2022: The Hardest Year in Our 15+ Year History. Victory Property Management Evolves To Become MoveZen, a Dynamic Response To An Inflection Point

Dear Prized MoveZen Rental Investors of 2022,

Thank you for choosing us to manage one of your most important assets for another year. The reason for the delay in our annual update this year is that it’s been a tough one and our staff has grown by a large amount, so now our communication and understanding of their needs have taken a more important role. This business of course would be nothing without them, and we couldn’t deliver phenomenal service and results.

Late 2021 and early 2022 for us were largely focused on making sure we were in tune with our staff in every way. The staffing challenges many companies are facing are well documented and small businesses were hit the hardest since they usually have much fewer resources. Another astounding fact we read this year is that even pre-COVID, property management companies had a 33% per year turnover rate. That’s incredible and we can only imagine what it is in today’s climate.

For those who’ve been with us a while, you know that our company invests a lot of time, money, and concern into our staff specifically to avoid turnover. Still, this is an extremely demanding company to work for and property management is a very tough business, especially post COVID. Therefore we have constantly found ourselves in a situation where hiring is fraught with risks and we fail often, but once we do find a good fit they rarely leave. Only the best advance, which means we have to turn over a lot of our new hires to get enough people in the door to truly assess if they are willing to commit to the work ethic we demand. It’s rare for small businesses to be as demanding as we are, and no matter how well you vet people it’s nearly impossible to know in advance if they’re truly up for that relentless challenge

Formal Notice Topics

Below we discuss the market, and our general company outlook in detail, but we need all owners to review this itemized list. We’re making some drastic changes so much of what’s below will be of importance, but this link highlights major issues and changes all owners must read

Laser-Focused on Quality

Managing homes got a lot tougher in 2020 and has continued to get substantially tougher each year. Property management was already a difficult business. We’ve seen more major plumbing and flood problems in 2022 than in the preceding 10 years combined, just as a huge portion of our vendors retired.

You might expect that, but you wouldn’t expect our major pest problems to triple since 2019. Everything is more of an issue than in the past. To be as demanding as we are and growing in today’s hiring environment is getting to be impossible. At least with our resources. So much so that we’ve dramatically cut back on hiring, growth, and how we approach our business in general. We are restructuring everything we do to avoid hiring as much as possible. We’ve dramatically slowed our growth, and we are deeply committed to quality across the board. Quality properties, owners, strategies, and above all residents.

We expect rental rates for our homes (our rates are dramatically above average) to fall approximately 10% by the end of August 2022 and continue lower into March. It has already begun in some markets, particularly Charlotte.

We always see a dropoff during that period, however, this is likely to be at least twice what we normally see on average. We also probably won’t have an off-the-charts spring as we have the past few years, so 12 months from now rents could be 5-10% lower. That isn’t enormous, but in the one or two years we’ve seen a slight decline it seems to cause owners an awful lot of pain and stress. Even a flat market when you’ve been banking on 10% increases for years starts to feel pretty bad. When rents fall, even slightly, renters move at a feverish pace

We Can Run Like Motel 6 or Like Hilton/Marriott

Circling back to our note about quality, a constant theme from here. In a tough market, there are winners and losers that make up the average. We’ve had an obsession with quality for all of 2022 and most of our homes have always been far above average. However, homeowners that have purchased something cheap to buy either due to condition or location will likely find out why that was the case in 2023.

Some have paired this with something unique such as a home in much better relative shape and should fair okay. If though you purchase in a value area plus cut corners on the updates / repairs that won’t work well anymore. Those who fail to keep their homes in solid shape and cater to great tenants will pay the price going forward. Marginal locations, homes, and rental strategies are going to suffer for a year or two and it will probably be painful.

Polarization seems to be present everywhere, and a recession rental market will be no exception. There will be no shortage of renters but most will present serious risks of some sort. They also tend to pay more and accept less, a tempting combination and a slippery slope. In a strong economy, those risks are manageable, but they’re amplified in tough times.

Great renters have great finances for a reason and it’s because they find value, order, and fair treatment. They fundamentally don’t care for disrepair so homes that cut too many corners simply can’t secure them. We want to part ways with owners who want to pursue these types of strategies. We have long said don’t blame us if we don’t drive the strategy and now we’re doubling down. Not only are we advising against this approach, but we’re also actively removing them from our program.  

Again, we can’t afford to pay people to inefficiently manage rentals while also damaging our reputation. When we play these games (not by choice) we never fail to have an irate resident and owner in the end. In this new environment, that makes no more sense, if it ever did. We encourage you to follow us in our committed search for quality.

The modern rental market is much more like the hotel industry than the pre-2008 long-term rental market. The stakes are high in every way, competition is fierce, and the people with money and credit are demanding. As we see it we can take one of two courses going forward, we can run a Motel 6-like model and attract Motel 6-type customers, or we can run a Hilton/Marriot-type model, and attract those types of customers. We are all in on running like a 4-star hotel. Not overboard, but definitely toward the high end in all that we do. That means we get homes in solid shape before showing, and especially before move-in, because the first impression is crucial as any good hotel manager will tell you.

That means we probably need to touch up clean every home after showings and before move-in. We already have to sweep up bugs in most instances. That’s something many owners don’t want to pay for. Hilton-type renters demand it, Motel 6 types don’t. For us, it’s a no-brainer. We’ve taken this substantially further now with our move-ins by providing HVAC filter install/delivery in a nice package along with a letter and keychain. We’ll likely further improve the move-in experience to cement the relationship at that crucial moment. In general, we plan to align ourselves with owners who agree with us on the following.

Can’t Milk a Stone

You can only consistently find great renters if the home is either in great shape, noticeably cheaper, or in a great location. If one is lacking the other two seriously need to come into play, especially if the location is marginal. A great location can overcome a lot but why not take care of a home in a great location these days? If you don’t deliver value in some way you will not find great tenants no matter how good you are.

The Golden Rule Has Proven to Work Very Well

If they take good care of the home (by renter, not owner standards), pay well, and don’t bury us in maintenance, then we think it’s only fair by our golden rule philosophy not to nickel and dime former renters on every small thing. Even after they are gone because our business will be here 10 years from now and our reputation is crucial to continue to attract the best quality residents, just as it is with a Hilton Hotel.

That means a fair amount of heavy tenant wear adds up over time. We simply think the trade-off for being hyper-aggressive on deposit charges would far offset the mostly massive rents and speed we enjoy these days. Also, if handled well and in bulk, we can get the repairs done more efficiently to the benefit of all.

Even with our own rentals, and those of our closest friends, we firmly push them to accept some tenant damage costs as part of doing business, and a minor offset for nonstop rent hikes. It would hold even more true in a bad market with fewer quality renters available. If you want rare Hilton-like renters you provide consistent service over the long term, and if you want Motel 6-type renters then you can cut a ton of costs and customer services.

We’re getting out of the Motel 6 business. Part of the reason, though we’ve never agreed with that approach is that we have to pay the Motel 6 manager a very similar salary to the Hilton manager in 2022. We also expect a serious recession soon, and just as with the COVID rental saga quality renters will show beyond a shadow of a doubt why they’re the better investment. About 1% of our owners (tenants we chose) were saddled with serious non-paying renters in 2020-2023, but we know millions were. That’s quality at work.

See this article written in 2015 in preparation for what we are seeing today and more on why we expect rising rates to usher in a recession here

Don’t be a TikTok Landlord

We’ve all seen the news and demonization of landlords. Much of that pertains to Wall Street and is more than fair, but mom and pop type investors (by far our top customer) also often get swept up in the fray.

Just as we run a type of model, landlords do as well. Most of you defer to our model and we usually get great results, and even in the worst cases almost always above-average results. We always take good care of good tenants. Even now, most of our owners can honestly look people in the eye and say my property manager and I do not do those things. Yet we still get great results largely due to our speed, marketing, and lead follow up.

You know what slows down our ability to put a happy tenant in your place paying $60+ a day? Bickering over minor deposit charges. Win wins are rare but they are possible. Of course, most of our homes are above average and our method does not work well on the low end so we aren’t solving many of those problems, just rising above them. For the most part, our model is to keep homes in good but not overdone condition, focus improvements on durable values great renters like (not owners and managers), and take care of deserving residents in the hopes of keeping them in place as long as possible, then turning into local cheer leaders for our offerings. A large part of why we’re able to do this while earning very high average rents is because our reputation and marketing are second to none.

