DGS 7: Increasing Fees in Property Management with Darren Hunter – Part 1

Learn how to properly increase your rent-roll without adding new doors – by increasing or adding fees.

About Darren Hunter

Darren Hunter – of darrenhunter.com is an Australian & international property management trainer, speaker, consultant and authority on property management, specialising in fee maximisation and profitability as well as time and stress management and property management productivity.

You’ll Learn…

• Darren’s Background [2:11]
• Mindset is the Real Problem with Adding Fees [4:19]
• Our fears are often not connected to reality [6:28]
• The key to increasing fees is “peace of mind” [9:00]
• The owners you should not approach about increasing fees [12:47]
• Why you should not give advance notice about fee increases [15:32]
• How to sort your owners into 3 categories in preparation for fee increases [17:39]
• How to structure the letter/notification of the fee increase [19:30]

Tweetables:

Resources:

7 Wrong Mindset Reasons that Stop You Getting Better Fees! by Darren Hunter:
http://www.darrenhunter.com/articles-and-knowledge-library/boosting-income-and-profitability-articles/7-mindsets-that-stop-you-getting-better-fees-everytime

http://DarrenHunter.com

Transcript:

Jason: Welcome. If this is your first time listening, then thanks for coming. The DoorGrowShow is a podcast for residential property management entrepreneurs that are interested in growing their business and life. If that is you, be sure to subscribe and rate us in iTunes and join your fellow DoorGrow Hackers online at doorgrowclub.com, our free community for property management entrepreneurs. I’m your host, Jason Hull, the founder of OpenPotion, GatherKudos, and of course, DoorGrow. Now, let’s get into the show.

Okay, this is episode number 7 and in today’s episode, I’m going to be talking with Darren Hunter. Darren Hunter is an Australian. He is an expert, probably the foremost expert globally in increasing your rent roll without adding new doors, by adding more fees. Adding fees and increasing fees, how to do it and when to do it. This is going to be a fantastic conversation. There’s over an hour of content in my interview so I split it up into three episodes so you really have time to digest it. Make sure you take notes. Let’s get into it.

And we’re live. Darren, I wanted to welcome you to the DoorGrow Show. I’m Jason Hull, in case you don’t know, and I run DoorGrow. You can check us out at doorgrow.com. I have Darren Hunter here. Darren, first and foremost, thank you for taking the time out to show up here with me.

Darren: Thank you and good day, Jason, from down under and to all your viewers.

Jason: What time is it there right now?

Darren: Right now, it is [9:30]AM.

Jason: Oh, this is perfect. You’re just getting going and I’m finishing my day here.

Darren: Yeah.

Jason: Cool. Darren, I’m looking at your about page and it says here, a consultant and trainor now for over nine years. Previously worked as a state network property manager with one of Australia’s most respected real estate brands, recruiting, training, implementing policies and procedures. Managing 28 property managers and 18 regional offices. You don’t just do some consulting for property managers. You’ve been doing this stuff.

Darren: Correct. I’ve got 15 years front line experience of being a property manager, a senior property manager, of being a department manager. I’ve also been a property inspector, doing all inspections. What we call the in going, which is the first inspection. The outgoing when the tenant leaves. Of course, the inspections during the tenancy. I used to do those full time. But also, several years as a state property manager where I managed 28 property managers spread over a third of Australia. My nearest property manager was around about 25 miles away. My furthest was about 1,500 miles away. I had to learn how to manage these people effectively with policies, procedures, recruitment, and trainings. That is my background. They are very solid in Australian property management.

Jason: Very cool. You’re not just an Australian expert, you’ve been over here to the States several time consulting different NARPM groups and working with property managers here in the US as well to help them increase their rent roll. Great. Darren wrote a blog article recently and we’ll post the link here in the rooms. We’re going to talk about some of these items because I think this is really interesting.

This is the Seven Wrong Mindset Reasons that Stop You Getting Better Fees. When somebody comes to you or you approach somebody and you’re like, yeah, you could increase your fees or it’s mentioned to somebody. Instantly, they probably think there’s a problem, right? They have reservations and concerns and so what do you typically hear?

Darren: Let’s take a step back. If I did a seminar and let’s say I flew into Los Angeles and we have a big seminar called Grow Doors.

Jason: Yeah.

Darren: We’re going to give you 20  rent roll grow strategies that’s going to help you grow your doors and you’re going to be able to increase your income and increase your profit. Automatically, everybody knows what that’s about. They understand it straightaway with no question in their mind about understanding that particular concept and would probably pack the room. But, as soon as I say that, “Hang on, growing your doors is actually one way to increase your income. You can also increase your income and profit without increasing your door numbers by improving and increasing your fees.” For a lot of people, there’s suddenly bit of a problem with that.

