DGS 8: Increasing Fees in Property Management with Darren Hunter – Part 2

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

You will learn from Darren Hunter his secret to justifying your additional fees by leveraging the law of alternative costs, & how little your clients really care about your competitors, & the power of peace of mind.

You’ll Learn

• How to use the Law of Alternative Cost to justify your fees 2:28
• Property Managers don’t charge enough for their hourly rate 5:46
• Be careful of talking about specific fee amounts with other PMs 7:38
• Darren has a large list of possible owner & tenant fees 8:04
• Most money-tight owners tolerate fee increases & those that leave are often your worst! 9:23
• Myth: Owners will go to the discount agency down the road if you increase your fees 12:47
• You may be thinking about your competitors, but your clients are not 14:51
• The power of “Peace of Mind” is incredibly strong 16:31
• Charging less doesn’t motivate owners to leave a property manager if they have peace of mind 17:27
• Adding value is not necessary, just peace of mind 18:15
• Basic fees differ wildly based on each property manager’s self-belief. 18:49

Tweetables

C-class owners are like a pack of cigarettes and they’ll take years off your life.

Crappy owners generally have crappy properties, which attract crappy tenants.

Resources

The Eleven Profit Laws on Fees by Darren Hunter:
http://www.darrenhunter.com/articles-and-knowledge-library/boosting-income-and-profitability-articles/the-eleven-profit-laws-on-fees-part-one

Transcript

Jason: Welcome. If this is your first time listening, then thanks for coming. The DoorGrow Show 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, a 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.

This is episode number eight. We’re continuing on with Darren Hunter of darrenhunter.com and we are talking about property management fee increases. If you missed the first part, which is in episode number seven, this is part number two. I recommend you go back and check that out. There will be a part number three. Now, let’s get into it.

Darren: But also, on top of that, we’ve got to be able to justify that particular fee and why we’re doing it. Here’s another rule that’s going to help you and help your viewers. I’ve written 11 laws, I’ll put that over shortly. Let me just see if I can find and we’ll just whack it in so people can actually access it straight away.

Jason: This is on darrenhunter.com?

Darren: My website? If they go to darrenhunter.com, if they go to articles in knowledge library in boosting income and profitability, we’ve got about 20, 30 articles there. Now, I’ve got 11 profit laws on fees. I’ve got the link here. I’m just going to bring it over. We’re going to give it to your viewers. Let me just throw it in.

That’s the 11 profit laws. That’s part one that will take you to part two but here is a really important law to understand and once we get it, we’re going to have that penny drop. We’re going to have that aha moment. I just need to explain it. If we’re providing a service and we’re charging a fee, let’s say that fee was three apples because we can’t talk dollars. We’ve got to be careful about translation so forth. Let me just come back a bit. Let me just say we’re charging half an apple for that service. Let me say, “Alright mister owner, I’m no longer going to provide that service to you anymore and we don’t provide it, we don’t charge half an apple.” And where that service is now being withdrawn, that owner, that could actually cost him 10 apples in money.

Jason: Right.

Darren: Does that make sense? But if you say, “Look mister owner, it is going to cost you 10 apples if you don’t have this service, but with us, we’re only going to charge you 3 apples.” 3 next to 10 is a bargain compared to what the alternate cost could be.

Jason: Yeah. It’s usually called price anchoring. You’re bringing up the higher price, anchoring it to that, and you’re saying, “It normally costs you this.”

Darren: You’re putting your fee in light of what the alternative costs.

Jason: Sure, a life coach for example would say it like this. They’d say, “Well, you could go get into a divorce, which is going to cost you half of everything that you own and everything financially or you can do coaching for $50,000 and maybe improve your marriage.” I’ve heard this sort of idea.