Great renters tend to move at least every 3 years so more often than not we can raise prices between them, not through them. We don’t love high turnover but the economics do get complicated after 3 years.

Just this week we had a lease fall apart due to an overzealous landlord and a $900 pet fee and they didn’t even bother to look for another house from any other company. They respected our handling of that situation so much we were able to immediately put them in another home that wasn’t ready yet. We do that a fair amount and it’s flattering.

Stock Up for the Market Ahead

We want to wrap up this broad topic with a common refrain, quality long-term rentals are one of the safest investments on earth, no question. They are not bullet proof though so you must have a hefty cash cushion (3 months rent) to absorb costs that might occur at the worst possible time. If you do that, your rental will almost surely ride out a recession with ease, if you are also quality-focused. We already noted that those who aren’t, are going to have some regrets. Generally though, rents will likely fall, costs may go up even more despite being unbelievable already, and things are going to be bumpy for a year or two.

We do not expect a deep housing crisis. Unlike in 2008, we see buyers desperate to buy their first home, not gambling on their 3rd in 3 years. That demand isn’t just about prices, we all need a place to live. There is a deep housing shortage and housing starts surprisingly just declined significantly.

Supply and demand make it impossible, assuming the economy is functioning, to see a massive decline in prices. Or a decline that lasts a long time. Housing is also historically one of the best hedges against inflation. However, the lower quality homes in the lower quality areas will find it very difficult to secure good tenants and will shoulder significant maintenance, vacancy, turnover, and eviction costs.

The esoteric value won’t help much since preparedness and cash flow are what matter in tough times. We consistently see these investors get in, regret it, and get out only for the next person to misjudge that strategy as a value all over again. Going forward anything but a quality approach is likely to dramatically underperform.

Rising interest rates are an exceptionally complex topic as it permeates every facet of the economy. Should that continue dramatically from here it will surely cause major problems, but we think quality housing will be the brightest star in a very dark sky. The more rates rise, the more cash on hand you will need to ride it out to avoid locking in losses that are likely to reverse before too long.

Our Company is Evolving Quickly

Despite the absolutely brutal hiring market, we’ve experienced the past two years, a fast growth rate, and an industry with one of the highest natural turnover rates as it is, we have only lost a couple of employees over the past 6 years we genuinely wanted to keep. That’s the single biggest factor for our ability to navigate the past few years while delivering very good, consistent bottom-line results. Were we perfect? Obviously not though many expected that. However, for our basic goal of long-term, bottom-line consistency, we doubt anyone did much better. The rental management environment of the past few years has been dramatically affected by COVID in almost every single way you may have read about in the news.

2022 Trends

Staffing challenges – By far our #1 problem over the past 24 months. It’s hard for a growing small business to hire well in this environment, bottom line. Brutal and nearly impossible in fact. Contractors are an extension of this problem.

Angry and Unreasonable People Everywhere

We’ve been threatened with lawsuits more in 2022 than our entire history combined. The stakes are higher now.

An odd issue where it seems a lot of people are constantly trying to eke out tiny additional profit at any cost, including taking ridiculous risks and doing unethical things.

Bullies Seem Emboldened

Lack of inventory makes some things easier, but it makes some much harder. Renters are aggressive, angry, and will not hesitate to steamroll you if given any chance.

People Tend to Change When Selling

A lot of homes are being sold and as this relationship winds down some are increasingly willing to ignore the years of important time we’ve spent together, and the profitability that entailed.

Again, we mention in nearly every update we’ve sent over the years, that a home that has been on the rental market a while will require a large amount of work to get it into sales quality condition, and your last tenant isn’t the one to pay for it just because you’re about to pull out of this area.

That is the nature of a simple concept in rental management accounting called straight-line depreciation, ie normal wear, and tear. It builds up over time and if it doesn’t change the rental performance we mostly ignore it. We can invest too much money while it’s a rental, or you can book profits and use them for a major efficient refresh before the sale. That’s how pros do it.

More on the fundamental reason why not even the best renter will treat your home like you

“Appliances and plumbing / plumbers, in particular, continue to be an absolute nightmare”

Shortages

Maintenance costs have doubled over the past few years and the amount of maintenance we’re dealing with has also gone up by a shocking amount. It is a massive challenge.

A huge number of vendors retired recently or took corporate jobs with apartments etc. The ones left who are solid are usually slammed with owner-occupied larger jobs, and the ones who aren’t are usually a disgrace. There is simply far too much work, with far too few vendors. Especially quality ones.

We feel we’ve navigated this minefield pretty well, but it has taken a toll. Literally, every spare minute is filled with hunting down potential new vendors and failing nearly 98% of the time. That won’t change anytime soon, but it may get worse. Repair people have a lot of options these days, and usually prefer large renovation jobs or cushy salaries with large corporations, and it shows in every facet of the rental repair process.

Owners would face these same issues and may not be able to navigate them at all. Some have found success with sketchy vendors, there are plenty out there, but we cannot do that. There’s effectively a huge black market of repairpeople who work part-time, aren’t insured, and are in no way qualified to work for a legitimate company, yet owners often seem blown away that they found someone cheaper than us.

Our people must be insured, must show up on time all of the time, and must be decently acceptable to high-end renters which most of ours are. The vendors who do, charge a lot these days bottom line. The vendors who don’t, don’t. They also eventually torch you, often at the worst possible time. Remember, we’re long-term consistency oriented. Not saving $100 today because a fly-by-nighter knocked on our door. The Hilton isn’t hiring the cheapest contractors for multiple reasons.

We try hard to find value people in the middle, they aren’t the big corporations with massive admin staff that charge truly ridiculous prices, but they also aren’t unreliable either. They often have quirks we have to manage around, but ultimately do a great job at a great value. That’s an important part of our expectation to be better than our competitors. Anyone can call the biggest company in town, we manage for value, but these days that’s tougher than ever. Polarization is real in 2022, what’s largely left are the big ones and bad ones. Big though does not mean good especially these days.

Post-COVID Focus on Maintenance

We consider a major part of our role to be finding you value repairs. It is very tough, but we are doing well. However this role has grown, so we’re going to invest heavily in it.

In 2023 we hope to make a general maintenance manager hire whose job will be to support all our account managers in finding and identifying a value vendor or estimate, recognizing trends that seem to change overnight these days, and outlining helpful strategies, particularly on the most complex jobs. They’ll generally oversee that communication around expenses is handled properly, and should prove to be a massive asset. They’ll improve the entire process, and free your account managers up to focus more on marketing and logistics, and the details of great resident management.

Above all general customer service, which we have dramatically stepped up since COVID as well. We’re also making extensive changes to our after hours emergency handling, inspections and documentation, and anything else that might help us to deal with the “flood” of post-COVID housing maintenance.

Last year we hired a repair tech as a test. Hiring repair techs was as tough as it’s ever been. The decision was a response to our fear of not having any contractors to do critical work because things were so dicy. So we weren’t naive that hiring would be an easy process. It was handled as a test and failed as many tests do, but we learned a ton. We spent a lot of money on those lessons and we did that for our customers.

Now, we’ll make a management hire first, and they will oversee the next phase of repair tech hiring, hopefully in a better environment to find quality applicants. Our hope is to roll out an in-house repair program in all medium to large offices and we’ll hopefully begin that process in earnest in early 2024.

Other Companies Begin to Realize What We’ve Always Known- Great Staff are Hard to Come By

The other major factor we’ve dealt with over the past 12 months is the hiring and employment environment. Everyone knows the basics here, we just want to cover the steps we have taken to show our existing staff that we recognize they are what makes this company go round and that we appreciate the passion and commitment they bring to our organization.

Interestingly we were such a tight-knit company for so long that we never had formal staff reviews. We began that this year and things went well. It’s no secret that we subscribe to a major team mentality here, but we don’t have many meetings or formal staff engagement. That issue was highlighted more than any other during those reviews (we’ve long had phenomenal benefits). So we have stepped up meetings, but more exciting is that we’re building committees to address various company needs that were largely neglected before. Some pertain to how we can perform better for customers, and many pertain to how we can perform better for our staff. Things like improving our benefits communication (HR overall really), and light-hearted competitions that help to drive us forward, without becoming cutthroat. We expect this addition to add a ton of value to what we can offer our staff, and in turn what they can offer you.

Our first committee focused on improving the move-in experience and has so far been extremely well received by residents, which makes them happy with their home and decision, and that shows up over time.