Jason: Right.

Darren: We have a mindset problem. Some of the things that come in, “Well, Darren, you’re from Australia, you don’t understand United States so hang on, Darren. I know you’ve successfully taught this with officers in Texas and in New Mexico, and Florida. But in my rent roll, our owners are too tight, or our owners come from such and such culture,” or a lot of other reasons. They’re the actual mindset reasons of why that person cannot increase their fees. What I realized is that things like saying our owners are too tight or our owners have been with us too long. “Darren, if we increase our fees with our current owners, they’re all going to get up and leave to go to the cheaper agent down the road.”

Jason: Right.

Darren: Lots and lots of reasons which is covered in this article. I do know that it never, ever works that way. Unfortunately, people are missing out on an extra $20,000, $40,000, $100,000, even $250,000 a year extra in fees simply because these wrong mindsets stop them.

Jason: Yeah, and by wrong mindsets, you’re talking about fears, uncertainties, just generalities in making this step to be open to charging more fees.

Darren: Let’s go back into that and talk about that I used to have a fear of flying.

Jason: Okay.

Darren: That’s really unusual because I’m on flights every two weeks, every three weeks. I’ll be going to the NARPM and broker’s conference next month, in April, in Vegas. I’ll be taking international flight from Brisbane, Australia through to LA, straight to Vegas and so forth and then I’m going to go do some team maximization work with an office in New Mexico. I’m doing flights all the time but I used to have a fear of flying. When we’re up 40,000 feet and the turbulence starts to kick in, my heartbeat start to increase and I start to get the shakes. We’re descending in the planes, you know, it’s just unstable as it’s coming down towards the runway, my heartbeat is racing and I’m just very, very nervous. You got to look at this fear and think, “What am I afraid of?”

Jason: Right.

Darren: Because in Australia, we’ve never, ever, ever had a commercial airline crash, ever. Neither Qantas, neither Virgin, which are the two main players here in Australia. You got to think, what am I actually afraid of? I’m afraid of the plane falling out of the sky but in reality, it’s never going to happen.

Jason: Right.

Darren: My perceived fear is not actual reality and this is the same with fee maximization. We have these perceived fears that in reality, is not true. But the problem with the mindset is it becomes your truth for you and therefore you can’t see past it and in that truth stops you by increasing your income and enjoying a better profit.

Jason: It makes perfect sense. Our fears are always usually holding us back. I found that with my own fears or anything that I’m concerned about, when I actually take the risk to do it and step into that void, it feels like I’m walking off a cliff. It’s scary. I take that risk but then I’m there and it’s never, ever been as bad as my mind had made it out to be. Our imagination is just so good at making it really scary.

Darren: Right. We really need to have the right mindset about what we’re stepping into. What I’ve found and I believe we’ve a link to our viewers on this particular article about the real reasons that do stop you increasing your fees. This is really talking for people that have the 50, 60, 70, 80 doors, 150 doors and so forth. You can do this but what actually stops you improving your fees with your current clients, it’s all about peace of mind.

Let me just explain that for a second. I’ve got two rental properties here in the city I live in which is called Adelaide and that’s like the center bottom of Australia. I was doing a fee maximization seminar in Sydney with a group of about 30 property managers coming into the room. 10 minutes before my session, I get an email from my property manager Maria. She emails me saying, “Darren, your shower is spurting water everywhere. We need to get a plumber in.” I’m thinking, “Well, okay we could have organized it but alright.” And I just put on here, “Please deal with it.” But then, when I put the phone down, I had five minutes to go to show time.

I felt something. You see the alternate, I’ve managed thousands of properties in my career, do you think I can manage my own rental properties? Yes. Do I want to? No. I cannot be bothered. I haven’t got the time. I really cannot be bothered with that. I’ve given my stress and my issues to someone else to deal with. You see, in that moment, I could have been managing my own rental properties and let me try to get a plumber in 10 minutes with someone I don’t know.

The best thing I may have got is actually speaking to their message bank and we still got a problem in crisis five hours later because I wasn’t able to deal with it. My point is when I put my phone down saying, “Please deal with it.” I felt a sense of peace. This is what a property manager is for, is taking my stress and my issues and in return, I get peace of mind. Of course, the stress and issues become the problems of property managers and all the difficulties of property management.

