Real estate is an industry as old as civilization, and as old as the real estate industry is the art of property management. Real estate is an investment, and the goal of any investment is to generate a profit and, ideally, maximize ROI. To maximize the ROI of an investment, however, it’s crucial that that investment is properly managed (and cultivated).
Enter property management.
Of course, not all investments are created equal, and the skills, strategies, and best practices that it takes to maximize the ROI of one investment (or portfolio) are not necessarily the same that are required to manage another. Indeed, even within the real estate industry, properties themselves vary widely in their form and function (e.g. commercial vs residential, multifamily vs single family, etc.). Insofar as a real estate property is an investment, however, there are certain best practices that are universal, even if not entirely self-evident.
In other words, just because you invest in a property, that doesn’t mean that occupancy (or ROI) will follow. More importantly, property management best practices tend to change over time – i.e. as real estate markets adapt to evolving conditions (such as shifts in supply & demand, and advances in technology). Currently, however, there are at least 7 crucial property management strategies that should be considered by any serious property manager looking to maximize the return on their investment.
1. ESG best practices
The latest best practice to emerge in world of property management, ESG is an acronym for “Environmental Social Governance”. Simply put, ESG involves adopting a business strategy that “focuses on the three pillars of the environment, social [inclusion], and [ethical] governance.” In other words, it involves taking measures to reduce a property’s carbon footprint (the environment), engaging in community causes, and committing to an inclusive workforce ranging from the entry-level (social) all way up to the management and board of directors’ (governance).
On the environmental side of the equation property managers work to monitor and reduce the environmental footprint of their commercial or residential properties by adopting more sustainable infrastructure, technology, supply chains, and business practices. This can include better managing waste disposal and water usage, adopting more sustainable energy sources, leveraging smart technology to curb a property’s energy consumption, or using more sustainable building materials.
The cost saving effects of reducing energy and water consumption are rather self-evident, but there are other financial incentives for property manager to embrace ESG best practices. Essentially, ESG is about more than just implementing more sustainable and inclusive property management practices. It’s also about strategic financing. Essentially, in becoming ESG compliant, property managers can access advantageous financing and, subsequently, reinvest in their properties to gain a competitive edge.
Smart financial management
Of course, most property management strategies are not as recent or progressive as ESG. Rather, many property management best practices stem from conventional financial wisdom and good sense. After all, managing finances and cashflow are a significant part of managing any investment. However, technology has allowed property managers to take these established strategies and best practices to the next level, reaching new levels of ROI and profitability.
2. Property Management Systems
One of the most direct ways that technology has streamlined the property management industry is through Property Management Systems (PMSs). Specifically, PMSs allow commercial property operators to fully manage every aspect of their commercial property, including rent collection, unit vacancies, property maintenance cycles, finances, and accounting.
In other words, a reliable PMS removes the need for property managers to focus on time-consuming administrative tasks like rent collection, day-to-day bookkeeping, cash flow management, and labor logistics, and focus on managing their property, portfolio, and revenue strategy.
3. Revenue Management Systems
While a reliable and well-configured PMS can help reduce overhead and collect invaluable data, a Revenue Management System (RMS) can take the financial management one step further by leveraging that data to help property manager make even more strategic decisions. In fact, there are several distinct benefits to integrating a revenue management system with a PMS, including:
- removing the guess work in pricing by adjusting for real-time variables such as available inventory, leasing velocity, recently achieved rental rates, and market position
- creating urgency and setting ideal rates that are based on up-to-date information, and incentivizing lessees to sign on a great deal while it’s still available
- increasing the control and flexibility property managers have in setting rates based on move-in date, lease length, and amenities
- and reducing Fair Housing infractions by setting pricing according to predetermined objective sources
Indeed, Revenue Management Systema help property manager leverage real-time data (such as accounting and occupancy) to gain actionable insights on a variety of market conditions. Consequently, implementing an RMS is not just an effective strategy, but an essential best practice for any commercial property manager.
4. Smart Pricing Strategies
As important as it is that property managers effectively manage their revenue, it they want to maximize their ROI, they should also maximize that revenue. And they way that property managers can do that is through smart pricing strategies.
Essentially, as their PMS and RMS aggregate data from across their operation, property managers can use that insight to inform their pricing strategy and drive more revenue. After all, what good is data if it can’t inform your price point and profit margins? As Multifamily Executive Magazine explains, “By learning about […] pricing personas, [property managers] can develop an easy way to understand and talk about revenue management strategies within their companies.”
