Last modified on March 3rd, 2021
By Megan Eales Monroe
Being a property manager is a hustle. There’s rarely any downtime: when one task concludes, another one appears. And mixed into this busy schedule is a search for new ways to maximize NOI. Driving profits and creating value is more art than science — one that’s cultivated over years of experience. And if you’ve only got a few minutes to spare: tune into The Top Floor.
On this episode of The Top Floor, we explore driving profits and creating value. We speak with experts about where in a property manager’s operation they can find quick, easy-to-apply improvements that boost profits. We also discuss strategies of successful property managers who are continuously finding ways to create additional value and monetize new revenue streams.
You’re listening to The Top Floor, a podcast featuring critical conversations around property management, community associations, and real estate investing. I’m your host, Sean Forster, the industry trend researcher at AppFolio.
Every other week, The Top Floor we discuss change, innovation, and opportunities for the future. With help from thought leaders and change-makers, we’ll give you inside-access to our world at the height of industry disruption.
Here’s Megan Eales Monroe.
Megan: Few business goals are as central as driving profits and creating value. And clearly we love discussing these subjects on the Top Floor. We’re always tinkering and discovering new ways to unlock a company’s potential, which is the topic of today’s episode. Today, we’re going to let our guests take the reins. We turned our mic onto a discussion between a pair of AppFolio industry principals and JC Castillo, a friend of ours and principal at California-based Multifamily Property Group, which he started in 2006. Additionally, he is the President and CEO of Velo Residential, a property management company based in the Dallas-Fort Worth region of Texas.
Let’s turn it over to Nat Kunes, Stacy Holden and JC Castillo.
Nat Kunes: I’m Nat Kunes. I work in our Investment Management Group at AppFolio. I’ve been here about 12 years now. Prior to working at investment management, I was on the property management side of our business … I’ve seen a big shift – I’d say over the last decade – around automation, leveraging technology to really enhance your operating performance, whether it’s on the investment side or in the actual day-to-day operations.
Stacy Holden: Hello, everybody. I’m Stacy Holden. I’m a Senior Director and Industry Principal with AppFolio. I’ve had the pleasure of working with Nat for about nine years. My role at AppFolio is to really bring the customer to AppFolio and bring AppFolio to the customer.
I used to be a Controller at one of the larger property management firms up in the Northwest. I’ve been on both sides of the equation … I want to bridge the gap and make sure that whatever technological investment is made is one that shows the value that you’re looking for and that it’s not just a necessary cost.
JC, I want to talk a little bit about … When it comes to profitability and creating value, from your business perspective, when you look at a property, what is your strategy to drive net operating income? Is it expenses that you look at first, is it income? Talk to me a little bit about your formula.
JC Castillo: Well, as an owner and as a property manager … the first thing we’re going to do is we’re going to look at the comps in the market. We’re going to look at the comps not only in terms of what … the property that we’re looking at, the subject property looking at, what it’s doing today, but what we actually more importantly, what we can take it to by putting in some capital into the project, capitalizing it, and adding value to the property, what can we get in terms of competitive rents in the area for … competitive properties that have done the similar things like, for example, upgrading the units, maybe with granite countertops or improved flooring, brand new stainless steel appliances, light fixtures, et cetera.
JC Castillo: If we’re going to upgrade the amenities – maybe add a dog park, or we’re going to fix up the community center – we want to see those comps. We want to see those comps giving a clear proof point of what we can achieve if we do these similar types of upgrades. The number one thing we look at really is a revenue side, is what can we drive on the upside once we add value to the property. On the expense side, there’s also innovation there that we look at. One of the things that I think that we’ve innovated as a company and what we’re bringing to the market with our new Velo Residential company, is that we’re big believers in virtualization, virtualization of the traditional services that are done archaically at the properties.
JC Castillo: We’re really using this virtualization strategy to deliver a lot of efficiencies on the expense side. I would add that AppFolio is actually a key part of our strategy for how we do that, for example, we’re able to cut payroll costs with our innovation and virtualization at these properties. Not only do we achieve in effect the revenue boost when we value-add the property, but we’re also looking to achieve operational efficiencies on the expense side.
Megan: Here, the discussion turns towards automation technology, and in particular AppFolio’s artificial intelligence leasing agent, named Lisa. We’re going to break from the conversation for a moment to let Stacy explain a bit about how this conversational AI works.
Stacy Holden: For the staff, what that does is everything is being responded in a timely manner. A lot of things … the obvious is being automated. Somebody is booking the appointments for them based on their ability. Somebody is answering those questions of what kind of dog can I have. Lisa understands that dogs are allowed. She understands that, okay, what kind of dog do you have? She asked the right questions, versus just saying no or yes. It sets your employees up to really exercise their talents and spend time on closing that deal, versus answering all the emails that they would typically get and the phone calls.
