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DGS 91: Profitability Before More Doors with Shawn Johnson of Independence Capital Property Management

Why switch from a fun, high-flying job to a stressful one? Property management is the “Golden Ticket” to finding new properties and creating value to help others.

Today, I am talking to Shawn Johnson of Independence Capital Property Management about putting profitability before adding more doors. If your company isn’t profitable, than you can’t create value for the community it serves.

You’ll Learn…

[02:00] Property Manager with Spare Time: Shawn serves as an instructor pilot for San Juan County Sheriff’s Office.

[02:40] NARPM professional member, chapter president, and residential management professional (RMP).

[04:30] Passion for Property Management: Happiness comes not from avoiding problems, but finding fun challenges.

[06:02] Innovative Incentive: Competing for staff resources increases salaries, compensation, and revenue to successfully facilitate growth and manage the company.

[07:35] DiSC Personality Type: Motivated by money or recognition?

[10:15] What makes a business profitable? Finding perfect customer/market fit via value-ads and associated fees.

[13:42] Charge fees to compensate for extra time, energy, and effort without extra pay.

[14:57] Cost Savings: Implement less labor-intensive work (paper checklists) and more technology (videos).

[15:55] Tools and Software: Transition from a brick-n-mortar business to remote/virtual office using G Suite, Process Street, AppFolio, and RingCentral.

[18:35] Current Client Base: Push out and justify new fee structure; talk them through it.

[22:15] Sense of Scarcity: Feel safer and more comfortable raising fees and rates. [24:05] People are willing to pay for good service and experiences.

Tweetables

Resources

Independence Capital Property Management

National Association of Residential Property Managers (NARPM)

Darren Hunter

G Suite

Process Street

AppFolio

RingCentral

TalkRoute

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

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

DGS 9: Increasing Fees in Property Management with Darren Hunter – Part 3

DGS 80: Automating Your Business with Process Street with Vinay Patankar

DGS 82: Real Estate Revolution with Nat Kunes of AppFolio

DoorGrowClub Facebook Group

DoorGrowLive

DoorGrow on YouTube

DoorGrow Website Score Quiz

Transcript

Jason: Welcome, DoorGrow hackers, to the DoorGrow Show. If you are a property management entrepreneur that wants to add doors, make a difference, increase revenue, help others, impact lives, and you are interested in growing your business and life, and you are open to doing things a bit differently, then you are a DoorGrow hacker.

DoorGrow hackers love the opportunities, daily variety, unique challenges, and freedom that property management brings. Many in real estate think you’re crazy for doing it, you think they’re crazy for not, because you realize that property management is the ultimate high-trust gateway to real estate deals, relationships, and residual income.

At DoorGrow, we are on a mission to transform property management businesses and their owners. We want to change the industry, eliminate the BS, build awareness, change perception, expand the market, and help the best property management entrepreneurs win. I’m your host, property management growth expert, Jason Hull, the founder and CEO of DoorGrow. Now, let’s get into the show.

And today, my guest is Shawn Johnson of Independence Capital Property Management. Shawn, welcome to the show.

Shawn: Thanks, Jason. Thanks for having me.

Jason: Glad to have you. Shawn, we’re going to be getting into the topic today of profitability before more doors. When I mentioned that before the show, you’re like, “Yes, the cart before the horse.” Let’s get into that, but first, I want to give people a little bit of background on you. I’ve got your bio here and I’m going to read this and then maybe you can come and introduce yourself.

Shawn grew up in Aztec, Nex Mexico. After completion of his Associate’s Degree from Glendale Community College, Shawn began flight school in Scottsdale, Arizona. Shawn’s career as a helicopter pilot provided opportunities to fly internationally into Mexico, off-shore into the gulf of Mexico, and as an EMS helicopter pilot. Shawn currently flies for the San Juan County Sheriff’s Office as an instructor pilot in his spare time.

Shawn began his career in real estate in 2013 and has been investing in real estate since 2003. Shawn is currently a professional member of the National Association of Residential Property Managers and has earned his Residential Management Professional (RMP) designation. In 2017, he served as the NARPM Albuquerque Metro Chapter President and has been elected to serve at the 2020 Chapter President. Shawn enjoys golf, baseball, hunting, and fishing. He apparently is also connected with lots of really lengthy phrases and titles including his business name.

