule their days. Doesn’t one feel a lot better when they’re being proactive versus reactive? And having that level of predictability makes happier employees, makes employees that stay longer, and therefore, it’s also a cost saving because you’re not dealing with the turnover that you might be dealing with when you have someone that is just overwhelmed with all kinds of last-minute requests.

Megan: I love that. Bringing it back to employee engagement. It’s all interconnected, isn’t it?

Stacy Holden: It is.

Ways property managers can control spending long term

Megan: So I think those are some great examples of somewhat more short-term solutions and how technology can help bring down costs. But looking to the future in planning, how can property management companies today start laying a foundation for more controlled spending in the future?

Stacy Holden: I think it all has to do with predictability and there isn’t a better partner for predictability than technology. So if you are forecasting the performance of your properties and what you need from a cashflow basis, and you have a system in place that is proactively working for you, and what I mean by that is serving you up communication that says, “You’re potentially over budget.”, or “You have this much to spend that you haven’t spent.” And taking away what I would consider the obvious and automating it. So imagine your accounting staff and they’re not having to enter the bills anymore because that’s all being done through technology and machine learning, but they’re spending more time on actually doing financial analysis or being served up these predictable warnings of being over budget. You are now completely in a proactive seat.

And so once you’re in that proactive seat and you’re not just playing catch up from just simple data entry or looking into a file, now you really have your budget under control. And now you can start planning for future improvements with the amount of time that you need so that you can be spending your money wisely instead of being reactive. So if you’re a third-party fee manager and you’re spending more time analyzing the future of your owners because the current state of your owners and properties are all under control, that’s where you add value to real estate and that’s where owners want to pay third party, be managers to actually do their business.

Megan: And this too seems like it might have some connection to employee engagement, getting into that proactive mindset, that strategic kind of thinking. Does that impact people’s satisfaction with their jobs, being able to think that way instead?

Stacy Holden: I think most people. I can’t say that everyone doesn’t like data entry because some people do. I can’t say that every… I used to be an accountant, so I can say this. I can’t say that everybody doesn’t like putting a stamp on an invoice, but were you hired to do that or were you hired to manage the actual expenditures of a property? And I think being able to release people from the mundane, which is something that technology can do today, and give them ability to do things that are more impactful and really bring more meaning to the business, I think is huge on all fronts.

The ideal state of property management in 2022

Megan: So looking forward to an ideal state, what should things look like when everything is as it should be, when a property manager or company has control over their budget? Set that scene for us.

Stacy Holden: I think the ideal state is, remember I was talking about earlier about not having onsite staff? I think the staff is back on site. So whether it’s a Class A apartment or any type of asset that we’re looking at, people like to have everything. And what I mean by everything is that if they don’t want to talk to somebody, they want to have the technology that they can get their things done, i.e. maintenance request. But people also like the sense of community and looking someone in the eyeball and technology allows for that. So the ideal state is that we have our property management staff doing what is most impactful. And a lot of times that’s really talking to their community members, creating a better sense of community. Because remember, let’s go back to that hybrid, we have more people staying at home 24 hours a day than ever before.

And so the experience that residents, not just want, quite frankly need today is so much more different. So imagine that you don’t have to be behind the screen, that you can actually get on the other side of the computer and engage with your community. That’s part of the ideal state. Another part of the ideal state, is that for those that are fee managers, you are proactively engaging your owners to be thinking about the future. If you’ve got control of your spend, typically that would mean you also then maybe have a better return on investment, which might mean that you have the ability to invest more. And if you’ve got a fee manager that’s actually consulting you through that journey, wouldn’t you want to pay that fee manager more because the more successful you are, the more successful they are. And so I think that ideal state can really bring joy to the entire community set, residents, property managers, owner operators.

How to choose which tasks should be automated

Megan: Yeah, that’s a really enticing picture. I feel like that’s what so many of us want really is to be able to do the things that only we can do, the unique value. So how do we tell the difference, between what kinds of tasks are best handled by technology or by automation, and what tasks should be handled by a human being, like you said, being able to look at somebody in the eyeballs? Are there any rules of thumb between the two?

Stacy Holden: I would say, think of it in terms of repeatable. So for example, if you constantly are replying to emails of how much your pet policy costs, probably something that can be automated. If you are constantly looking at calendars to schedule` a showing over and over again during a day, that could be automated. We were just talking about invoices. If you’re taking a stack of invoices and hitting the 10 key over and over again, that could be automated.

So if you think about those repetitive tasks, sometimes people refer to them as busy work. We found in a recent survey that people in property management gauge that they spend 40% of their time with busy work. 40. Imagine if you just cut that in half. So those things that are constantly being repeated, the same responses to emails, the same responses to text messages, the same responses to voicemails, those things being automated. Now we’re talking about doing things that are more meaningful if all of those types of things are automated.

Megan: Yeah. And then to bring this all the way back around, that’s got to have a beneficial effect on the resident experience too, right?

Stacy Holden: Yeah. So if I’m getting more customized time, if you will, if the property manager is engaged with me as a resident, more what’s happening in the moment or being proactive or increasing my community because I’m now living there 24 hours a day, that’s a higher value to me. I still need my maintenance request answered, but if I have automation behind that, that’s getting me the same result. That’s called a win-win all the way around.

Megan: Yeah. Well, that’s awesome. I think you’ve really given us some great food for thought here. Is there anything, Stacy that you want to revisit or any other thoughts that you have that you feel would be worth adding here that we didn’t cover?

Stacy Holden: I would say one of the things that I would love to add is that we’re all going through an incredibly challenging time from the stock market going through a challenging time to everyday employees. Take a minute, somebody that’s in your circle that doesn’t make a lot of noise that works really hard, send them a text message. If you see them in person, look them in the eye and just say thank you and show them some gratitude. I think it’s really important today that we recognize that all of us have had to dig deep in one way or another and let’s just recognize that and appreciate it.

Megan: Yeah, that’s wonderful. Well, that covered everything that we had. Stacy, thank you so, so much for this. I can tell a lot of thought and prep went into it and we love when that is the case. So thank you for your time. 

Stacy Holden: I appreciate it, Megan. I always love being on the podcast and the more we can make differences in everybody’s lives, the better.

Megan: It’s clear that, even though we’ve moved past the initial challenges of COVID-19, the pandemic has continued to create a ripple effect, bringing brand-new challenges the property management industry has never experienced before. 

And while rental housing’s top challenges have shifted from 2021 to 2022, some solutions for working through property management’s top challenges remain the same:

• First, continue to invest in top talent and frontline staff. Hiring costs and wages have increased, but, in the end, your teams are essential for short- and long-term success.
• Second, don’t cut costs just to cut costs. The key to controlling budgets is first to mitigate unexpected costs with preventative maintenance and also budget better by planning for the new, higher costs of doing business.
• And, finally, third: Make investments in the right technology that can give you better insights into your business, budgeting, and spending. Tracking your portfolio’s spending in real-time and being able to forecast budgets more accurately for the future with technology is vital for controlling costs in the long run.

For more information on the top challenges discussed in this episode, and to dive even deeper into solutions, download the 2022 Property Management Industry Pulse at https://info.appfolio.com/