Residential Property Maintenance Metrics and Improving NOI (with Ray Hespen)

Ray Hespen, who is a frequent flier on The Property Management Show, joined us again to discuss maintenance metrics and how measurement improves resident satisfaction and owner NOI.

The last time he was on the podcast, in late 2023, his team was just beginning to establish this concept of maintenance analytics. He was investigating what it would look like if property managers looked at maintenance from a data-driven standpoint. He was beginning to collect all the necessary data.

It’s been more than a year now, and we brought him back to talk about what he’s seen since then.

The Evolution of Data-Driven Maintenance

If you get good measurements, you never lose.

Property management has been in this black hole of information and according to Ray, that’s because we relied so much on having exceptional people run our business. It’s a super-high trust game. But, you can’t move what you can’t measure. So in order to scale, Ray and his team at Property Meld released a product that’s the best industry representation of the real world.

Insights and Insights Pro are basically ways to understand your own property management business against a ladder of maintenance excellence. It’s a deep diving into:

• Vendor efficiency
• Technician efficiency
• Coordinator efficiency
• Benchmarking
• Finances

You know what the performance actually is instead of trusting someone’s gut.

Ray says it’s been surprising to see how the market has wrestled with some of this. There are some components of the data that people don’t like. They’d rather not look. Then, there are some customers where the metrics are so good, but they still want to get better.

Essentially, providing access to all of this data and insights has opened Pandora’s Box. There’s no going back. It’s possible to measure leading and lagging indicators. And now, it’s possible to consider how to move those numbers. Knowing they exist is one thing. Using them to improve performance is what comes next.

Geographical Insights in Maintenance Performance

The most interesting data gathered from maintenance requests and responses is geographical.

Ray says what’s most important in the information that’s been gathered is that property managers can see their performance against geographical regions and areas. It’s clear to see that property management companies in the southern states, which have warmer summers, have a high speed of repairs and increasing maintenance costs in May. So, it would be unfair to compare yourself to a property management company in Minnesota that does not have air conditioning repair costs until July or August.

The geographical impact to maintenance in weather regions is important. Property managers don’t want to think they’re killing it or falling behind when the data is geographical.

That’s what Ray calls a “big a-ha.”

Customer Satisfaction and Its Impact on Retention

Customer satisfaction has become a much-discussed part of property management, and that covers the satisfaction of residents and owners. It’s important to remember that resident satisfaction also affects owner satisfaction.

Technically, property managers have multiple customers, but there’s also a hierarchy.

Would you rather lose 50 percent of your owners or 50 percent of your tenants?

Exactly.

So, the hierarchy starts at the investor. Property managers do not have a business if they don’t have an investor customer. But, if property managers can make the resident happy, it’s much easier to hang onto those investor clients. So, one of the indicators of investor satisfaction is resident retention.

One of the reasons that tenants leave is that they hate the maintenance.

In the macro environment today, no one wants a rental on the market. Avoiding that as much as possible is important. Also, maintenance costs are growing 8 percent year over year. No one wants to turn a property when maintenance costs are higher and rents are holding or even compressing.

When you’re driving investor retention, a property manager needs to look at resident retention and annual maintenance spend per unit. That’s what matters: resident experience and maintenance costs.

It’s more than just wanting to be better with maintenance. Property managers can drill down from every point in the ladder of maintenance excellence. Identify the problem so you can improve it. A resident satisfaction issue might be approval speed. If it’s taking too long to get the repairs approved, you need to get into those details instead of running after different things.

Don’t do work that doesn’t have an impact. Measuring things allows you to look at problems more critically. There’s a lot to be said for gut instinct, but once you start using data, you have to be methodical. Perhaps you’ve heard the W. Edwards Deming quote: “In God we trust but all others must bring data.”

Following your gut is important, especially if you’ve been in this business a long time. It’s probably not wrong. A lot of data has been gathered and processes created around operator gut instinct. But, your gut should lead you to a deeper investigation. Gather more information to validate it.

Key Takeaways from the Benchmark Report

Ray’s team recently released a benchmark report. The Monthly Meld is released month over month and year over year to highlight the trends that have been detected.

Here are some of the key takeaways and general trends:

1. Everyone cares about residents staying in their rentals, more so than before. This has driven a focus on speed of repairs and an emphasis on satisfaction.
2. We have to sort through the concept that maintenance costs are still going up. Cumulatively, on properties, they are. BUT, the average cost of a single repair has gone down for the first time in a while. That means total maintenance spend is going up but the ticket prices are going down. This indicates people are doing more repairs, but each of those repairs has a lower cost. Owners are investing in preventative programs. Property managers are trying to save their investors from sticker shock. There’s a higher frequency but lower costs.
3. We’re seeing still a larger uptick of operators doing internal technician work. They’re bringing maintenance in-house. That internalizes and integrates processes, and it also controls cost of the market. You’ll find in that report that vendor invoices went down one or two percent. Internal technician repairs went down 15 percent. So, the in-house teams are being used for profitability and to control costs.

Property managers and owners have reported it’s been difficult over the last year or two to get trade people into properties. There has not been enough supply for the maintenance demand. But, hiring technicians is harder than finding vendors. The same talent pool is being hired by property managers and service providers.