Ethics in a Complicated Field

We’ve reached a point now where ethics aren’t as easy to properly assess as they once were, and we want to address that issue head-on now.

For example, in the past, there have been minor issues where our staff may have work done on their own home by our vendors, and would likely receive a discount, and it was not of any significance to any party. Given our growth over the past few years though we have to plan and manage on a larger scale, and that means more general rules rather than case-by-case monitoring.

We completely understand the importance of reputation. At this point, ours is hard to deny from owners to residents, to the ever-important vendors in our areas. That is why we are going to begin frank discussions on the topic as we build out a formal policy that scales with our company.

As we’ve mentioned, especially in today’s environment we do all we can to offer our staff any reasonable benefit possible, and that is simply too helpful for us to forbid. Obviously, these are complex topics. We’re starting the conversation now but will parse out policies and rules over time. At this point, serious problems aren’t possible, but we’re getting in front of the problem.

The need for a more comprehensive ethics policy was dramatically highlighted when we ran our repair division. For our entire history billing was extremely cut and dry, third-party costs with no markup. We occasionally did small minor things (staff cleaning) but the jobs were so simple and cheap it was an obvious benefit to the customer. This policy was relatively simple and as follows.

Should our company or our staff (our staff is our company as we insure and oversee them) do one of those small jobs, our policy is that the quote is approved in writing in advance by the owner, stays within what management would consider a reasonable price, and finally must be a solid value decision. Most importantly the bill must be on MoveZen letterhead. That leaves no doubt who’s being paid.

Cleaning has always been the most likely staff task, especially a touch-up clean after showings but before move-in. As we note in this letter several times we are working hard to improve the first impression of a new move in. That usually requires a touch-up clean after showings, however, companies don’t really offer that as an option. It’s a major challenge and if our staff is willing to bill $50 for this service it’s much more efficient than paying any company. So it’s highly encouraged, and when our staff won’t do it we struggle. The move-in experience committee is working on an efficient alternative if our staff won’t take it on, and it’s a challenge.

With our maintenance division though, clearly, the company profited at times (not overall). We usually charged about $49 an hour when things went well (already cheap post-COVID), but as we mentioned the hire struggled, and we ended up doing a lot of work closer to $10 an hour which was far below cost. The next iteration though must be slightly profitable. We’ll deal more with those complexities at that time.

There are other factors at play. As a result of fronting huge sums of company funds to pay vendors extremely fast, a strategy that’s non-negotiable if you want value vendors, we rack up a significant amount of credit card rewards. Again this is complex because we firmly believe it’s a winning strategy to pay fast, but not all will agree.

These grey areas are what we’re going to clarify in our coming communications. The irony though is that most companies do not dare institute that same policy we could be lambasted for, because of the massive risks and costs involved in short-term lending. Even for relatively small amounts they make their vendors wait, or you pay in advance, and as a result, you have substantially more hassle, and things move much more slowly.

It’s important to remember that such a large portion of what we charge for or benefit from, gets reinvested back into improving our results, ie 3D scans at no charge to existing customers we already paid hundreds of dollars to photograph.

“Ethics issues are almost always complicated, especially for such a diverse business in a field as personal as housing”

Types of Issues We’re Looking to More Formally Disclose

Because of our hefty trust accounts, our bankers treat us to meals and will probably someday send gifts. Our Christmas deliveries from vendors have started to become more than a tiny issue. We are hitting a scale now where things that were once completely harmless, at least pose some risks.

“Many vendors who come here are referrals or outright friends of friends”

One new policy we’ll be implementing shortly after summer is a formal staff disclosure process to identify potential conflicts of interest. It should be known that many of our best vendors were brought in as a result of some relationship with our staff, we are a local relationships business at the end of the day. We want to identify stronger ties such as living in the same household, directly related, or having outside business interests together. We’ll have these disclosures in place soon, and they’ll be monitored more closely than we already do.

We’ve always monitored relationships, but now it’ll be formalized. We also monitor repair costs closely of course, and we know what value repairs should cost. If things aren’t being done properly we’ll know it in a reasonable time, and begin to look into why. If you’re getting a clear value we’ll be less concerned. Closer oversight of this process will be another great benefit of our upcoming maintenance manager role. We’ll also institute similar disclosures regarding applicants.

Do More With Less

That said, we are soon going to embrace these marginal benefits full force both to alleviate our staffing pressure, and our exploding costs. So while we want to outline details, it’s best to know that our company, within reason, is trying to make the most of creative profitability, and we have historically been very creative.

We also historically have a great reputation, and we think all of our owners will agree that the fees we’ve charged to date prove we don’t abuse our position. Standing almost completely alone we’ve avoided them for over a decade, but that model isn’t working well anymore. We’re working to better formalize this process and will keep you informed as we build out the policy.

The most obvious change will be charging for true value added services and expenses we used to absorb. In the future we’d have to charge a discounted but fair amount for a 3D scan if we already have photos. At almost $4 each now, we can no longer cut keys at no charge, and things of that nature other companies have always aggressively billed for.

We’ll also be exploring affiliate programs where we advertise services to renters in exchange for small referral payments, renters insurance being a likely candidate, or rental payment reporting to build their credit. We may sell ad space on our sites or major emails, just to name a few.

We Must Evolve, or You’ll Need a New Management Company

The reason for this change is clear, we too are being battered hard by inflation. We can barely hire, it’s so difficult we will intentionally shrink our company this year for the first time. You are seeing more traditional inflation costs in your repairs (also your income), but we are seeing two brutal types in the form of wage inflation, and digital cloud inflation.

Our two primary costs by a light year, and both are far higher than average inflation. The biggest problem with wage inflation is that we are forced to hire unproven and inexperienced new staff, at pay that’s painfully close to our most prized staff. That is simply unacceptable if there is any other option and there is, shrink the company and stop hiring as much until things improve. Also, become more productive using what you already have. That is the primary source of our motivation to get creative with revenue, so we can continue to keep a healthy buffer between our staff who will bleed sweat and cry for you, and those who don’t. We’ve also seen our digital costs skyrocket at least 100% over the past 2 years. We now pay huge sums for Zillow, Google Maps of all things, multiple cloud storage and computing resources, HR software, rental management software, bank fees, it has all gone up by a huge amount, and many didn’t even charge until recently.

We are in a constant battle to stay ahead of our exploding costs while pouring all we have left into retaining our best staff. This company has never been very profitable because our focus has always been growth, for the foreseeable future it will be stability and training, then retaining the best staff in the business.

Why Not Just Raise Prices

There’s an easier solution to all this and it’s to raise prices. Many of you would stay. Sadly despite the fact we think even a 100% price increase would still be a great value to most of you, many would leave in disgust over any increase. We don’t raise prices unless there’s a clear economic reason, but it still amazes us how quickly someone will fire us over $20 a month after years of committed service.

So while that is the kind of simple transparent solution we prefer, we can’t realistically raise prices, especially since our most cherished relationships would bear the brunt of it, and that’s the reason for this shift. We have raised them dramatically on new business though, and that has crimped our growth but is working as intended. Our new model is quality prices for quality service for quality investors, managed by quality staff assisting quality tenants.

Our Billing Practices Have Left No Doubt Where Our Priorities Lie

One look at our company policies or your statement, and it’s obvious we are not running a greedy, high-fee strategy. We want a ton of happy customers to tell a ton of others how happy they are, and you don’t get that by milking them for pennies. We have no true “junk” fees for owners or renters, though we are going to have to add a few for things that are not junk, such as a long-term lease renewal. We’re probably the only sizeable company you’ll find who has not been charging for that. We don’t charge tenants an admin fee, though most of our competitors do. We’re about to raise our application fees but they’ll still be below average.

Let’s talk about what we don’t do. We don’t accept kickbacks of any type. We don’t upcharge on maintenance or supplies other than maybe a small rounding addition to cover the time. Most importantly we don’t underprice your home in a scorching market and harvest huge numbers of application fees.

For the past 3 years, we see homes several hundred dollars below market all the time. Let’s ask ourselves how that plays out? $100 fee times 30 applications = $3000. That’s more than we make off many of our accounts in an entire year. We believe some companies have made this their model. It’s a tempting piece of pie at your expense. Our application revenue for 2020-2022 is paltry despite a massive number of leases.

“How much do you think they’re making off those listings? Why not list at 4k?”

