Part 1 reviewed the history of residential property management. Part 2 illustrated how the housing crash created the strongest rental market this country has ever seen and property management has become big business. Some company owners are seizing the opportunity to exit the business. Some begin to focus on company value and succession planning. The remainder, I guess, stay the course.
I’ve always said that property owners, investors, and property managers need to choose each other based on the best fit. A Ma and Pa very well could be the best fit. A Big Box brand may resonate to others. Regardless of a company’s attributes, such as size and technology, I really believe that owners of investment properties are going to pick the company that seems to best fit their needs.
In the future, I predict more consolidation of property management firms. I believe we will continue to see companies choosing to cash-in while the demand and valuations are high. The real estate market is hot and I believe that many of those part time property managers will sell their property management businesses and return to home sales exclusively. Those of retirement age may sell and retire.
Also, as I eluded in Part 2, I believe we will see “Big Box” property management firms in Idaho. Despite residential property management becoming big business, the fact is, the number of property management companies is decreasing. Within the last month, the largest residential property management company in the Boise area sold, along with another company that had been serving the Boise area for 40 years. This is the second time the latter company has sold in the past decade.
We don’t know what value a “Big Box” brand brings because we haven’t seen them here yet. I believe the first franchise came to Boise about ten years ago and they have gone fairly unnoticed. I predict that the “Big Box” will offer low entry level pricing for minimal service, knowing that a good portion of clients will purchase additional services. Entry-level service may only include collecting rent, posting a statement, and dispersing funds. Tenant placement, inspections, maintenance oversight, paying bills, etc will all be at an additional charge. I see one of the franchises referred to a 1:1 ratio, which claims that for every dollar in management fees, they make another dollar in auxiliary fees. Regardless of the pricing structure, I believe the “Big Box” marketing and proprietary systems will be considered of value and the residential property management industry will see further consolidation.
Fortunately, Idaho legislatures have created a very good environment for small businesses. Idaho has been noted as one of the top states for ease of starting a business. As a result, we have a large number of PM companies within the Boise metro area. This added competition allows investors and landlords the ability to shop and choose the company that is the best fit for them. To compete against the “Big Box”, I envision companies will focus on their boutique like services, which the “Big Box” can’t easily provide. They will fall back to how they started, which we described in Part 1; local, relationship built, no debt, experience, education, and technology. The technology will be adequate but likely not as flashy as the “Big Box”.
Additionally, I predict a good portion of the owners that have or will sell their residential property management companies will return to the industry. A fair amount of these owners are under the age of 50 and may return to property management once their non-compete expires. Can you imagine a “Big Box” paying out millions of dollars, only to have that property manager return and earn back a good some of the business they sold?
I am not for or against the consolidation or “Big Box” brands. I don’t see a bad guy here. There is no ill will for those who have or are planning to sell. However, if there is a downside to the consolidation, it’s the change or the fear of change that the clients of these sold companies have. When businesses sell, it’s reasonable to expect changes in processes, personnel, and even pricing. What may have initially been a good fit may no longer be so.
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