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.
During the pandemic, many students returned home all at once, dramatically increasing the load on housing systems.
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. Our entire staff 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. Our team 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.
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. These skills will be put 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.
There won’t be showings for 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
RE Hunter is the CEO of MoveZen Property Management. The leading single-family model delivering unmatched customer service, resident satisfaction, and consistent low headache results. MoveZen is transforming rental housing.