Shawn, give us a little bit of a background. Who’s Shawn and how did you get into property management, so people can understand why should they listen to this guy say anything.

Shawn: How did I get into property management? It’s kind of by default. My wife pulled me into it. She was a corporate paralegal for a large investment firm in California and in that process we moved, had kids, we moved to New Mexico, and she decided, “You know what? I think there is a need here.” There is definitely a need and we’ve started a management company. I was still flying helicopters at the time but she’s like, “You know what? I can’t do it alone. You’ve got to get out of the fun job and get into the stressful job.” So, I quit flying and here I am.

Jason: And you regretted it ever since, right?

Shawn: No, I actually really enjoy it.

Jason: Good.

Shawn: Your introduction to property management is spot on. I think there’s so much gold in it and it’s just really creating value for people. I really enjoy it. Really, it’s a nice “in” to investing in properties. I love investing in properties and this is like a golden ticket to find new properties.

Jason: Property managers and everyone in the industry love to joke about how hard the industry is, but there is this passion for it that everyone seems to develop. I think happiness comes not through avoiding problems and challenges. It comes through finding challenges that are exciting to work on and property management is never dull.

Shawn: Yeah, that’s a fact.

Jason: Never dull, right?

Shawn: No.

Jason: Let’s get into this topic. Why is it important to have profitability before focusing on getting more doors?

Shawn: For us, it was always a mission to be profitable right at the start. Back in the day, we’re just a management fee company. Because of that, we relented in the growth. We had to find ways to make money and compensate our employees appropriately. We live in a very blue collar town that is oil- and gas-driven and the salaries are very hard to compete with. We had to find ways to compensate them nice so that they weren’t pulled away from property management into oil and gas industry.

Those are the things that were important to us. If you’re not a profitable company, you can’t create value for the community that you serve. You just can’t. You have to have money to be able to grow and expand and introduce new programs into your business. That was our mission right at the beginning.

Jason: Because you’re competing with oil and gas for staff resources in your market, you’ve had to probably have a higher salary base than what would be typical for most management companies in most markets.

Shawn: Yeah, they sell.

Jason: In order to do that, you probably had to get a little bit innovative. Anytime we have a constraint as an entrepreneur, we have a challenge like that to overcome, we have to innovate. What were some of the steps you took to create a space that you could afford to have really good team members?

Shawn: One step was to create an incentivized comp plan. Our property managers are licensed real estate brokers, but we pay them off a percentage as the whole of the portfolio, not just a management fee. Anytime they bring in a late fee or an annual inspection that’s performed on the property, then they get a portion of that fee as well. That help us increase their annual revenue as well because it hurts when they lose a property and when we get a new property on, it actually helps them gain their salary as well.

Jason: Okay. You’ve basically created the natural incentive for them to help facilitate growth and help successfully manage the company. And if the company does better, they do better.

Shawn: Exactly.

Jason: I find that a lot of people, especially those that on a DISC profile that are not DI, they don’t have a high economic score. They’re not super motivated by additional money. As entrepreneurs, we tend to naturally think everyone’s like us; they love money. Those individuals that are not motivated by more money are more motivated by recognition. When you pick these team members and you have this comp plan, are you looking for people that also operate somewhat in a BDM role? Are they more of a sales-driven type of person? Are they a DI DISC personality type or more on the extroverted side?

Shawn: No, we actually don’t want to mix those two―BDM and a portfolio management. You’re right. A lot of people are not motivated financially like entrepreneurs are, but what we found is giving unlimited vacation time, some perks to the business, having the ability to work from home or wherever they are. Everything that we do is electronic and digital anyway, so those perks. A lot of them are young parents and if they need to pick up their kid at school at three o’clock, who am I to say? As long as your job is done and you’re doing it effectively, then we don’t put constraints on that. I think that pools in that attraction to the job.