Stacy Holden: Where have you found automation besides what you just mentioned to better deploy teams and be successful in the execution of these initiatives that you’re talking about?
JC Castillo: That’s really game changing for us. Because what that allows us to do is not to have to worry about fielding all these potentially hundreds and hundreds of calls and emails that we get per month, but instead focus on actually servicing the customers that actually book a tour, that actually schedule a showing.
JC Castillo: Those are the people that we have the highest likelihood of closing. That’s where people take over, and we’re handholding those leads and trying to get them to convert to a lease. Lisa, for us, was really one of those things that was a game changer for us. I think that that helps us on the revenue side. Because the more units that we can lease faster, the better revenue that we can bring in for our properties.
Before we were using Lisa, we used to spend a lot of money on paid advertising with different sites because we thought that we had to. We always thought that there was a certain amount of traffic that was being generated and leases signed from that traffic. When we turned on Lisa, we were shocked with the data. First of all, there was so much data that we never saw before. What we actually realized going through the data was the majority of our leases and tours were coming from free sites like, for example, our biggest driver of traffic to our properties is a simple Google business listing, which is free.
We were able to eliminate our paid advertising across our portfolio, which is unbelievable. We ended up actually saving ourselves expenses too. Because we were able to see the data and understand that we didn’t have to spend the money we were spending because we were getting perfectly great response.
Megan: And here, Nat goes a bit further to unpack the benefits of automation.
Nat Kunes: By being able to use artificial intelligence, they are automated, getting that data in your system to make smarter decisions, all of that goes right back to running a more efficient quality property. It allows that leasing staff to really focus on what their strongest skillset should be, which is closing, closing those residents, talking to them about why that property is going to be the best fit for them, and less about scheduling when they can meet, which is just a time suck at the end of the day. That’s where Lisa really can outperform and make those quality interactions even better.
Stacy Holden: There are so many other things that we can do with artificial intelligence to really enable teams like you to execute and use the talents of the people you’ve hired besides typing on a computer. I have a question though, from your industry perspective, what do you think is the biggest obstacle for other companies within real estate in adopting artificial intelligence? Specifically, there’s a perception that artificial intelligence would replace people in what they do versus enable them. Can you speak to that, how you roll that out and how your teams are responding to that?
JC Castillo: I think the biggest concern that … executive teams think about is the loss of the personal connection with the customer. Because at the end of the day, every relationship that is built is built around a personal relationship. People do business with people because they know them, they like them, and they trust them. When you talk about artificial intelligence, you’re really talking about taking … At least the perception is that you’re taking that connection away. That’s worrisome.
Residents decide to live at your property because they feel a connection to the property, to the people that work there. I think what you, as an owner, and what we had to wrestle with and we understand now is that the objective of the technology is not to replace the personal connections.
Actually, the objective of the technology is to give more time to our humans to actually focus more on those personal connections… What I’ve seen is the complete opposite of that initial fear is that actually enables us to focus more on those relationships, which actually is what drives the business forward.
I hate talking about technology for the sake of technology’s sake. What I mean by that is technology has to have a purpose. The purpose, in my mind, has to be that it has to enable us to focus more time and effort on building those relationships with those customers, those investors, those residents, and getting them to renew their leases. If the technology is taking work off our plate that doesn’t need to be done by us, it isn’t in the way of building those relationships. I feel like that’s great technology.
Megan: Again, here’s Nat Kunes from AppFolio.
Nat Kunes: Traditionally, I know there’s certain types of properties, certain types of asset classes that were tricky to own because of how the operating income would play out based on the old way of doing property management. Have you found that using technology solutions, like AppFolio, has helped you take on more of the market than you previously would have been able to?
JC Castillo: I think that the answer lies in the fact that through the technology that you guys have, it’s enabled us to actually deliver the same service level to really, really greatly large properties, and also some smaller properties that we’ve got that are legacy properties. Traditionally, you think of a larger property is needing to have a significant number of onsite staff. What we’ve been seeing with the technology with AppFolio is that we’re able to virtualize and automate more and more of the traditional onsite functions.
That’s enabled us to actually do a lot of great management of properties that would seem to be smaller than the ideal these days in terms of the number of units that we have.
Stacy Holden: I don’t know what you have seen out there, because I know you are in different markets. With remote employees now, more people working from home or having the flexibility to work from home, do you see anything changing in the industry as far as how leases are drawn up if there are shorter terms? Because people can now, as you mentioned earlier, pick up stakes and move anywhere for a period of time if they’re working remote.