Darren: This works for all sorts of different places in property management. Most of the fees that we charge the owners can be put in light of the lower return of cost. For example, the owner could say, “Hang on, why are you charging me this fee for your leasing when I could go down the road and the other agent is going to charge me x?” “I understand that mister owner, but with us, we do x, y, z. That will then reduce your vacancy factor. You could go with a cheaper agent but it could cost you thousands in vacancy. It could result a property being vacant for two or three months. You’re not getting any income because they are not bringing x, y, z. With us, it costs a little bit more here but then it’s going to be reduce that amount of cost for vacancy.” You’ve got to put things in light.

Another analogy I like to give is we actually charge a fee here called an annual summary. This is where owners each month get 12 monthly statements and this is a year summary of the whole 12 monthly statements. Agents here don’t have to give that annual summary of accounts to the owner. It’s an added value. If we withdrew that and said, “Mister owner, we’re not going to give you this annual summary anymore.” The owner, “What’s the alternate cost of the clients?” They have to take their 12 individual monthly statements to their accountants, and by the way, accountants don’t charge like property managers.

I’m seeing property managers charge the most ridiculous hourly rates. Even a loan mower man charges more per hour than a typical property manager. The accountant might charge $165, $220, $250 an hour for their services to put 12 monthly statement together. It might be $400 or $500 worth in cost of their time to put that information together. Whereas your annual summary statement is saving on that cost that the accountant doesn’t need to do that. Then if your fee to charging a fee for that in proportion to what the alternate cost would be, you’re going to make it then look like a bargain. I can’t unfortunately say look there’s for this or that or this or that because someone is going to get upset with that but you gotta put the alternate cost. If the alternate cost is a lot higher, make sure that your fee charge is in proportion to that so they can see it’s an actual bargain. If you don’t put it in light of the alternate cost, it could be seen as expensive.

Jason: I love it, I love the idea. The principles is really cool. Darren, related to these seven mindsets, these challenges that people have, I don’t know if we’ve covered all of these or any of these but you’ve mentioned that owners need to make sure that they have the right mindset in order to do this. That sounds like that’s kind of the biggest puzzle piece. Once they are open to it, they can probably start figuring out some things. They could reach out to you and work with you or they could start digging around and finding out with other property managers. Maybe they go to the Broker/Owner Conference and ask around, “Hey what sort of fees do you guys have that you attack on?”

Darren: They got to be really careful with that.

Jason: Not dollar amount.

Darren: Even at the start of any NARPM Conference, there is going to be a scripted spread that no one can be discussing fees. You got to be very careful with that but however, certainly you can contact me. I have called hundreds of officers across United States just last November. We called 500 officers in Texas and got their fees over the phone. I have amassed a library of owner fees. I’ve got 100 different tenant fees also that we can cherry pick from.

I do encourage people to get in contact with me because I’m not a broker, therefore, with trust concerns, if you deal with me individually, of course your information is confidential. I’m not there to share your information with anyone else. We’re not breaching any law by dealing with me but if I was a broker and I had a rent roll in Texas, there could be some problems you getting advice from me but we haven’t got that.

That’s the advantage of dealing with myself. If I haven’t got the information, I’ll go and find it. If I’ve got a client that really, really, really wants to work with me, I’m going to get my secret fee shopper on the phone and we’re going to call 10 of your competitors. We can really have a look and see what’s happening in your market and then we can help you increase your fees accordingly based on your expenses and where you’re at without colluding or trying to copy anyone else’s fees. Jason, perhaps did you want to go through that mindset list and throw a couple at me, I’d be happy to answer.

Jason: Let’s go through these just real quick if you have the time. This would be really cool. I love everything you’ve shared so far. I think it’s really, really insightful and it has opened my mind to some new ideas here. Number one, I have too many money tight owners. My owners, they won’t go for it. They won’t tolerate a fee increase.