Jason: I find those to be huge incentives, similar to running our virtual teams. Being able to work virtually and work from home, having flex time, being able to set your own schedule and as long as you’re getting work done, and being able to take vacations when you need to or want to, that’s huge. People want freedom. They want autonomy and that tends to attract the more entrepreneurial people we would like in our business.

To what you’re saying, yeah it makes sense. The BDM portfolio thing would be segregated. But also that allows you, in your market, to have compensation that is on par with maybe what they might be getting in the oil and gas industry or at least competitive, right?

Shawn: Absolutely. I would say that our salaries, once they have a full portfolio, they’re making as much, if not more, than what they would get comped in oil and gas industry which is good. That’s what we want.

Jason: Right, and in oil and gas industry, they probably don’t have some of those other perks, I would imagine?

Shawn: Oh, not at all.

Jason: You’ve made your business intentionally competitive to maintain good people. Let’s get deeper into the profitability aspect. Since you’re paying more money for people, how do you make sure this is profitable?

Shawn: We really evaluated the things that we did as a business beyond just the normal management stuff. What are the value-adds that we do every day? If they are a true value-add, can we add an associated value-add fee to it? We kind of looked at it that way.

We went through Darren Hunter’s program and it was phenomenal. It definitely revolutionized the way we thought about our fee structure, but it also helped us think about and be cautious of those clients that are cost-conscious. If they are and all they care about is the cost of the service, then they may not be the right fit. It naturally brings in that right type of clientele when you have a fee structure beyond just a flat fee and everybody else is doing the same flat fee or whatever percentage fee. So, that was huge for us.

As far as profitability goes, it varies in leasing season, but in our leasing season we’re about 44% profitability. Leasing fees and lease renewal fees, those things have to happen in the property management business. But to actually gain revenue from it is extremely important.

I could look at our business structure and see that we have a leasing fee and we have a lease renewal fee, but my competitors lease homes in twice the amount of time that we do and they don’t push for lease renewals.

So me as an investor, I’d be upset if they didn’t try to keep my tenants in a lease especially through the winter time. Such a cyclical business, we have seasons, and you don’t want it to go vacant in December. That little fee is nothing compared to having a vacant home in those times.

Jason: What other fees did you guys start to identify and add going through this process?

Shawn: We did a lease administration fee for our tenants. That was pretty big. The annual inspection fees—that’s a third party vendor that’s an actual inspector and he’ll come inspect the houses on an annual basis—there’s a little upcharge for that. A year-end statement fee. We found that our controller list just spinning a ton of time preparing for the year-end stuff and making sure everything was clear to send off to our clients’ accountants, so we incorporated a fee in that. Then a maintenance coordination fee. Our maintenance coordinators, we have one and we just hired a new one so we have two now, and they’re just super busy. Coordinating maintenance is a huge task and it’s such an important one here. We do have a small fee for that.

There’s probably a bunch more. I’m not in the day-to-day as much anymore, so I’m kind of not thinking of the big ones. Obviously the bulk ones were leasing fee and lease renewal. Those are big and they’re often overlooked.

Jason: One of the things you did then was you identified all the different situations in which it was taking extra time, extra energy, extra effort, you weren’t getting paid anything extra, and then just systematically saying, “Hey, can we add a fee to ensure that we’re getting compensated for this additional work?” to make sure that you business is profitable.

Shawn: Sure.

Jason: Okay. We’ve got somebody watching says, “Can you list the fees again?” I had down a leasing fee, a lease renewal fee, lease administration fee, annual inspection fee, year-end statement fee, and a maintenance coordination fee.

Shawn: Those are the big ones. Kelly, reach out to me. I will give you the list.

Jason: Slow down. Kelly you can rewatch this as many times. This is being recorded and it’s also on Facebook. Also for those watching this later, we have full transcription when this comes out on iTunes and you can check that out on our blog at doorgrow.com.

Let’s get into other ways in which you’ve made this profitable. So, obviously increasing fees. You weren’t able to decrease cost with staff. This allowed you to increase cost with staff. Were there any cost savings things that you were able to implement?