I’m also reminded of a meeting with one broker as we took several of their properties where they asked if we did our own maintenance, then inquired incredulously how we make money. Well, I thought, probably by doing what’s in our name, passionate property management, how are you still in business? 10 years later they still are, and probably more profitable than ever. We have chosen a tough path.

More Than Just a Fee, HVAC Filter Delivery

That brings us to one of the most exciting win-win ideas we’ve ever had. The kind of outcome our company values above most all else. We instituted an in-house HVAC filter delivery system, and residents to our amazement have been highly receptive.

For a couple of months now we have been measuring every HVAC return on most vacant house or renewed lease, and hand-delivering 2 sets every 4 months or so. They are MERV 8 so they provide good air quality without choking airflow for your system. Just right. We’re formalizing the policy but eventually, most of you will receive a photo of your home about every 4 months, with filters on the door as pictured below.

This is particularly useful for houses, but we can glean a lot from townhomes and many condos too. This almost guarantees tenants will not just have the filters but remember to actually use them. They won’t have to worry about sizes or ordering or returns etc. This will clearly improve the life of your HVAC, one of your primary costs. It also sends a loud message to our residents when they see that bright teal bag on their porch that we don’t snoop around, but we are so engaged, we are on top of everything. Many love the attention.

We have enjoyed handing those bags directly to renters who have huge smiles on their faces. We were surprised how well received this has been across the board though we never doubted its merit. We’ll one day make money on this, but it will mostly be used to add unique services, particularly at the move-in stage, and with more exterior attention. We’re probably going to have to raise prices soon but we started at $13 a month for one filter, or $9 each, and almost no one complains, unheard of in this business.

We’re Expanding to Virginia, DC, and South Carolina

Richmond, Northern Virginia (NoVA), Washington DC, and Greenville SC. Currently, all of our staff are employees with no commissions. That has been a challenging environment. About half of property management companies use a different model where they recruit 1099 agents that are more independent, but possibly more invested as well.

In these new markets, we’ll be utilizing the 1099 contractor approach. There are pros and cons to both, we just outlined that ours is particularly tough at the moment, but we intend to meld the two extremely well. We’ll centralize a lot more than any other company, hire specialists with a few very specific duties, and let the contractors focus on building those crucial local relationships that are so important to our business. Most companies largely leave them on their own except for help securing new leads (all about the priorities). We will focus on offering the broadest resources available, greatly simplifying their duties, and focusing our attention on those that are most receptive. Again, we’re not going for numbers, but quality. However, we have found that to uncover quality it’s good to start with numbers. We’ll let the cream rise to the top but all will be qualified and heavily vetted, and provide the minimum level of service we’re so committed to guaranteeing. We had planned to be operational by summer but due to new challenges, that will now be around the end of the year.

For the Remainder of 2022 and Likely Beyond

As noted our priority this year is retaining our staff. At this point, we have no particularly weak links (they’re all gone because we don’t give them raises), and our executive team can compete with the best in the country. We’re all in on making sure our staff know how deeply we want them to hang around so once we start hiring again, they can pass on the company culture, which has enabled us to grow dramatically for quite some time, while still delivering great results.

The most important thing we need to do to achieve that goal is to focus on them not growth, then on long-term creative revenue that allows us to consistently attract staff who deliver exceptional results to ever more mom and pop rental investors. It’s the end of an era, but we’ll make the most of it.

The trends noted in our first major update after the 2020 pandemic still cover the most important trends of 2022 exceptionally well.

Dear prized 2020 MoveZen Property Management rental owners:

Our 2020 annual update will be a special one of course. We spent a significant effort building an article series to outline the issues and trends facing the rental market in the age of COVID19. We encourage you to read or at least scan that series just below.

While things appear to be normalizing to some degree, it’s unlikely these trends will completely reverse, so it can be helpful to understand what’s going on. Even reversing such an extreme year is sure to be a handful. Particularly if you tend to be more involved in decisions you surely must know in the trenches challenges and trends we are having to workaround.

We’ve received great feedback on this series and while long, it’s loaded with useful information. For those who aren’t worried about the details, this introduction will cover some major market and company issues that all need to be aware of.

Detailed Look At Important Trends That Will Affect Landlords

We’re Adding a Ton of New Faces

Once it was obvious that 2020 was going to be a very risky year we instituted a hiring freeze. As noted below we were stretched thin all year, and are looking forward to having some fresh-faced help. We’ve already brought on several amazing new partners, and they are hitting the ground running.

Several of our more seasoned account managers have moved into management-type roles to help train and oversee our new slate of staff. Because we were so static last year, 2021 will be loaded with change. MoveZen takes a truly unique approach to property management, so even highly experienced managers have a lot to learn to get fully acclimated. Many of you will be dealing with our new hires a good bit, and they will be a bit shaky in the early days as all new hires are. There are a couple of important points to keep in mind on this issue.

Our senior staff are all still in place, extremely experienced, and will be working with our new staff hand in hand, day by day. While you might be dealing with a new hire directly, they are far from alone in the decisions and recommendations being made. Indeed the most significant change we’re making in 2021 is finalizing a type of account manager, assistant account manager relationship. This means our newer staff will be handling more of the day-to-day, and our senior staff is taking on much more of an advisory and oversight role.

In the earliest days, this will be a bit bumpy, but we are famous for well training our staff and getting them up to speed fast. Once that happens they are almost always some of the best account managers in the business. While getting to that point though, they’ll have a ton of support. Training new hires virtually is obviously not easy, and we are far from the only company struggling with this issue, though we will handle it better than most. We need you to bear with us for a couple of months. After that, we should settle in nicely.

Whereas with most companies account managers have to set rental rates, advertise, take photos, craft contracts, and handle basic accounting, our account managers don’t have to do any of those things. Our account managers mostly have to be great at two things and that’s customer service and handling maintenance.

We’ll note below just how tough maintenance has become in the age of COVID, so don’t assume a new hire is simply incapable. Even those of us with decades of experience are struggling in the current maintenance environment. As we’ll cover in-depth below, because we are high-tech and heavily centralized, even mediocre or new account managers should easily outperform the average competing manager. Usually by a significant margin.

Our success is built on the passion our manager’s show, and that is not something that comes with experience. We also rely heavily on technology, our reputation, communication, and many other foundational approaches that create an environment where almost all customers thrive regardless of how experienced your account manager is.

Those foundational policies have allowed us to grow significantly, and one of the downsides to fast growth is consistent change. No one knows that better than us, and we know that’s not ideal for our customers. However it’s important to understand why we’re growing so fast, and it’s because we get great long-term results, almost without fail. Our near-seamless success through the COVID crisis has proven our mettle and consistency.

Going forward we’re going to move toward a bit more of a team approach. So when you’re contacted by someone new, rest assured they are working closely with a committed and passionate team that has an experienced account manager heavily involved, and management staff that is second to none. This means that as we grow, and staff comes and goes, there won’t be a single person who holds the vast majority of knowledge about you and your home. We’ll have more shared information with more people aware of what your priorities and desires are.

There are pros and cons to both approaches, but having a deep bench of assistant account managers who are ready and able to assume major responsibility is obviously a great asset. Taking a bit more of a team approach is the only way to apply this model, and we expect it’ll help lessen the headaches that are unavoidable with fast growth.

Maintenance Will Be Our Biggest Challenge in 2021

The biggest theme you’ll find in our COVID housing series is the incredible changes taking place in housing repairs. We’re all aware that most people are spending significantly more time at home, sometimes 3X as much. Obviously, this creates a major strain on maintenance needs, a massive demand for home repairs, and a shortage of repairpersons. Which will of course fuel higher prices.

Unfortunately, we covered “The Relentless Rise in Repair Costs” in 2019, and those issues are now compounded by COVID trends. It is a 4 alarm fire type of problem. The vendors who provide great results will have significant pricing power and will wield it. While our longest-tenured handypersons are less likely to institute major increases, we’re a fast-growing company constantly in need of great new vendors and we’ve pegged this issue in particular as our greatest challenge in 2021.

Furthermore, due to a major shortage of flexible and general repairpersons, we frequently have to rely on specialists these days. That usually means a bit higher quality but it also means prices that are a fair amount higher. Not a trade-off we typically prefer, but we’re doing our best in a brutal environment. Finally, supplies and nearly all necessary support have gotten more costly too, and that affects all vendors.  

