Nikonomics - The Economics of Small Business
00:00:00 · Peter Lohmann, Nikolas Hulewsky
[00:00:00] S0: We manage rental homes and apartments on behalf of the property owner or landlord. We have about 700 total units under management. [00:00:08] S1: So 700 doors, that sounds like a lot to me, but I have no idea what that means. [00:00:12] S0: It's just a hair under 3,000,000 in annual revenue. It's a sticky, contractually recurring revenue. There's also really great cash flow dynamics. What do you think [00:00:21] S1: are the biggest opportunities within property management right now? [00:00:27] S0: So I own a residential property management company in Columbus, Ohio. So we manage rental homes and apartments on behalf of the property owner or landlord. We've been doing that about eleven years and we have about really close to 700 total units under management. It's a mixture of single family homes and small apartment buildings. [00:00:47] S1: Wow. So 700 doors, that sounds like a lot to me, but I have no idea what that means in property management. Tell me a little bit about, like, what's revenue on 700 doors?
00:00:47 · Nikolas Hulewsky, Peter Lohmann
[00:00:47] S1: Wow. So 700 doors, that sounds like a lot to me, but I have no idea what that means in property management. Tell me a little bit about, like, what's revenue on 700 doors? [00:00:57] S0: It's just a hair under 3,000,000 in annual revenue. And that's probably on the better end. It depends on sort of how leaned in the owner operator is to the industry and to sort of optimizing the business. Some of the older mom and pop property management companies who have been around forever would have like less revenue per door. And some of the newer folks who are really tuned into optimizing that will even have higher. Also depends a little bit where in the country you're located. If you're in California, you probably make more per unit than here in Central Ohio. [00:01:29] S1: Is that your main metric? Like, okay, revenue per door? [00:01:33] S0: It's a very important metric. I wouldn't say it's like the main metric, but it's one of the top five for sure. [00:01:39] S1: Interesting. And what is a good revenue per door? [00:01:42] S0: A good revenue per door, I would say starts to get good around $150 per unit per month. I would probably shoot for like a $200 minimum to be like a nice sort of profitable business. Once you start getting up into, like, the upper 2 hundreds and into the 3 hundreds, now you're talking about sort of top 10% in terms of performance and profitability. Again, slightly weighted depending on where you are in the country, but yeah. [00:02:11] S1: All right. So you're doing 3,000,000 top line, 700 doors. What does that translate to to a bottom line?
00:02:11 · Nikolas Hulewsky, Peter Lohmann
[00:02:11] S1: All right. So you're doing 3,000,000 top line, 700 doors. What does that translate to to a bottom line? [00:02:17] S0: It depends on the year, but we varied anywhere from 10% to 18% profit margin. [00:02:23] S1: Wow. All right. So between three and five hundred and fifty thousand That's incredible. Tell me a little bit about like, what are your customers like? Do you call them customers? Do you call them clients? What do you call them? [00:02:34] S0: So the interesting thing about property management is that we really have two customers. We have the property owners. These are the people who've hired us to manage their properties. We call them clients or owner clients or owners. And then we also have the tenants. We have a lot of responsibilities to the tenants as well. And the sort of new lingo is you call them residents, not tenants, but in any case, that sort of to customer dichotomy is one of the things that does make this business somewhat challenging. [00:03:04] S1: And what do you do with property management? I know this is like, it should be pretty self evident, but you're talking to property owners and then they're having you do what, collect rent? [00:03:14] S0: Yeah, so there's three main things you do as a property manager. Collect the rent, deal with maintenance, and lease up vacant units, and deal with lease renewals. So rent collection, maintenance, and leasing is sort of the three big categories that I think of.
00:03:14 · Peter Lohmann, Nikolas Hulewsky
[00:03:14] S0: Yeah, so there's three main things you do as a property manager. Collect the rent, deal with maintenance, and lease up vacant units, and deal with lease renewals. So rent collection, maintenance, and leasing is sort of the three big categories that I think of. [00:03:27] S1: And what are your typical, I'm going to say, I'm going say clients for property owners, and I'm going to say tenants for tenants. So your clients, what's their typical profile? Are they, they have one or two units or are they a 100 units? Like what, what does that look like? [00:03:42] S0: The one or two units for sure. We have a lot of folks, we call them accidental landlords. These are people who moved out of the property and decided to rent it out for one reason or another instead of sell it, or maybe they inherited it or something like that. And then we have intentional investors. These are folks who purposely bought a rental property. And these are the kind of folks you'll find hanging out in like bigger pockets and going to the real estate investing meetup groups in your city. And those folks are more likely to have a handful of units rather than just one. I believe about 60% of our clients have just one unit. And then like, you know, it kind of scales up from there where our biggest client has like 60 units. [00:04:24] S1: This is my own ignorance, but I would think if I owned one or two units, I would manage the property. Like, would I have a property management company come in and do that?
00:04:24 · Nikolas Hulewsky, Peter Lohmann
[00:04:24] S1: This is my own ignorance, but I would think if I owned one or two units, I would manage the property. Like, would I have a property management company come in and do that? [00:04:33] S0: Great question. So, first, a lot of people do. So, about about half of those folks do self manage but reasons you would hire a property manager, there's a few. One, bear in mind, a lot of these folks are moving away or they don't live in Ohio. So it becomes much more challenging to manage the property when you're not local. Also, there are a lot of legal and regulatory gotchas when it comes to landlord tenant law, fair housing, and things like that. And so using a professional property manager will help you insulate yourself from those risks and make sure that you're kinda doing things the right way so that your tenant doesn't sue you. Or if they do, you have all the right insurance and protection. [00:05:12] S1: Okay. So that that makes sense. If they're if they're these accidental landlords or they inherited it, whatever, you know, they're probably overwhelmed by, at the prospect of managing the property. So for them, like out of sight, out of mind, cool. I'll pay the property management company just to take my plate. Cause I don't want to worry about it.
00:05:12 · Nikolas Hulewsky, Peter Lohmann
[00:05:12] S1: Okay. So that that makes sense. If they're if they're these accidental landlords or they inherited it, whatever, you know, they're probably overwhelmed by, at the prospect of managing the property. So for them, like out of sight, out of mind, cool. I'll pay the property management company just to take my plate. Cause I don't want to worry about it. [00:05:27] S0: Yeah. So it could be for like a risk reduction, but it also may just be sort of like for convenience. It's like, why do people hire house cleaners? They don't know how to clean. It's like, well, no, they do know how to clean. It's just they'd rather have someone else do it. They got other things they'd rather be doing. [00:05:40] S1: So for the accidental landlords, how do they pay you? Is it a percentage of collections or is it a fee based, oh, thanks for managing my property. Here's a $100 this month. [00:05:51] S0: So you can do both or either. So we happen to do a flat monthly rate, a flat monthly fee per month, but a lot of property managers, I would say actually most property managers charge a percentage of collected rents. [00:06:03] S1: Okay. And for your your clients that are large, that don't just have the onesie twosies, they're not accidental landlords. Is it the same? You're just [00:06:11] S0: charging a flat fee? Similar. Yep. We do offer discounts. Like, if you have 20 units with us, gonna give you a better price than somebody who has one or two, but yeah, same thing, flat monthly fee. [00:06:21] S1: For your business, you're just doing residential. [00:06:23] S0: Correct.