Shawn: Probably just technology and trying to not be super labor-intensive. I would say that doing things like move-in, move-out videos instead of running through an entire list on paper and whatnot. It takes a little bit less time than doing it on paper. Those types of things. It’s just efficiencies in the office. Then we set up our team literally to work from anywhere. If you’re on vacation, you want to check on a lease or whatever, it’s possible and super helpful. Those things help with driving cost down because you’re not focusing on the, “Hey, John. Are you back at the office? Can you reach me that file?” That’s just a waste of time.

Jason: What are some of the things you’ve done to enable and facilitate this transition from being a brick-and-mortar business that operates on sneakernet, where everybody is walking into each other’s offices saying, “Hey, do you have this?” to being a virtual team that they can work from basically anywhere?

Shawn: The big things are softwares that enable cloud access. Our general office is on G Suite. Everything operates through there and then our processes are through Process Street which is super helpful and can be accessed anywhere again. AppFolio for our software. They are super tech savvy as far as online stuff. I wish they’d open their API, that’s my shout out to them.

Jason: Yeah, I’ve heard that a lot.

Shawn: I imagine you have. And then RingCentral. We have a team in Mexico and I’ve got a team member in the Philippines, and they literally can call our office in Farmington, New Mexico. Then we have another Flagstaff office as well. It’s so easy because they can pick up their phone and it acts like they’re dialing from their desk. That was a key point we had to set up six years ago which was, back then, it wasn’t really heard of.

Jason: Cool. I use all of those software or have in the past except AppFolio.

Shawn: You don’t need that.

Jason: We’ve had Process Steet on the show. Great interview. For those listening, I recommend you check it out. G Suite were a Google Apps reseller, so if people need help with that we can certainly help you get set up. We used RingCentral for several years. We eventually switched to Talkroute because we found that most of our team weren’t doing a lot of calling on our team and if they did, they had unlimited cell phone minutes. Talkroute just allows you to auto attendant and the call routing and the extensions but they can dial through the Talkroute app out of their phone and then it just uses their cell phone minutes. It’s free basically for outbound calls. It can also receive text messages. We switched to Talkroute and probably saved ourselves about $400 or $500 a month.

Shawn: That’s big. I love it.

Jason: What are some other things you focused on then to facilitate profitability? You’ve got the fees. You’re paying your team well so you can compete. You’ve got your leveraging technology. You’ve set up your team to be more virtual which is scary for a lot of property managers who’ve been doing things a certain way. Anything else?

Shawn: What I would say is tap into your current client base. You probably have a ton of really loyal clients. Don’t forget to just really push out your new fee structure and justify those fees. Believe in what you’re charging to those current clients. When we switched over to a new fee structure, hardly anybody left. We had 12 clients leave on our first push. We found that those 12 clients were probably 12 good clients to leave.

Jason: Out of how many clients?

Shawn: We were at 614 at the time, 12 left. We had a second push and we did this in phases because you have to be really sensitive to homes that are vacant. You don’t want to increase fees on somebody that has a vacant home. That’s a stressful time already. We certainly don’t want to increase feels on a client that has not been in your portfolio for less than a year. They don’t really know and trust you yet. Then I haven’t built that loyalty for you. So don’t touch those yet.

Once you segment those out and you found the client base that you really want to go after, then do it. Don’t just send out an email and hope that they sign into an agreement. You have got to follow-up. If you don’t follow-up, they’re just not going to believe in what you’re trying to do. So, make sure that you follow through with all of that. I’ve heard of people, “Hey, I increased my fees and I sent out this email. I got no response,” and I’m like, “Well, did you do anything else besides that? Because you got to call them. You got to pick up the phone and just talk them through.” It’s a scary thing.

I just had a fee increase from one of the vendors that we use in our business and I was like, “What the heck?” My initial reaction was, “What the heck is going on?” Then, they talked me through and I was like, “You know what? It’s all good. We’re happy with you guys. We’re going to move forward. It’s all good.” I think that’s most people.

Jason:Yeah, have a conversation. If you’re looking for the process that you went through or that Darren Hunter could have outlined—we’ve had him on the show before a few times—check out the episodes with Darren Hunter. Great content. He gave a lot away here in the show. You can check that out. I just saw him actually in Phoenix.