JC Castillo: I believe that the future of leasing properties is going to be a very automated and artificially intelligent way to lease the units with revenue management. When I say revenue management, I mean a lot more than just, hey, let me tell you how much you’re going to pay for this unit based on a one-year term. I mean, artificial intelligence that takes into account what’s the number of renewals that we’ve got, what’s the leasing velocity, how long has the unit been vacant. Those sorts of technology are going to be very important to the residents seeing the flexibility, but also to the ownership groups and the property management companies in terms of driving great revenue at the properties. I believe that is what’s really critical here.
Nat Kunes: Looking forward to the next few years, what would you say is the top piece of advice that you could give to property management firms that are looking to really boost their profits and value to their residents?
JC Castillo: The biggest thing I can say is that you, as a property management company, have to focus on your frontline team. The way that I look at this business now that I’ve been doing it for a little while is I realized that the biggest difference makers at every single property without a doubt is going to be your office staff and your maintenance guys. It doesn’t really matter as much that we have a great executive team or that we have a great corporate accounting team. That’s all table stakes. You need that. The real difference makers is the onsite team.
For example, moving forward and you asked me, what is it going to take for people to be successful moving forward? It’s going to take an extreme focus on how do you make your onsite staffs lives better, how do you make them happier employees. Because if you make them happy, you’re going to get happy residents. Conversely, if you actually bombard your onsite staff with things that can be virtualized or things that can be done by a back office team and you take away their ability to really connect with the customers and do the things that they need to do to be successful leasing units and keeping existing residents happy and renewing their leases, then conversely, you’re going to suffer greatly.
Because you’re going to have a stressed out office team that’s not going to have time to do what they need to do. You’re going to get turnover. You’re going to get burnout. You’re going to have a property that’s not profitable. In my mind, going forward here, we have to learn, as an executive team, how to put the focus all back on how do we make our onsite teams lives better. A lot of that has to do with how we’re taking work off of their plate that just doesn’t need to be done by them anymore.
What that does for owners is, is that just makes it so that if we’re a property management company, let’s say, we’re taking over a new property for a new owner. This team that’s coming in is coming in cold. We may not have had this team under our belt before. They’re coming in cold. They’re able to go into AppFolio with a predefined workflow for move ins, for move outs, everything else that we have built up.
That really increases their ability to do things the right way from day one and hit the ground running, which is going to result in better profitability for the owners, bar none, that is for sure. Workflows are such a big part of what we do at our company.
I think that one of the things that gets sorely missed as an owner or as a property management company is that one of the biggest reasons that people leave your property, I always talk about doing the basics brilliantly. One of the biggest things and biggest reasons why people will leave your property is because they don’t get their work orders serviced either correctly or efficiently done fast.
One of the things that AppFolio that you guys have, and I know because we use it, is a maintenance call center. I think the really amazing thing about this technology is that what we’re able to do at our company is, previously, we had our onsite staff taking all of the calls for the maintenance requests. That was really troublesome because half the time, the managers either didn’t remember to enter the work coordinate system or if they just gotten a call for 10 other work orders, they might have magically forgot to enter the 11th work order.
There’s a lot of reasons why the ball could get dropped. At the end of the day, it doesn’t matter because we look really bad with the resident. They get upset and they may not renew. With your maintenance call center, what the really great thing was, is that we’ve completely offloaded that from our onsite team. Not only that, but with the maintenance call center, when people are calling in and asking to enter work order, your team is putting it into our AppFolio database. There’s what I call a closed loop system where now that work order is there and it cannot be ignored.
We can track it and make sure it gets closed. We can see how long it takes. What all this means, at the end of the day, because, again, we’re here to drive profits is we keep our customers happy with work orders. We’re going to get them to renew their lease when the time comes. That’s going to be worth literally thousands of dollars of turn costs and time sitting vacant. These technologies don’t just make life better for the residents, they actually deliver really solid profitability for us if we can execute them in the right way.
Megan: Special thanks to Stacy Holden, Nat Kunes and JC Castillo for sharing their insights into driving profits and creating value. Listeners who want to learn more can find links to both AppFolio’s and JCs websites in the show notes. On top of that, if you love The Top Floor we know you’re going to love JC’s podcasts Apartment Investor Show and Operate For Profit Real Estate Podcast, which we’ll also link to in the show notes [see below].
Sean: Thanks for listening to The Top Floor. Join us here every other week for a new episode. For more information about today’s guests, visit us online at appfolio.com/blog. For more property management insights, follow AppFolio on LinkedIn, Twitter, and Facebook. Don’t forget to subscribe to The Top Floor on Spotify, Apple Podcasts, Stitcher, or wherever you listen.
We’ll see you next time.