We’ve Stepped Up Our Customer Service

COVID has proven to be a great excuse to provide terrible service and results, and we are just as frustrated as you with that trend. We’ll talk a bit more about how we’ve struggled with internet service and nearly every software and service provider that we use, but the biggest effect has been with maintenance. We are not going to make excuses, and in fact, delivered some of the best performance in our history in 2020. However, it would be ridiculous not to point out that getting great results in our business has gotten dramatically harder.

From maintenance to strained tenants, an environment where nearly everything is riskier than 12 months ago, costs exploding for both technology and labor, to a proliferation of new technology and government mandates, nearly everything we do is tougher. It’s hard to find used or new appliances, hard to hire new staff, hard to train, and hard to get access to someone’s home just to name a few. Having no reasonable leverage over tenants is also terrifying and often a real pain, but most of our tenants were great. From tenants to vendors though the moment they didn’t want to do something they simply notified us that they had been exposed to someone with COVID.

“With that said we aren’t going to harp about it, we just ask that our customers please bear with us to some degree while we fervently try to deliver the same great results from past years, amid a much more challenging 2021 environment. You’re getting your money’s worth in 2021”

— Thank you!

In a Much Tougher Environment, We Need You To Bear With Us

On that note, we have seen the best and worst of people in 2020. Being intimately tied into housing, perhaps the 2nd biggest topic in an absolutely insane year, we feel as though we’ve been to the end of the world and back.

Along the way, most of our customers have been phenomenal partners cheering us along and helping out in any way they can. Many have been less than stellar to interact with too. We have been understanding that people are suffering and stressed to the max. We recognized immediately as the storm clouds began to gather that stabilizing your rental investment was often the single biggest concern and fear that some felt. We took this added pressure seriously and tried to be a sympathetic and stable rock in the stormiest seas of most of our lives.

Going forward though we’ll be getting back to more traditional business, and we perform best when emotion is left out of the equation. For 2021 we’ll expect that our customers not unload their general stress on us, as well as show understanding when we outline common sense challenges that might have you feeling less than pleased.

We’re Taking on Maintenance To Deliver More Consistent Results

In the past, we viewed ourselves as a relatively creative leasing and marketing company that also handles basic accounting and maintenance. The landscape has likely changed so dramatically we have to rework our identity. As noted we view maintenance as our biggest 2021 challenge by far, and it would be a mistake not to react.

For this reason, we’re going to begin testing an in-house maintenance division. We are well aware of the pros and cons of this approach and have long weighed them to start every year. We now feel that maintenance is proving to be such a critical challenge that the only way we can continue to ensure excellent rental management results is to have at least some degree of control over the repair process. It will also allow us to drive costs down, and respond much faster keeping good tenants happier than ever. You’ll have the option to opt-in or out.

We need to stress this is intended to be an evolving offering, and will likely look quite different each year for the first few. We’ll be extremely transparent and offer options to head off concerns that come from such a flexible approach.

We’ll begin testing in a single metro location at some point in 2021, hopefully before summer, and we’ll provide those in the coverage area with details before we go live. Should it prove as effective as we expect, we’ll immediately begin rolling it out in all of our major markets in 2022.

Focusing On Fast, Thankless Tasks Other Vendors Shun

While the eventual goal is to have a heavily certified and experienced repair person who can fix the most costly and challenging problems with appliances and HVACs, we’re starting simple. The other major challenge that we face is dealing with very minor maintenance, so that will be our focus early on. No matter how many broken toilet handles we can assign in a given week, no private vendor is going to give us phenomenal prices or attention for this type of work. In these instances, the vast majority of cost comes from the trip to the property, not the actual work. It’s also a major distraction from the much more important tasks we field every day.

We also often find ourselves struggling to decide whether a job would warrant a general handyperson or a specialist, and having someone in-house will help us with this dramatically both in terms of experience, and also getting on-site at a much cheaper cost to diagnose and gameplan complex issues. This service won’t be free but will be efficient and extremely beneficial. Similar to seeing your family doctor before going to a specialist, we will soon be able to provide an expert opinion at a much lower cost when it turns out our staff vendor can’t fix the problem. While our account managers are well versed in home repairs, they are not experts. This offering will give us a true expert that can assess the most challenging problems, and reduce costs while increasing efficiency even when they aren’t the ones handling the final repair. When they can handle these simple repairs the cost will be lower.

Finally, another major aspect of this decision is that we’ll be able to handle a large portion of our maintenance substantially faster, and that is sure to lead to much happier tenants. As we always point out, happy tenants bring massive long-term benefits that aren’t immediately quantifiable. Our reputation means that someone from California can rent a home unseen (something we dread but was one of the biggest 2020 trends), and have unshakeable confidence that their decision will not turn into a nightmare. More potential tenants trust us than any competitor in our coverage area, so we field more leads who are willing to move faster, pay more, move less, and respect the home and our policy.

Our New Maintenance Endeavour Will Be An Immediate Help To All

One aspect of this change that will immediately improve our service for all customers even outside the test area is the benefit of having an experienced pro constantly hunting for, and vetting additional providers in all of our markets. While our managers are the best in the business, they have to possess a huge range of skills, and dealing in the inconsistent world of vetting and testing repairpersons is frequently one of the weaker links. Having an experienced pro to help out will shore up an important need.

We’re well aware this is not a guaranteed benefit. It must be run well to be effective, and that’s what we intend to do. Because we have been so short on good vendors this past year we contacted the retail maintenance company run by one of our competitors without mentioning who we were, and finally got a call back 5 days later.

We have always valued simplicity and creativity, so evolving into a repair business was not an exciting prospect. We’re shouldering this responsibility for one simple reason, our customers. We are built to deliver consistently excellent results, and that is simply not possible unless we have control over the 2nd most important aspect of our forever affected role. Your support and helpful insights will be deeply appreciated as we evolve this crucial service. We have a lot to learn and it won’t be perfect, but it’ll still likely be much better than relying solely on private vendors even early on, and will one day be a major benefit to MoveZen customers.

Post-COVID It Will Be Extremely Difficult To Find Better Long-Term, Consistent Results Than MoveZen Can Deliver

The vast majority of our staff has performed phenomenally in the face of the toughest rental management environment in a generation. Some of our customers are unforgiving, but even when struggling it’s simply a fact that most of our managers are consistently far beyond average, and that is a huge benefit for your bottom line.

We went fully remote in March of 2020, and are only now starting to work into a partial office schedule (something we’ll discuss more soon). That alone caused many of the country’s most powerful companies to struggle mightily (we know because we got zero customer service and tons of disruptions) and was coupled with the general housing challenges as well. We say most staff because a very small number did struggle with the pace of change. We’ve been on a hiring freeze due to increased risks, and culling staff who are struggling with a blistering pace of change, in the teeth of a once-in-a-lifetime pandemic was simply not something we’re comfortable with. We strive for excellence but unfortunately, there is going to be a limit. We’re working on this and improving dramatically.

More importantly, we were designed from the outset so that even when our managers are struggling, our system of specialists and heavy centralization will support you to the point of almost always ensuring much better than average results, consistently over the long-term. Our property managers don’t have to be amazing to get great results, but most are.

We won’t get too philosophical with this letter but we have long felt that results are all that mattered at the end of the day. We’re maturing and realizing that a laser focus on results can sometimes leave frustrating gaps, and we’re taking steps to be more understanding of how our owners perceive our service, even if the net experience and our primary goal to ”deliver maximum long-term net income with minimal headaches” have played out well.

We’re Making Huge Investments For You

Zillow has begun charging extensive fees for listing rentals on their site. Our company paid over $8000 to market many of your homes on their site in 2020, and this year they’ll be required in all the markets we cover at a much higher cost. This won’t change anytime soon, and it’s currently an important edge over competitors who aren’t paying this toll, of which there are many. There will though be a tipping point. We’re already seeing dramatically fewer listings on Zillow relative to Realtor.com, Apartments.com, and a fast-rising new kid on the block Zumper. Once they lose a certain number of listings (social theory), their market will collapse. Don’t think that’s likely? Ask Craigslist how their once-dominant rental platform is doing these days. It’s all scams. Again, everything we do has gotten dramatically more expensive in 2021.

Filter Delivery for Happy HVAC’s

We’re going to roll out a tenant-required filter delivery system. We’ll deliver the filters that your home requires directly to the home to ensure they’re being changed every 60 days. This is also going to start slow and won’t always be available such as in situations where unique filters are required, shipping costs are abnormally high, or other possible problems. For the vast majority of our customers though this will be standard and in place in 24 months. AC’s are one of the biggest repair costs you’re likely to face, and this will dramatically increase the care your tenants’ show.