In fact, there are five different pricing personas that property managers can draw on depending on their business goals:
- Balanced Pricer: this is where property managers push rents whenever there’s an opportunity, but without allowing vacancy rates to get too high; this pricing strategy, moreover, is commonly found at average-sized properties that are stabilized
- Occupancy Defender: this strategy entails renting out as many units as possible for as long as possible, maintaining price parity in order to not lose tenants, and avoiding the risks of vacancy over the pursuit of aggressive rent growth.
- Vacancy Averse: where Occupancy Defenders are risk averse, the Vacancy Averse are risk allergic, even to the point of drastically reducing rent pricing to meet (or beat) the competition in favor of reaching maximum occupancy.
- Rent Driver: this strategy is less averse to vacancy, involves leaving units unoccupied until they can command a higher rental price, and is most common in markets with supply-side shortage or when trying to increase property value ahead of selling it.
- Lease Up: this strategy is common among property managers who have properties coming online, and have predetermined occupancy rates that they need to achieve through stabilization; these property managers tend to keep rents down, and even offer value-added concessions to tenants that expire at renewal.
So with five basic pricing strategies available to property managers, smart pricing involves pursuing the strategies (or blend of strategies) that best serve their short-, medium-, and long-tail business goals.
Beyond managing finances and revenues, maximizing the ROI of a property investment also requires reducing overhead costs. And there is arguably no greater cost to operating a property than energy consumption.
After all, not only must property managers literally keep the lights on, they also have to heat or cool the interior, and power any number of other amenities that they might offer guests or residents. And recent advances in technologies have created several new opportunities for property managers to reduce their energy costs.
5. Demand Response
One of the latest ways that property managers can reduce their energy costs is by turning their energy consumption into a source of revenue. Specifically, by opting into a Demand Response Program, property managers can receive cash incentives or bill credit against their energy costs.
Demand Response Programs can be managed by either utilities providers or independent commercial entities, and operate on an opt-in basis. Members of a Demand Response Program will receive notifications before forecasted peak usage hours (referred to as an “event”), and unless a member opts-out of that event, their thermostats, water heater, or other appliances will adjust to draw less energy, allowing customers to “sell it back” to the grid. And customers who operate larger properties, such as buildings, can even generate revenue by reducing their energy consumption during peak demand periods.
6. Smart Thermostats
Climate control is essential infrastructure for any indoor property. Consequently, climate control also represents a significant portion of a property’s energy consumption and overhead.
Fortunately for property managers, smart thermostats can help reduce and optimize their energy consumption around real-time occupancy patterns. For example, when installed alongside occupancy sensors and door/window sensors, smart thermostats reduce energy consumption by ensuring that any given space is not overheated or overcooled when unoccupied.
Of course, not all smart thermostats are created equal. Whereas consumer-grade brands (such as Nest and Ecobee) are suitable for single family properties, larger commercial properties require more of a commercial-grade smart thermostat solution that can manage multiple units as well as common areas.
7. Smart HVAC Systems
Property managers can also leverage smart HVAC technology to optimize their energy consumption and minimize their energy costs. The energy management potential of a smart HVAC systems is so significant, in fact, that they’re already standard practice in the hotel industry.
Verdant’s EI energy management system, for instance, integrates with smart thermostats and occupancy sensors, and collects and aggregates data on variables such as peak demand loads, historical thermodynamics, and local weather patterns. It’s sophisticated machine-learning algorithm then analyzes those data sets and patterns to continuously optimize energy consumption throughout the year in real-time.
And the energy savings from smart HVAC systems cannot be understated. Indeed, of all energy saving investments a property manager can make, smart HVAC systems have the lowest payback/breakeven period, with some commercial property managers recouping their investment in as little as 12 months. And that ROI is constant, even increasing the resale value of residential and commercial properties alike.
8. Smart Lighting
Whether dealing with common areas or occupancy units, another energy costs that property managers incur is lighting. And smart lighting systems can help property managers reduce their energy costs, here, as well.
Specifically, smart lighting systems allow property managers to manage lighting energy consumption by adjusting to real-time changes in occupancy. Similar to smart HVAC systems, smart lighting leverages occupancy sensors to adjusts lighting energy consumption according to a number of variables, such as occupancy and time of day. They also contribute to a more seamless and comfortable experience for tenants.