Darren: That’s one of the biggest. I hear this all the time and the only differences I see is the accent. It’s either Australian accent or American accent that’s saying it. Alright, the point is that 85% of properties in the US are managed by owners. I understand that. But at the end of the day, why aren’t your owners managing the problems? Why are they saving on the fees because you’re not doing a free job, you’re actually charging them some fees which they are paying. They’re actually with you for a reason, and usually it’s peace of mind. They don’t want to be dealing with the hassles of property management. We all agree that’s what it would be.

At the end of the day, they’ve got peace of mind. People, they want to maintain that peace of mind and they’ll be happy to pay more but a money tight owner is generally money tight for three key reasons, which doesn’t actually make them a quality top client. Generally, this client, they can be over demanding, they can be unreasonable, they take up lots of your time, they call up and they say, “Why hasn’t the tenant cut the lawn last week?” And all this stuff and they say, “Where do this people get time to send me these five page love letter emails everyday?” These people, whatever the rent is, they want more. Whether your fee’s up or they already probably ask the less on your signed up management agreement at the start of the relationship, but also more importantly, they put little to no money into the property.

In Australia, this is what we say, they generally have a crap property that just attracts a crap tenant. It’s crappy business all around. We also think, “Do we actually value these types of owners as well?” But even so, with these particular top clients, they still want peace of mind. When we do a fee maximization campaign of 50, 100, 150 owners, then we do find there are some losses and usually it’s these real crappy type owners.

Jason: Right, the worst ones.

Darren: But in general, you’ll find that they will actually pay and they will stay. They don’t necessarily walk out the door, only some do particularly of this type owner. When we’ve done an autopsy, when we’ve put all the dead bodies on the slab and some of the lost properties through the process is not that many.

Then, we find that 66% to 75% of the properties are guess what owner type? The C class owner. We really think do we actually value that type of business anyway because here’s one of my famous sayings, is that C class owners are like a pack of cigarettes and they will take years out of your life. You really got to be careful when you really want to deal with these type of owners. I hope your viewers agree.

Jason: I have my own phrase. I like to say, “You can’t afford to work with people that can’t afford you.”

Darren: Yeah.

Jason: It’s too costly in terms of time and everything else. You can’t afford to work with people that can’t afford you.

Darren: Throw another mindset at me. Throw another one.

Jason: Yeah, you bet. Next, you have our owners will go to the discount agency down the road. They’re just going to go right to somebody else.

Darren: Okay, let’s disclose. Let’s do mythbusters like you see on TV. Let’s do some mythbusting.

Jason: Yeah.

Darren: Because when I’m talking with brokers, you don’t want to hear an Australian doing an American accent. You don’t want to hear that.

Jason: You don’t want to be hearing me trying an Australian accent. Good day, mate.

Darren: Good day, mate. What was that?

Jason: Right.

Darren: When they say, “Darren, if we increase our fees with our current owners. They’ll go to the cheaper agent down the road.” Here’s why they would. It’s because when they first came to you, they may have seen one or two other agencies down the road and for whatever reason, they’ve come out with you and guess what? They didn’t come out with you because you had the cheapest fees. They came and decided to sign their management agreement and give you their rental property because of trust, because of relationship, because of confidence in your services, because they felt that you are the one that’s going to give them the best peace of mind.

At that point, when they sign that management agreement, there is a sense of stress drops off them, there is a sense of relief like, “Thank goodness we don’t have to stress about this anymore. We’re stressing about the tenant from hell. We’re stressing about our mortgage not being paid and we don’t have to have this stress anymore.” When the property manager has found them a new tenant, it’s like, “Oh! Thank goodness for that.”

What happens in their mind at this point is that even the other companies that they saw and didn’t sign with, they’ve forgotten about who they are. They go on with all the other problems that are going on with their life because this problem now goes from foremind to back of mind.

Jason: Yeah.