My point is if your owners have peace of mind, strong peace of mind and they’ve had a problem solved for one or two years, suddenly, get an email or a letter saying, “Due to business expenses have increased but also for the fact that we haven’t revised our fee structure for five years, we’ve had to make some changes and here’s what they are. Please, can you sign and return the attached agreement within seven day.”

What are they going to do? Because most owners value their peace of mind and they would rather pay a little bit more to maintain that peace of mind than pull their business and then go back into the land of stress and uncertainty to find someone else simply for cheaper fees and they could actually be in a worse off situation.

We can only do it with the owners that have peace of mind. That means, as long as we’re giving a reasonable level of service or better, not brilliant, I said reasonable. If you’re getting a regular loss of door because owners are unhappy with your service, that’s not good because it takes a lot to upset an owner.

I’ve got one of my clients who said, “Darren, I’ve worked it out to make my owners leave if they’re happy. To make them leave, I literally have to pinch them in the face.” We’re not going to do that and we’re not going to assault our clients, but the point is that they can put up with a lot before they go, “Alright, I’m going to go now and go find myself another agent.” Most owners take a lot of beating and being upset to do that.

Also, if they’ve been with you less than 12 months, their peace of mind is not bedded down strong enough yet. The roots aren’t in deep enough yet. If a broker has bought a rent roll in the last 12 months, then still leave those owners alone because of peace of mind.

Jason: Yeah, and if you spring a new fee or fee increase on them, they’re going to be like, “Okay, you’ve confirmed my greatest fear.”

Darren: They have to have a sense of peace of mind, either they’re not thinking about you or they’re thinking about you for positive reasons when they’re informed that their fees have been revised. We can’t go to new owners that have been with you with less than 12 months. We can’t go to owners that have been purchased in the last 12 months. We can’t go to owners that maybe upset with you at the moment. Whether it’s the property management fault or not. It’s irrelevant.

For example, you could have a tenant that calls the property manager and says, “My water heater is leaking water out of the base.” Certainly, from where I’m from here in Australia, if we got a property manager that can see that water is pouring out of the base, that water heater is cactus. We’re going to have to go and find a new water heater and it could be, in Australia, $2,000 to replace.

Now, is that the fault of the property manager? No. Is that the fault of the tenant? No. It could be 12 years old, but the owner was not expecting suddenly that have to come up with $2,000 and now, he’s upset. You just have to leave anyone that’s upset, alone, until they’re bedded down again.

The only other place where you don‘t increase fees with current owners is where their property might be coming vacant or when you know it’s coming vacant or where it definitely is vacant at the moment. You don’t touch the fees because their peace of mind has been destabilized again and their stressed because likely, they’re covering the mortgage for that vacancy period. They’re very upset so you do not increase your fees in that kind of situation.

Jason: As a general rule of thumb, a great question they can just do is they can look through each of their properties and their portfolio and they can say, “Is there anything that has shaken their peace of mind lately?” Or, “Do we have a good or stable relationship with them?” Or, “Is the relationship is just just kind of there?” They’ve just been on board for a while and everything’s been kind of placid. Now is a good time to mention a fee increase.

Question related to that, usually when increasing rent or fees for tenants–one of my previous interviews, he said, “This needs to be built into your process and you should mention that this happens on a regular basis so that they’re prepared for this.” It’s not like, “Hey, fee increased right now.” With owners, do you feel like it should be kind of prepared or in advance and you should say this is coming in six months or would you just tell them, “Here you go. This is what’s happening and it’s now.” How you recommend that?

Darren: Great question. I do not recommend when it comes to increasing fees to give a lot of notice.

Jason: Great.

Darren: I really feel that perhaps three, maybe four weeks at most notice. I don’t believe in giving one weeks notice. Certainly, at the end of the day with agreement. My clients in the USA, they’ve got to sign and agree to something. We can’t just send the letter, giving 30 days notice, your fees are going up. Something has to be resigned, unless you got to an agreement that allows for that.

Generally, we just do with getting management agreements resigned. But let’s say one of the trainings that I give my people is that if you say to an owner two months in advance, “Mister owner, be aware your fees may be revised in the next couple of months.” You can expect the fire fights, you can expect deep resistance to that, and you already prepared the need to for that and you’ve made your job a lot harder. Also, in officers I tell them don’t tell the real estate salespeople that your fees are going up because your real estate salespeople will now say, “But your clients aren’t going to pay more and they’ll never do that.” And before you know it, that negative mindset will pull the whole project backwards to a possibility of it not going to go because now people believe it won’t work.