Many smart lighting systems, moreover, can also integrated with other energy management systems. Verdant’s own line of occupancy sensors, for instance, can not only integrate with many third party lighting systems to adjust lighting to real-time occupancy patterns, but also allow property managers to monitor and optimize their lighting energy consumption alongside their HVAC energy consumption through a single interface.
Of course, as important as it is to manage a property’s staff, supply chains, finances, and energy consumption, the property itself also needs to be managed, and the more efficiently a physical property is managed, the better ROI it will generate. After all, the property itself is arguable the largest overhead that a property manager is tasked with managing. And fortunately, there several investments that property manager can make into their properties to help ensure that they’re maximizing the ROI of their investment.
9. Air Source Heat Pumps
Smart energy management technology such as smart thermostats and HVAC systems are not the only way that property managers can reduce their energy consumption and save on energy costs. Advances in actual HVAC hardware technology also offer new energy management opportunities.
Essentially, Air Source Heat Pumps (ASHPs) reduce energy costs by transferring warm or cold air from outside a facility to inside. An added advantage for property managers is that ASHPs can be used as energy efficient space heaters (or coolers), removing the need to overload a central HVAC system.
10. Automatic Shutdown Sockets
A significant source of inflated energy costs stems from what’s called “vampire power draw“. Also known as standby power, vampire power draw “refers to the way electric power is consumed by electronic and electrical appliances while they are switched off,” but still plugged in and on standby mode.
Automatic Shutdown Sockets, however, can reduce this residual energy consumption pattern. Essentially, Automatic Shutdown Sockets are smart power outlets that use either timers or infrared sensors to cut power to any connected device when (1) the device is not in use, or (2) the space is outright unoccupied. In other words, Automatic Shutdown Sockets allow property managers to save on powering appliances and other devices whenever they are not in use or residents are not in their units.
11. Solar Panels
As energy costs continue to rise, more and more properties managers are integrating solar panels into their infrastructure to improve energy management and reduce energy costs.
In fact, solar panels offer property managers a two-fold opportunity to reduce energy costs: (1) to reduce their energy consumption from the mainstream grid, and (2) to sell back any excess solar energy production back into that grid. So not only can property managers reduce their energy costs through solar panels, but can also create new revenue streams that help offset whatever energy consumption they still incur the rest of the time.
12. Predictive Maintenance
Finally, similar to how smart energy management systems allow property managers to monitor, measure, and optimize their energy consumption, Predictive Maintenance affords them the opportunity to use sensor data (often from the same hardware) to track wasteful or hazardous energy consumption trends, identify malfunctioning hardware, and alert maintenance staff before those malfunctions (1) become too costly, and/or (2) escalate into something much more problematic and costly.
For example, HVAC systems will fluctuate through varying levels of output based on occupancy and weather-based parameter, and consequently experience wear-and-tear on their physical components. With Predictive Maintenance, however, instead of waiting for a component to break down completely before being serviced or replaced, maintenance staff can diagnose maintenance requirements based on system performance, prevent critical system failures, reduce the costs of operating a faulty system, and avoid having to replace components that were allowed to deteriorate beyond repair.
Verdant’s online management platform, for example, collects HVAC runtime data in real-time, and then assigns units an efficiency rating. This rating, in turn, is an indicator of how quickly a room can be heated or cooled back to the occupant’s preferred temperature, and provides engineering teams with critical insight and automated alerts when HVAC equipment is in need of attention. The result is that property managers can ensure that all HVAC infrastructure is operating within peak energy consumption parameters, as well as predict and/or prevent critical (and costly) malfunctions or failures.
Smart property management
A big part of protecting an investment in real estate is properly managing it. While the resale value is likely to increase, it’s important that the cost of owning that property doesn’t outpace its resale value.
For property managers, this mean monitoring, managing, and minimize their overhead and operational costs so they can maximize the profitability of their properties. This mean proactively managing the property, and making investment and upgrades that not only pay for themselves, but increase the overall resale value of the property in perpetuity.
Fortunately, we live in a time of history where technology has made this easier than ever. From tracking finances and optimizing revenue channels to automating the reduction of overhead costs, property managers are already in the driver seat. It’s just up to them to choose whether or not they want to be in the fast-lane.