Darren: That’s where we want problems to be because now you are their peace of mind. Now, they’ve forgotten about your competitors. They are not looking at the newspaper and thinking, “Oh! My goodness, this agent is going to do it for half management fees. We better ring them up now, Charlie, let’s go.” They don’t do that. Their radar is not focused on what other agents are doing and so one and a half or two years down the track, they get a letter in the post saying, “Your fees have been revised.” They’re still not thinking about your competitors. They’ve got no idea.

The problem is that brokers and property managers are working in the market week in week out, day in day out. They are fully exposed to all the cheap people in the market but your clients are not.

Jason: Right.

Darren: At that point, they’ve got peace of mind, they want to get their peace of mind back and it’s more convenient for them to sign something or press a button and pay a little bit more to get quickly back to the place of peace of mind and where their problem is solved and get on with their life. The issue is that they might grumble about these new fees but guess what? In two or three month’s time, they’ve completely forgotten about it and it’s a new normal in their life. This is how we do it because of peace of mind.

Jason: Yeah. What you’re saying is the real issue is not that the owners are going to be concerned about the fees, the real issue is that the property manager is the one concerned about the other company’s cheap fees.

Darren: Correct.

Jason: They’re not really thinking about it. But as a business owner, you’re thinking about your competition far more than your customers are.

Darren: Yeah, here’s another rule. This peace of mind is so strong because I’ve got agencies that say, “Hey Darren! Let’s do this great rent roll growth grow doors campaign. Let’s take out a big billboard on the highway. It’s going to cost us $3,000. We’re going to have the message, “Are you unhappy with your current property manager at the moment?” I say, “Don’t worry about it. It’s a waste of time.” Because owners in general, they have to take a lot of beating to actually want to get up and leave the rent roll. Rent roll is a very, very strong thing.

I see it like house in the paddock, your portfolio, your doors, they’re your cows in your paddock, guess what? The agency down the road, they’ve got the paddock next door. And they’ve got their cows and there’s a big fence in the middle and cows aren’t very good at jumping fences. Even if I move into an area and I got a list of all your owners and I send them all a letter to state, “Hey, if you come over with me, I’ll give you 20% less.”

Jason: Right, big discount.

Darren: Guess what? They won’t. They won’t because owners inherently are lazy and they are lethargic. As long as they have a problem solved, they ain’t going anywhere. As long as they’ve got peace of mind. It’s only if they’re really, really upset with service or their phone calls not being returned, the email’s not being returned or something has occurred which is costing a lot of money. Now, they’re motivated to leave, only in that situation.

Jason: Yeah, that’s why they hired them in the first place.

Darren: We’ve got a question from one of your viewers. You want to go through that?

Jason: Yes, can you give some examples of the types of fees and do you recommend offering additional value for the increase? I brought up the value thing already. We discussed that and you said, “It’s not even necessary. You can do that. If you have value, then maybe you bring it up, but it’s not necessary.”

Darren: No. You’ve got to have peace of mind with your owners before you ask for more. You can go and add extra value but to me, it’s just unnecessary. You can still do it without it.

Jason:  Right. They just need to be okay.

Darren: Let’s just go through some of these fees. I’ll go through some owner fees and then we’ll go through some tenant fees.

Jason: What do you feel like are the basic fees that they should have? Obviously, the full management fee and maybe the lease up fee initially.

Darren: Usually, it’s expressed as a percentage of a month. Again, we’re not going to get into numbers here but as a percentage of the month and I’ll be surprised, [00:19:08], I’ve done a fee analysis on businesses in San Antonio. I’m blown away at the management differences and variances from certain percentages of month. It’s just so varied. I’ll look at this and think, “Why?” Because it’s a tenant, it’s an owner, the house. Tenant pays rent. Tenant moves in. The services in general basically are the same and what I believe is the fees are set in accordance with what their office believes they are worth. Therefore, the sense of value or self belief goes up and down and the fees are always in accordance with what they believe they are worth.

Jason: You just listened to part two of my interview with Darren Hunter. Be sure to check out part number three, the final portion of my interview with Darren Hunter. Some really great insights.

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