I believe just giving a letter in the post and just saying, “This is what’s happening. However, I need to clarify this further.” You talk about how do we go from it. We get all of our owners on to a spreadsheet and we divide our owners into three categories. First category, the owners we don’t touch. We’ve already been through that list before. Owners that have been with us less than 12 months, owners that have been bought in a rent roll last 12 months, owners that have a property currently vacant at the moment, owners that are not happy with us at the moment and those owners are put on hold. We call that category one.

Category two is the owners with one or two properties and they’re going to get a letter letting them know to sign an agreement. But also, category three, is our owners that have multiple properties. One’s a three, four, five because these owners we have to treat differently because whereas I’m saying, you don’t give your owners advance notice, you just give them a letter. Multiple property owners need that little bit more grooming, a little bit more petting because they feel that they are more important, they feel that they have more control and say over things so therefore, it might be a phone call, it might be taking them out to lunch, it might be a visit or something that’s applicable in that relationship to let them know hey, we’ve had to change our fees because of x, y, z. We haven’t reviewed our fee structure for five years or whatever it is and this is what we had to do and don’t just give them a letter because they may be offended or insulted by it.

Jason: Yeah, because it’s very impersonal. Yeah, and I would mention a lot of property managers could do this digitally. Like could it be sent out as an email. Here’s the digital signature, just sign this and that sort of thing and for them it’s really quick.

Darren: Obviously, the letter must be structured right and the letter really needs to have the first part of justification; just due to business running expenses, electricity, insurance is going off, and we haven’t also reviewed our fees for five years and so forth. These are the changes that we’ve done. List, list, list, list. Full clarification, clear, nothing gray. It’s going to be very, very clear and transparent. In the email, there is also an agreement. Could you please sign that. In America, all my clients are doing docusign. In Australia, everybody’s doing it by snail mail and we are now stepping into the age of document signatures.

Jason: Right, right.

Darren: Even got clients in Western Australia. These management agreements will give you nightmares, they are the most complex in the planet. We’re dealing with 12 and 15 fee increases and you wouldn’t believe this, every fee by legislation has to be initialled off. One by one by one by one and it’s very painful but we still get success even in that environment. However, in New Zealand, where we do it, we can just simply send a letter. Legislation there allows us to send a letter giving 30 days notice.

Jason: And then you just do it.

Darren: But my only advice to people is you always got to get a signed management agreement back, that the clients agreed to it before you can actually change any fees otherwise, the rules of contract law, you’re only going to get yourself in trouble.

Jason: One thing that I’ve noticed when I’ve increased fees. Because as businesses grows, this is typically a very normal thing not just in property management and so in any industry. Usually, their fees go up as their value increases and so what I have used is a tactic. This maybe part of what you do but, I find that a lot of my clients, they don’t really care if my fees have gone up. What I usually do is I recommend or tell people to say these are the things that we’ve done to add value to our service. If a property manager added value, we added 24 hour fund reception, or we’ve added automated maintenance, or we’ve added some sort of value. Those are some great selling points to convince them that we’re benefiting you in a greater way instead of only just mentioning rent’s gone up and stuff like this. I think that would be also a really cool idea to add that in, to mention some value.

Darren: Add value if anything helps with the confidence of the property manager but here is what I found having done it so many times. You don’t have to. Here is the secret in the sauce. This is how you do it. It’s a two part formula. Number one, you need to believe that you’re worth it. I did a fee maximization training with an office here in South Australia a couple of days ago and we were talking about charging a fee for the final inspection. They never charged a fee for that final inspection when the tenants are moving out. We do the outgoing inspection and then the bond is calculated. You call this security deposit, we call the bond. All that work associated there is a lot of hours of work and very quickly the property manager would say, “My goodness, the amount of complications we have with this process. It takes hours of our work. It could end up in court with disputes. We could easily justify x dollars for this particular fee.

Once she could see that she believe she was worth it and then she knew how to justify it. If you can know that you’re worth something in here, conviction, strong belief, I know I’m good at teaching fee maximization and I know that we could get success every time, provided our process is followed, I know I can do it. I believe. It’s faith. People get a little bit [00:23:34] about this belief thing. It’s not wishful thinking. It’s a conviction and a belief and if I believe it, Jason, you just believed what I just said.

Jason: Yeah.

Darren: You just believed in what I just said because I believed it too. Belief is transferable but also on top of that, we’ve got to be adding, justify that particular fee and why we are doing it.

Jason: Be sure to check out episode number eight, which is the next episode where we go deeper with Darren into the mindsets and some skills in increasing your property management fees. Check that out.

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