For those who manage property, it’s easy to set goals in vague terms. Everyone wants to be profitable and rent to reliable tenants who won’t damage your property. However, one can optimize the management of property through the use of performance metrics, as in any other business. In this blog, we consider some critical key performance indicators (KPIs) and how one can use them in management.
KPIs enable you to quantify success, or more specifically, how well you are attaining success. Although success is ultimately measured in profit, the right performance indicators for your business should correlate with your profits.
Prepare your Infrastructure
For you to measure any KPI, you will need to capture data and enter it into a usable interface. Your office personnel should know exactly where this data comes from, how you measure it, and where to enter it. If not, then you need to train them or hire the right personnel.
You will want to spend some time becoming familiar with the various software applications available for logging data. Some applications do a better job with certain KPIs than others, so you will need to do some homework. The sooner you do this, the better. These applications can save your company countless hours compiling spreadsheets and writing useful reports.
Important KPIs
We have listed a few key performance indicators here, in no particular order. Each provides a brief explanation of its relevance to property management, and how to use it. As you read, make notes of which KPIs are best suited for your business.
Net property acquisition cost
This metric refers to the cost of acquiring property. It can relate to the buildings and land, or any inventory needed at the property. Tools, supplies, machines, appliances, and several other items have an acquisition cost. “Net” reminds us that there can be various modifiers to that cost, up or down.
Occupancy rate
This is the percentage of occupied units to total available units. Taken at a single moment in time, it’s a simple fraction. For an EOY report, however, you can generate more precise information by accounting for rentable months. Add up the total number of months for which each unit made revenue, and divide it by the total number of units times 12. You can also account for prorated months for a more precise figure.
Rent-ready cost
Whenever you prepare a unit for occupancy, you should log the total costs for doing so. When you average these costs, it should tell you something about the quality of the labor and materials you’re using. If you’re not spending enough, you may not attract the clients you want. Likewise, overspending may mean your team lacks efficiency.
Maintenance costs
Track these expenses for each unit, including hours worked. When you average your maintenance expenses over all of your units, it should reveal how effective your maintenance team is.
Properties won / properties lost
Property management companies are always seeking new clients. Each new client you win over is new business, and each client lost is lost revenue. You should always seek to grow, and attempt to leverage your new revenue opportunities. And if you lose a client, you should be able to determine why.
Customer acquisition cost
How much money do you spend acquiring new clients? How about tenants? You likely use labor, advertising, materials, and other expenses to attract business. But pinpointing exactly how much labor and other resources figures into this calculation might take some work.
Debt / Arrears
Keeping running totals for money owed to you and money you owe is essential. You can use these figures to come up with monthly and annual averages. This information helps you manage revenue better, and provides feedback for your methods of collecting rent.
Net operating income
Operating income is an essential figure for managing any business. The closer this number is to zero, the less margin for error you have. So, it should tell you whether you need to cut costs, or locate additional funds.
Days on Market
For each unit, track how long it takes to lease. Some research will help you compare your average rental time to your competition. If you’re taking longer than average, then you may need to consider better advertising or make the property more rentable.
Customer lifetime value
If you’re excellent at customer service, and your property offers value to clients and tenants, they’ll keep coming back. Look at their age, the value of their contracts, and what they need. And talk to them. You should be able to tell how much business they intend to do with you.
Annual contract value
Each lease has a specific value to your business. Add up all of the revenue it provides, and the associated costs, and you have a net gain. When you compare the net gains of all of your units, you may be able to identify useful trends. Ideally, you will learn how to make your properties more profitable or discover when they aren’t worth the trouble.
Showings by leasing agent / Average commissions per leasing agent
The larger your operation, the more critical it is to keep tabs on your employees. If your agents are not setting enough appointments, or aren’t closing, then you need to understand why. Timely feedback enables you to manage your team.
Additional Metrics
Other metrics can help you manage properties. Hopefully, the software you use collects data and calculates these metrics for you. The more clear you are on what numbers you need, the easier it is to build your infrastructure. Moreover, once you do, you’ll save a lot of time, and your job will be much easier and more fun.