The high-lever view is this: vendors are still constrained. There are great professional vendors out there, and Property Meld has a product that connects these providers. Property managers can get onto the app and check for availability by zip code.

Annual Cost of Repairs per Owner: The Magic Number

On his previous appearance, Ray said that the magic number is 12 percent of rents collected. Staying near that magic number means that a property manager will retain that owner client. If maintenance costs are higher than 12 percent of collected rent, the threat of churn begins to grow.

Is that still true? With rents not rising but maintenance costs going up, is the 12 percent rule still accurate?

Ray says that analysis has not been re-evaluated because everything has been so dynamic and the data set needed is so large. He knows that investors will stick around if residents are happy, and now he knows that maintenance behavior impacts that.

Tenant satisfaction with maintenance is about the details. If you have a lot of plumbing issues, will that change renewals versus electrical issues? Does it matter if most repairs are within three months of move-in versus six months? The goal is to avoid whatever leads to dissatisfaction.

Imagine telling an investor that you can change lease length based on what gets done maintenance-wise, and then being able to show how much more it earns them. Your investor client will love that.

Ray intends to will go back and determine whether the 12 percent is still the right benchmark.

Trends in Repair Costs and Customer Satisfaction

The benchmarking report shows that in many cases, even where the median invoice amount was higher, customer satisfaction still went up for owners and residents. Higher costs may not mean lower satisfaction.

It’s undoubtedly true that the emphasis on resident experience is the largest focal point right now. Trying to control costs is essential, but there’s a zero tolerance for bad experiences. That reflects the market. In 2022, a property manager could rent a home sight unseen. Now, rentals are on the market for 44 days. Few things are trending down with resident satisfaction because property managers and paying attention and emphatic about that experience.

Leading and lagging indicators that get the most attention include:

• Speed of repairs
• Resident satisfaction
• Vendor health score
• Annual maintenance spends

Understanding Triage in Property Maintenance

Property Meld recently acquired Mezo. Ray calls it one of the most impressive AI intake and triaging assistants he’s seen.

Mezo has a bot called Max, and Max is the world’s friendliest tech. It asks residents questions. It provides empathy. It gets all the necessary information about a maintenance requests and it prevents emergencies.

Follow an engineer’s thinking on why this acquisition is so important:

• Mezo’s unique selling proposition is that they figured out how to automate maintenance triage.
• Triage has not come up as often as the other leading and lagging indicators.
• But, getting triage right has a big impact on speed of repairs, satisfaction, and vendor health scores. It impacts resident happiness. It gives the proper work to the proper vendors.
• When a property manager triages well, you’re saving money and sending technicians who are right for the job.

Property maintenance isn’t just about remediating a problem. It’s about getting the right information to the technicians so they know what they’re working with and how to respond. It’s about preventing an emergency, and there are a lot of downstream benefits.

Maintenance operations is not about making repairs. It’s about how well you can complete that repair, and how much better you can make the experience for your resident. That’s the part of the job that’s really important. When everything aligns, annual maintenance spend per unit goes down.

Property managers have the scoreboard now. There should be:

• Faster response times
• Better scheduling
• Single trip repairs
• Lower cost repairs

That’s what intake and triage does. Submitting a maintenance request with this program is remarkably easy. It’s intuitive and interesting. Everyone has experienced a bad chatbot, but this experience with Max and Mezo is a great experience.

The Role of AI in Property Management and Maintenance

AI has become popular, and a lot of companies are slapping AI onto their product and doing a bad job with it. That’s lazy, and an untrained chatbot loaded with zero knowledge is only going to make an experience worse. It’s not an improvement of anything. AI is not magic.

People either get too excited about AI or they have already decided to hate it because of a bad experience.

Ray says the effective use of AI is all in application. Amazing things can be done, but only if you’re willing to map it to do what you want it to do. AI should help the scoreboard change. The cost of a wrong decision can be catastrophic. One plumbing issue that does not get caught as an emergency can be a disaster. Property managers can afford to make bad decisions in some cases, but not with maintenance. Eventually, the bad AI tools will be obsolete. The good ones will improve.

Be intentional with the technology you’re implementing. The goal is not to implement AI. AI is the tool. It’s a how not a why.

Data-Driven Decisions in Property Management

In recent years, there’s been a move in the property management industry to become more data conscious and to make data-driven decisions. But it’s easy to get lost in those numbers. The benchmarks do not have to be taken as absolutes. It’s meant to be blended and applicable to local markets.

Ultimately, the goal is to affect your net operating income. If you can get to a predicable NOI, you’ve done something good with the data. You’re understanding how your market performs on returns. And, money follows the returns. When it comes to NOI, we’ll soon all be on the same scorecard.

Ray believes we’re not far off from being a very transactional business in terms of delivering great returns while providing housing services.

Where money goes, opportunity and wealth are created. When money jumps into the industry, wealth is created, and while there are some unknowns, running after better NOI today will mean you’re ahead.

Focus on your customer’s NOI. That needs to be your north star. When you’re delivering better returns to investors, you cannot lose.

Find more information from Ray by checking out Propertymeld.com and Mezo.io.

And if you have any questions about your property management marketing, contact us at Fourandhalf.

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