Site-Unseen Rentals

Site-unseen rentals, something we consider to be an absolute nightmare for all involved, have proliferated. We still get these requests all the time and largely try to fervently talk them out of it, but we haven’t yet decided to stop allowing them. We may because most of our biggest problems have come from this issue in recent years.

Roommate Renters are Proliferating

Roommates are becoming a major aspect of all rental markets. We discuss this in-depth in terms of how it raises rents, but also often brings a lot more headaches. Most of the time it doesn’t though. There’s certainly more work for us, sometimes more maintenance (not a given by any stretch, and probably about average) but for most owners, they are a great option. Our young professional shared situations are often some of our best, and major payment issues are nearly unheard of. While we didn’t have many payment issues from this bunch in 2020, we did have a large number move back home, and those are the types of issues more likely to affect these leases.

Pricing New Rentals Is Tougher Than Ever

For most of you, we have a lot of data on the home and pricing isn’t too difficult. Especially since our relisting process is almost always to start 5-15% higher than the current rate and reduce as needed, problems are rare.

Pricing rentals in general though has become insanely difficult, and for homes that didn’t fare well as a result of COVID, our normal method would lead to major vacancy costs and regrets. We saw more dramatic housing fluctuations in 2020 than all years combined going back to 2010. When we have to price rentals these days it’s extremely difficult, even for someone with nearly two decades of experience. We simply have never seen these types of issues, and they vary by street.

Our company has a lot of data since we cover a lot of different cities but even that is often inconsistent and mysterious. We give an example of one home we rented for $3500 in 2019 and were barely able to get $2800 in 2020 after months of vacancy. Nothing changed with the home but it had some issues we were aware of all along and considered ourselves lucky to get $3500 initially. Issues that were minor in 2019 frequently became massive in 2020.

What Homes Struggle in the COVID Age?

What types of issues caused homes to struggle? In that case, it was a prime location but had almost no yard, was on a short tight road with sketchy homes nearby, and had a one-lane driveway. That was about it. Homes of any type in a higher crime or slightly rundown area were almost sure to suffer. Even when these homes did quite well before, typically by virtue of being close to downtown, water, or some other attraction.

Homes in dense downtown areas suffered the most, early on, but houses and townhomes with a yard did recover quite a bit by years end. Downtown condos did bounce a little, but it was after a brutal decline that lasted until December.

Smaller cheaper cities tended to do best, but the suburbs in major cities typically fared well. At times there simply was no obvious reason why homes were struggling and we made some of the largest pricing mistakes in our history last year.

Still, despite these challenges we typically outperformed nearby homes by a huge margin, and our biggest pricing mistakes were overpricing, a relatively easy issue to fix if you have data and are responsive. With hot markets and properties, we watched our competitors and private landlords consistently underprice listings and leave huge sums of money on the table.

Tenant Quality Is Not What It Used To Be

As one might expect, tenant quality has dropped dramatically. We saw something similar in 2009 and 10. Positive trending homes won’t have to worry too much about this issue due to exploding inequality, but marginal homes and neighborhoods will find it difficult to secure very safe renters. Since that is by far our top priority, it likely means we’ll have to offset the challenges by offering more competitive rent.

Good tenants are good for one primary reason and it’s that they’re smart with their finances. That means if they aren’t getting something highly desired then they won’t move forward unless it’s a competitive rate. That’s the bottom line and landlords or managers who think they can circumvent that problem consistently shoot themselves in the foot.

As we noted just over 12 months ago, we are a risk-averse company. We still consider 2021 to be much riskier than prior years and will continue to operate with that issue in mind. We will rush to get tenants in, even early when possible, and will not hesitate to reduce our marketed rents if we aren’t finding the type of quality we require. Unwinding and dealing with the damage from COVID19 is sure to produce new problems, and it’s naive to think all is well after such a devastating experience.

As always, thanks for your support and we look forward to a great and drastically improving 2021!

IMPORTANT ANNOUNCEMENTS – We’re going to temporarily suspend all management fees for our owners working in hospitals or nursing homes. Just send us some type of documentation and we’ll set it up. We’ll waive all fees for these tenants also. We’ll take on new properties with no charge or commitment if your coworkers have been managing themselves, and no longer have time.

So far we haven’t received many notices regarding payment issues. Most issues have been breaking leases before or shortly after a move-in. In general, we have high-quality tenants and should have fewer problems than average. Still, especially in Wilmington the service sector is a major aspect of the economy, and will likely see our highest averages. As we always say you should have at least 2 months rent in reserve, but if possible you should prepare for more.

The courts are closed with no date to open, and evictions are not an option under any circumstance. That’s very concerning but shouldn’t affect us too much. Only major problem tenants may cause serious issues and we have very few. As a reminder, we won’t be evicting tenants who show a clear need, anytime soon.

There are also some additional guidelines. If you have an FHA loan they’ve suspended evictions for 90 days and it’ll be legally required that you notify us before we proceed with an eviction. Section 8 housing has also suspended evictions as well as notices to vacate for at least 90 days.

– https://www.lawhelpmn.org/self-help-library/fact-sheet/covid-19-renters-rights-and-court-changes-during-pandemic

One thing we cannot stress enough is that everything is subject to change, including laws, norms, rules, and liability. These are mostly guidelines and we must err deeply on the side of caution when considering displacing a tenant.

That even unquestionably includes a situation where you cannot pay your mortgage. We are all in this together and housing is a matter of life and death.

On that note, the moment you are notified of a break in payment, you should apply for a disaster loan from the SBA. It appears as if most of those will turn into grants. Once open, you can walk into most major banks and secure these, or online now. This is specifically intended to save us both from having to make dire tenant decisions. You do not need to know the extent of damage because that’s not possible, just be honest and do your best. Don’t wait, don’t delay if your finances are of concern. If you aren’t expecting serious problems on your end, we’ll have a very good idea whether your tenant is likely to stay settled and paying by April 17th.  

In general, given the pace of change, our advice for staff has been to not get bogged down on anything, do the best you can conservatively, move on, and circle back often to assess new data.

We’ll notify you the moment we find out that a tenant is going to have payment or other major issues. We’ll handle case by case but will keep a few things in mind. Compassion is critical for the time being, though the world also keeps turning. We’ll work with tenants who show initiative, credit our management fee for any rent forgiveness you might offer (optional), and do our absolute best to assess needs accurately.

To sum up our approach to the current issue, the tenants who can pay have to because that supports the ones who can’t, otherwise everything breaks down. Any tenant who’s unable to work because of a mandatory lockdown or sickness should be given significant opportunities to get things in order. As it currently stands no one has much of an idea when we’ll be back to “normal”, so we see no benefit in forming rigid plans until we know the extent.

We’ll have to be very careful about being aggressive on our assessments but will not take lightly those who take advantage of these challenges. In general, you’ve all probably seen some of the concerning social and legal backlash that is occurring with even minor landlord attempts to maintain standard procedures. These are uncharted waters, and we will have to be overly conservative unfortunately.

We’ll typically allow no penalty move-outs for those who can’t pay and may want to return home etc.

We have always been great at pushing tenants out of homes without major problems when most others would have had to evict. We will put these skills to use as things get back to “normal”. We will try hard to avoid evictions for at least the rest of this year, but that doesn’t mean we’re lacking a great strategy to get you settled with a new tenant asap. 

On that note, we are never lacking a strategy. Our company was built in the housing crisis, and we are battle-tested by many hurricanes. We thrive in tough conditions and you’re in good hands.

In roommate situations where several are paying, we’ll be more lenient about payment plans.

Under no circumstances can utilities or major maintenance be deferred, but you certainly can defer optional maintenance for the time being. Again only if you truly need that. To avoid a major backlog we’d like to keep things moving as close to normal as possible once lockdown is over.

We’re requiring our vendors to wear mask and gloves for the tenant’s safety.

We’re unlikely to pursue judgments for tenants who leave the property in decent condition. That will also be a major aspect of our leverage to get them out without having to evict. In our view, having a non-paying tenant leave by choice right now is a win. That might change if lockdowns get more severe.

The future is hazy for sure, but so far we have been slammed with new renters. We have been aggressive on pricing to cut down on risk in a very uncertain time (more on that approach), and that combined with our self showings, and 3D tours have allowed us to rent nearly all of our homes. This positions us extremely well for the troubles ahead, as we have no backlog. These high-tech and costly features that we offer position us very well for whatever lies ahead. We debuted these scans in our annual update that you should read if you haven’t, and you’ll find a link to one of our scans there.

