Property Managers - Know your Customer Value?

Question

Hi all,
                              
                              I am talking to a local property manager regarding selling him leads (I get a good amount of people asking about housing in the local area and could easily forward them his way) Right now I'm trying to find out the value of those leads before I talk with him further.
                              
                              Before I value the leads I need a rough idea of a residential property manager's customer value. If we have any residential property managers here, can you give me a rough idea of what you've experienced for:

1) AVERAGE LENGTH OF STAY per customer
                              
                              2) PERCENT NET PROFIT (I'm assuming the gross is 10% of rents)

This information would be a HUGE help to me for preparation and bargaining time.
                              
                              I have rough data on the median rent in the area so this gives me the information I need for a rough estimate of the property manager's customer value.
                              
                              Thanks for any advice!

Marc Freislinger · Answer

As I said before, there are companies that do what your proposing, they usually just charge the tenant instead of the landlord. The benefit of this is that the landlords get leads that actually want to rent, and the tenant's information is usually only given to landlords that meet their criteria.

I wish you success, but I fear you may find it hard to convince people that a phone number to an unqualified lead is worth $20. As far as I can see though, my advise isn't worth much either, so I'll let it go at this point.

Jon Holdman · Answer

I think the net of what you're proposing, Ashan, is to sell leads for prospective tenants to a PM.  And you're wondering what to charge for each lead.  I'm not a PM, but I am a landlord, and so feeding me leads might be something I'd be interested in, too.

I don't have enough data to answer your question.  But I do know what it costs for me to fill a vacancy if I use a leasing agent to do it - half a months rent.  Call that $500.  I know when I do it myself I will end up showing the property to about 10 groups in order to get a tenant.  Maybe half the people who call set up a showing and maybe half those show up.  That means I go through 40 leads.  So, you could say the leads are worth $500/40 = $12.50 a piece.

OTOH, the leads are the simplest part of the business.  Most of my calls come from the yard sign. The rest from a craigslist ad.  Even having the leads, I still have to show the property, take the applications and screen the applicatants.  I have to do the lease signing, walk through the house, and do the make ready or get it done.  So, I would have to say the "lead generation" part of this is well under one tenth the work.  So that means the value of a lead to me is about $1.25.

Now if your leads are pre-screened and you know they are looking for a property like mine and are ready and able to rent, they would be more valuable.  If instead of working though 40 calls I had to call five people and one of them would rent it would be a different story.  But it still only $5 or $10 a name.

Getting leads for tenants is easy.  If all you're passing along is people who want to rent somewhere in the area, the value is nearly zero.  If its someone who really wants to rent my property and can do it, the value is more.  Really, the referral model Marc mentions is more useful.  If you send me a name and they rent, I'd gladly send you $50 or $100.

Marc Freislinger · Answer

Where do you get the 20% close ratio? Maybe I'm not seeing the whole picture. We get a dozen calls or more on each vacancy. Most are tire kickers, are you charging for those? Are you going to pre-qualify the tenants?

Just wondering where the value comes in. If you sent every tenant that was interested, I wouldn't believe that 1 in 5 would a) qualify and b) want to rent after seeing it. People can be really picky.

You say that $400 is a high ticket sale, lets say we net $800 per tenant. That's $800 every 18 months. That's not a huge sale. It's $1.50 a day. Don't let the big numbers blind you from the amount of time it's spread over.

Marc Freislinger · Answer

Out of our net comes: advertising, referral bonuses, gas in the work van, employee salaries, 800 number, insurance, etc

I appreciate what you're trying to do, but $60 a month income isn't what I'd call  A LOT of value. Especially when it's very possible to do it ourselves. The most I could see myself paying for an actual tenant would be around $100 unless it's really hard to rent. Asking for more than 2 months income just to locate a tenant is a lot. As I mentioned, I wouldn't pay anything for leads that didn't lead to a renter. Let us know how it works out for you.

Marc Freislinger · Answer

Both your questions depend solely on the quality of the lead and the quality of the rental. As a property manager, I would never pay per-lead, but I have paid between $50 and $200 for a lead that actually filled a vacancy.

That payment was only made after I received first months rent and security deposit.

Ashan D · Answer

The 20% close ratio was a rough standard (Every industry is different)

Ashan D · Answer

Thanks again. I see your perspective as a PM but respectfully disagree. If someone is handing you a reliable flow of business and charging per result, there's a lot of value there for you. He can market his business through other channels (and he still will) but my leads are a great source of sales that he otherwise wouldn't have access to. It's a true win-win for both sides.

Your Customer Value focuses on lifetime value of the customer. In your case it's at least $1080 - expenses. Let's say $400 net. That's a fairly high ticket sale. Your estimate of $100 max per sale is about the ceiling of what I would charge. I charge per call so I would typically work with a 20% close ratio and charge $20 per call. My hunch is that rental agencies don't close as high so I'll definitely offer some latitude here.

Thanks again for your insight

Ashan D · Answer

Thanks so much! I suspect your net profit would be a higher percentage of the gross since property managers transfer expensive repair costs to the owner and pay relatively little for maintenance services. If this assumption is correct then I *think* each tenant has a lot of value to the PM and my leads may demand a premium.

Marc Freislinger · Answer

Our average tenant stays about 18 months. Though, that's kind of skewed. We have several tenants that last for years, and we have tenants occasionally that disappear after a month or two.

We make on average $60 per unit per month, so at 18mo, we'd make $1,080 on a tenant gross. We don't charge a leasing fee though, most companies charge up to a full month rent to lease. It's really a volume industry. Most tenant placement agencies charge the tenant, not the landlords.

Ashan D · Answer

I'm just asking for averages for all your tenants without consideration for the lead quality. (I just need rough figures)

Can you give an idea of the average length of stay and a rough profit estimate?

Property Managers - Know your Customer Value?

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