So, 12 of out 614 that’s maybe 2%.

Shawn: That was the first push. We did lose more the second round. There was probably a total number of 65. I can’t remember exactly that left, but our profitability went up.

Jason: You lose 10% but you’re making more money, then not such a big deal, and usually those are the worst properties in your portfolio. What tends to happen then is you increase your revenue. You lose your profit. You lose a little bit of clientele, but you’re also losing the ones that take up the most amount of time, typically. Those particular doors probably have 10 times higher operational costs than a good door. By losing that pile in your portfolio, you’re gaining room to manage a lot more and you’re gaining a lot more leverage. Your profitability probably goes up even more because your operational costs go down significantly by cutting out the most challenging, most micromanagy, and most price sensitive owners that are the most challenging properties.

Hopefully, people are a little bit sold to this idea, “Hey, maybe I can increase my fees,” because I do believe that property management businesses in general are not charging enough. They really deserve to be paid well for what they do. They provide a really valuable service and I feel there’s been this false scarcity that’s been created by marketers. Focus on SEO, pay-per-click and these sort of things where it feels like it’s difficult to grow. It feels scarce but they’re 70% self-managing in single family residential. There’s tons of blue ocean, there’s tons of opportunity, the scarcity is false. It really doesn’t exist.

For those listening, if you feel like things are scarce, we should have a conversation because we can get you out of that mode of scarcity so that you feel safer and more comfortable raising your fees and rates. I believe that’s a false perception that doesn’t need to exist in the industry and it creates a problem for the entire industry—this sense of scarcity. It creates this competition that I don’t think really needs to be there. Really, the industry as a whole needs to be building each other up and helping each other out. You seen that being involved in NARPM.

Shawn: Yeah, that’s right. NARPM’s big on that.

Jason: Shawn, this has been really helpful. Any other other takeaways or things that you’ve explored your journey to make your business more profitable to grow your company?

Shawn: I think most people get a little scared because of the competition and they’re worried about raising their fees. Let me just tell you that our competitors don’t charge anything besides a tenant, whatever, management fee. I almost said the fees. I don’t know if that was against the rules or something like that.

Jason: I’m not a property manager so I guess you and I can talk about it. But someone else might hear it. We’re not colluding.

Shawn: We are not colluding. Just don’t be fearful of that. I think that if you’re truly creating a value for your customer and clients that that is irrelevant, that people are willing to pay for good service and good experiences. When you raise your fees, it has a natural thing that happens that you get rid of the lower-end properties. The lower end properties cost you more money, they cost you more time, they cost you more stress, and they cost you more employees. They will burn out on the low-end properties. Once you bring on nicer properties and you keep to a standard, they are willing to pay the higher fees and get better service, and it naturally increases your profits. That’s a big win for us.

Jason: Awesome. Well, Shawn it sounds like you’re doing great things in Farmington, New Mexico. Did you ever think that you would just end up in Farmington, New Mexico?

Shawn: That’s the thing about New Mexico. It’s the land of entrapment, but it just brings you back. I’ve lived all over the country and it’s a good place to raise a family.

Jason: Awesome. Shawn, I appreciate you coming onto the show. Thanks for being here. I appreciate your insight and I wish you continued success.

Shawn: Thank you, Jason. I appreciate your time.

Jason: If you are a property management entrepreneur that wants to add doors and make a difference then maybe we should have a conversation. So, reach out. There is a lot of opportunity in the industry to grow a property management business right now. I think we’re on the cusp of a wave. I think the industry is going to blossom and grow. There’s a lot of big and good things happening when it comes to technology, when it comes to software, when it comes to awareness. We would love to be a part of facilitating that journey with you and I would love the opportunity to be your coach in your business.

Reach out to DoorGrow, let’s start with a conversation, and I will give you a free training on some of the secrets and tips. I call it DoorGrow secrets on how you can avoid some of the most common pitfalls of preventing growth. Just reach out and say, “Hey, I want DoorGrow Secrets.” You might find it so interesting and get so excited, you’ll want to work with us. That’s my hope. So, we will talk with you all soon, to everyone’s mutual growth. Bye everyone.

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