Regarding our approach to risk, in our view, a vacant house for any reason is a time bomb. One major misstep can offset years of profits. We’ve taken a lot of flak over the years for obsessing about pricing to avoid lengthy vacancy or slow seasonal issues, but the world was reminded what risk is this month.

We explored renting a new office last year and felt the market was simply too high. Biking around empty streets I mused about how most of those units are still vacant. Now they have almost no chance of renting this year, and once they do it’ll be a significantly lower rate.

Commercial real estate is a major concern for our economy, probably the largest, and has dramatically changed to the detriment of these owners. Had they taken our approach and balanced a structured vacancy with a solid rental rate, they’d be in solid shape now.

Competitive rates also attract the highest quality tenants and motivate them to stay put longer. What we are doing is putting a price on risk reduction. Your neighbor may get $100 a month more than you, but if they evict their tenant after 6 months and yours stays put for 24 plus leaves the home in great shape, you have significantly outperformed them in both real dollars but also the valuable resource safety/peace of mind. Even if it’s as subtle as your neighbor averaging a turnover every 14 months, and you averaging every 20, you probably still financially outperform.

There is no doubt that you significantly reduce risk and that does pay you a major dividend. For the foreseeable future, we are also going to move tenants in as fast as possible, sometimes weeks before their lease payments start so long as they’re paid in full. If things get very bad, it could be the difference between flowing rent and a canceled lease. Managing risk has been our approach all along, but we will get extremely aggressive with it in the age of COVID-19. We expect waves of outbreaks over the next year and don’t expect to sound the all-clear anytime soon.

We won’t be showing occupied homes often. We have long said that there isn’t a lot of benefit to listing an occupied home in most cases (we have articles on why), and now the drawbacks are significant. We’d be risking our tenants and staff, many of who are high risk, and getting very poor results in the process. We can’t 3D scan an occupied home anyway, and have been having so much success with our new approach there is no reason to risk the alternative. We’re providing these very costly 3D scans to existing customers at no charge.

We’re stepping up the number of payments we send each month to try and get your funds, especially late payments to you more quickly. We’ll pay around the 10th as always, and try to stick to an every 5-day schedule for the rest of the month.

Our staff is settling in very well. As expected we have firmly acclimated to working remotely. We’ve even been slammed the past two weeks and have executed easily. Our approach almost seemed tailor-made for today’s challenges. We have long embraced high technology such as 3D scans, cloud computing, and digital documents. We have also always obsessed about keeping risk down. Our phenomenal staff have taken these tools and truly hit the ground running

Your March owner statement has posted with this email also

Best regards,

MoveZen Management  

2019 Rental Market & Company Update

Dear Prized 2019 MoveZen Rental Investors,

Critical announcement – During our consistent market research, we heard of a property manager who’s customer had their owner portal hacked, and the bank account was changed.  This is an option from your owner portal. To avoid that risk you should immediately institute two-factor authentication. If you struggle with technology you may find more success deleting any stored password, creating a strong password, and only logging in from a very secure computer.  Since you’d presumably catch this issue after the first time, it’s not a huge risk unless you own a lot of homes. Hacking is a significantly growing risk. A lot of insurance policies can cover that risk.

We are beginning the process of forming a Real Estate Investment Limited Partnership (RELP).  It’ll be a great way to take advantage of our expertise in rental investment selection / management to invest in local real estate without nearly as much stress and risk as direct purchases.  There are also low minimum investments, no credit, time, or experience necessary, and limited liability. If you’re interested please touch base with June and she’ll collect contact details that we’ll use to roll out information as we finalize the plan.  Our timeline to launch is anytime between fall 2020 and the end of 2021. 

We began this update in January and a lot has changed since then.  We’ll begin by discussing the Covid19 issue. We believe it’s naive to think this won’t have a major effect on the economy and affect a lot of people and issues.  However, as far as we can tell the housing market is likely to fair pretty well through that.

There will be pockets of issues with tenants who experience long term temporary unemployment, sickness, etc, but for most of our properties it should be minimal.  The lower the rental rate (relative to size) the more likely these types of issues will affect you. We’ll address these issues on a case by case basis, but contrary to our past approach of having near-zero tolerance for nonpayment, it’ll most likely make financial and ethical sense to give suffering people who show initiative a solid chance to get back on their feet in light of something like this.  Few will want to view homes during the height of this problem, so demand will be slim for a while.

“Things to consider…  Do we have your tax id on file?  Has your address changed in 2017?  Do you plan to report the income in someone’s or some company name we aren’t using currently?”

The system we use is called Matterport, and their studies show that homes with their scans sell 24% faster than average.  Since the rental market is naturally more superficial, we believe it’s even higher for our industry. Assuming our average home rents for about $1300 * 24%  = $312 in saved vacancy, less risk etc.

These are very expensive for us, and we’re providing them to existing customers at no cost. Again in 2019 we relentlessly pressed forward with costly improvements to directly help our customers.  These improvements not only reduce vacancy, they increase rents, limit liability (vacant houses are risky), and also prepare us for a situation like we’re facing today with major uncharted challenges. We already have an efficient showing scheduler, options for self showings that naturally limit contact and lead to much faster rentals, online payments and maintenance reporting, a standard system of cloud computing for staff and customer benefit, and the tested ability to easily work 100% remotely.

Our experience with major hurricanes has prepared us very well.  We also instituted new procedures for this unique problem. Internally we have 3 stages of varying degrees, but let’s focus on those you may come into contact with. 

For any obvious outbreaks in our immediate area we’ll move to mobile-only, and it’ll probably be for some time. Given the lessons of past pandemics, we feel it’s best to be very early to isolate, rather than hoping for the best.  We also feel it’s much safer to decentralize our staff so that a single person can’t bring down an entire office at once. This method was extremely helpful after hurricane Florence when our Charlotte and Raleigh locations provided critical support to a relatively hard hit Wilmington. 

As soon as we begin to see cases in our area, or sooner if there doesn’t appear to be testing, you may find that we’ll require hands be sanitized before entry, or we may handle business out front. We’re not providing public restrooms, stepping up our no cash policy, and cutting down on inspections for the time being, especially since we completed many in December and January.  Any staff showing concerning symptoms will be sent home for several days. Other than that we hope and expect to only have minor disruptions.

The majority of challenges will probably be secondary effects such as rising unemployment overall.  These could surely be significant, however we have always maintained that US rental housing is one of the safest investments on earth, and even now that appears to still be the case.  The biggest risk we face is mass unemployment. If this issue spreads from mostly affecting those who deal directly with the public, to widespread layoffs across industries, that is always tough on housing and rentals.  Even still, I doubt we’ll see the hit to housing that we saw in 2008.

“as landlords, make sure you always keep an eye on the national unemployment rate.  If that trends higher, your cash flow risk increases” 

There is simply a mountain of cash in the system and if I were going to pick a long term winner in a scary environment real estate is the place to go.  Also the plummeting yields across the globe lower interest rates for buyers dramatically (albeit very slowly). Since most buyers focus on their monthly payment, not their net worth, falling interest rates are the same as falling prices as they can get much more home for the money. 

In effect, central banks are shouldering what should probably be major price reductions on global real estate. Their actions have unintended consequences though and one risk that is probably not too far in the distance is major government controls over the rental market. Once central banks literally quadruple down on intervention in light of Covid19, you’d assume we’ll see more of the asset and rental price inflation of the past decade.  That’ll lead to a worsening inequality problem, and renters who simply cannot keep up. The complaint will likely be less that the government is intervening since it’ll largely be necessary to preserve our own values, but rather how did we get to that point.

One article we passed around today did raise concern.  Millennials have long been known to be frugal, except when it comes to rent.  No one is more responsible for the major rental increases of the past 10 years than this generation.  When it comes to their home, no one pays up like they do except the very wealthy. This generation is by far the majority of the rental market, especially for our relatively high-end homes.  This article highlighted that they are cutting back spending fast and furiously in light of this pandemic threat. Watch that issue in other places as well, their habits are powerful. In our case it’ll probably be short term, but could be significant during that time.

https://www.cnbc.com/2020/03/05/millennials-worry-changing-spending-most-amid-coronavirus-study.html

If the current stock market crash is contained to mostly stocks, it shouldn’t affect housing much at all.  If anything it may push investors to housing. Again, the risk is a spread to unemployment.

All of these risks mean you absolutely must prepare for payment lapses that appear quickly, and will probably average at least 2 months.  Prepare immediately. The nature of an outbreak like this is that you don’t expect or see much, until it explodes. Please do not underestimate the risks this poses to your cash flow.  Prepare now, and prepare aggressively. A neat lesson on how surprising exponential growth can be is found here. Almost all scientists agree that there are cases lurking that we have no idea of.  That would mean an explosion in cases is all but inevitable.

https://t.co/lTnpxNc8th?amp=1

    “Again in 2019 your property management company through your support, donated a large amount of money to charity!  We donated almost $4000 to mostly local charities“

Hopefully 2019 was a great one for you, and that we were able to contribute by achieving our main goal of maximizing your income while minimizing headaches. 

In this update we don’t have many critically important updates, but our company has undergone a ton of changes that you really want to be aware of in order to make the most of our service.  We also discuss one big addition that we made this year, in extremely high tech 3D virtual tours and the huge benefits they offer you.

Again in 2019 your property management company through your support, donated a large amount of money to charity!  We donated almost $4000 to mostly local charities. This year we gave to our local ASPCA, Cape Fear Literacy Council, Tripswithpets.com adoption events, Habitat for Humanity, Cape Fear Hospice, Ocean Cure, as well as Beagle and Horse Rescue programs

2019 was a truly surreal year for us.  We bought an office 10 minutes from downtown Charlotte and will be done with renovations and moving to this central location in a couple of weeks.  Expanding to that metro started strong, and we expect continued growth now that we’re centrally located and can serve a larger area efficiently. We’ve decided against expanding to Fayetteville due to the job market, and likely shrinking of the military as technology replaces people.  Instead, we’ve decided to expand to Greensboro and Winston Salem this year, and could not be more excited. We hope to close on a new office in Winston Salem as early as this month, and Greensboro won’t be far behind. These added locations will give us more opportunities to roll out costly perks such as 3D scans since we can spread those costs more efficiently.

We went on a hiring binge early last year, and doubled our staff count by the end of the year.  That means we also had to ramp up the number of contractors we have available, accountants, marketing to keep the new staff busy, and just about everything else we do as well. 

Many of you probably noticed, but all in all we felt that we were able to undergo all these monumental changes with minimal disruption to our customers. We will spend 2020 building out these changes and improving, rather than significantly hiring. After the election, we hope to have a host of powerful new policies in place to hit the ground running when the dust settles, however from here on no customer is likely to see a year with as much change as 2019.

One thing we learned without a doubt is that for whatever reason with our business, new hires either leave in the first 3 months (a bunch do) or never.  Armed with that knowledge we’re going to make subtle changes, especially with future hires.

First, while not always a luxury we can take advantage of, we’re going to try to keep new hires in a support role for the first few months.  That should reduce account manager changes dramatically. We’re going to test something of an assistant and/or buddy system, in the hopes that will minimize disruptions during major hiring periods, or as more experienced account managers get promoted and move on.  It’ll also help when someone is out of the office. If we have success we’ll formally roll out some type of flexible plan and let you know the details. Either way with our office managers taking on more of an oversight role, they’ll serve as a backstop for the staff who are more prone to work alone.

In our last update we announced that we had rolled out a major employee benefits package that would surely help us to retain our best staff, and since that time we’ve only lost one person who was working then, and they simply returned to their hometown in TX.  Because of the amazing results we’ve seen from those changes, we’ve made a couple more for 2020. We’ve always given 14 days of paid time off, and this year we’ll add 14 work from home days. Since we are often on the road to relatively far-flung locations, and many of our staff live in these locations, flexibility will not only add to their happiness but likely make us even more effective.  We expect this will create another one of those win-win-win’s (customers, company, employee) we are always looking out for.

We’ve made some big changes to our staff roles this year.  As noted many of our staff have been here for quite a while, and our recent expansion has allowed them to elevate to greater responsibilities.  Alisha Robbins is taking over as general manager and will be the primary person handling major new initiatives, general oversight, and major problems. 

We have an office manager in place for all of our locations and they’ll serve as local oversight and the first stop for complaints and problems. They’ll oversee the day to day operations at the office, and another major task for them will be to ensure we’re delivering great customer service.

You can find detailed contact information for all of our staff using this link.  Over the coming months we’ll add additional information such as an organization chart, lists of duties, and other information you may find helpful regarding our internal structure.

What’s Next?

We’re preparing for a recession this year.  Whether we have one or not is anyone’s guess.  However with nearly 97% of CFO’s in America preparing for one, we think it would be prudent to do the same.  This means we’ll be more conservative than in the past regarding collecting repair costs before work is authorized, repairs and upgrades that we recommend, and nearly every decision we make for that matter.  If you expect more than a basic turnover, it would be a good idea to authorize us to hold the last month’s rent for repairs. This will avoid delays from sending payment later.

https://www.forbes.com/sites/sergeiklebnikov/2020/01/13/americas-cfos-are-warning-of-a-recession-heres-why-thats-an-important-indicator/#1d7e4ccb3448

Another major aspect of conservative management will be preparing for the effect a recession would have on the severely cash strapped renters of America.  We touched on this in our last update, and things are not much better. Most still own few assets, meaning they haven’t enjoyed much prosperity from the current expansion, have insane amounts of student debt, and have watched most of their critical expenses explode (healthcare, housing, and education).  So far energy and (unhealthy) food have mostly been kept in check, and let’s hope it continues. 

“the median American rent payment rose 61% in real terms between 1960 and 2016 while the median renter’s income grew by 5%” 

https://www.economist.com/special-report/2020/01/16/how-housing-became-the-worlds-biggest-asset-class

The critical point here is that risk for the next 12 months is obviously higher than usual, and we’d be remiss not to factor that into our tenant approval decisions.  When you have very tough credit standards, so much so that most of our tenants could easily buy a house if they wanted, it’s difficult to net very high rents. Great tenants have great finances for a reason, and it’s because they’re smart with their money and rarely overpay.

In a hot sales market with falling interest rates, it’s difficult to find great tenants who need to rent.  That of course means a reduced supply of leads, and we all know that means less demand. We’ve weathered this storm well for years, and expect we’ll continue, but even a subtle shift to stricter standards may put a bit of pressure on the rates that we can charge. Trust us, conservative management is a phenomenal trade-off the vast majority of the time, and a lifesaver when it comes to avoiding truly brutal outcomes.

“the median American rent payment rose 61% in real terms between 1960 and 2016 while the median renter’s income grew by 5%” 

We’ve long espoused how critical it is for our owners to keep at least two months of rent in escrow, and 2020 will demand that more than ever.  If we hit a major recession, even many solid tenants will stop paying, break leases, and create major unforeseen challenges. Prepare now. 

https://blog.tellusapp.com/how-much-cash-does-a-landlord-need-for-a-reserve-fund/

Repair expenses are still extreme from a historical perspective.  Things do seem to be leveling out at the moment, but all the same challenges we highlighted last year still apply.  Most tariffs are still in place, and it’s still very difficult to compete for contractor talent with behemoths who don’t have to make money or run efficiently.

https://www.constructiondive.com/news/deloitte-construction-cost-pressures-to-continue-in-2020/569958/

Finally, our hottest new product is the new Matterport 3D scans.  You use this similar to how you use Google Street View (MoveZen Virtual Viewing) 

We’ll provide these free of charge to existing customers, but due to privacy reasons can’t scan until the home is vacant (unless owner-occupied), fixed up and cleaned.  These scans are unforgiving, scan nearly every inch of the property, and we’ve found owners are taking better steps to get their homes ready as a result. A great unintended outcome for sure. 

We feel these scans will be a huge benefit to our owners because it makes viewing your rental in nearly lifelike detail as easy as picking up the phone. Matterport who processes these scans says their sales listings sell 24% faster, and we think this is probably even higher for the simpler rental market.  This equates to a massive increase in yearly income for our customers. 

 Looking ahead as to what to expect for 2020, in our established locations you shouldn’t see much change.  Most likely we’ll keep hiring to a minimum, and focus on polishing our new methods and staff. We haven’t identified any major new initiatives we’ll undertake this year in terms of services and features that might dramatically change how we manage your home, but we will be rolling out these great new 3D scans as fast as we can.  We expect a very tough and challenging year for 2020, but we’re excited and prepared to see what lies ahead