What’s the Matter With Property Management?
Every rental owner has a horror story about property management.
Almost every day, we hear stories of management companies charging exorbitant amounts for simple repairs, or taking weeks to respond to an email, or simply disappearing entirely.
According to What Does the Internet Think, which does textual analysis across the web to measure positive and negative attitudes about a given topic, 65% of online references to property management are negative.
That’s worse than lawyers, cheating husbands, and even body odor!
So what’s going on here? Why is the quality of property management so uniformly poor?
We have a few theories.
High Switching Costs
If you hate your property management company, it’s not always easy to switch to a new one. In many cases (though not with Castle), management companies lock customers into long-term contracts, or sign leases with tenants that are difficult to alter.
Even if you’re not stuck on a long-term contract, switching management companies is a huge pain. Lots of information has to be transferred over, and at least four parties (old management, new management, owner, and tenant) have to be coordinated with simultaneously.
The harder it is for customers to leave, the less incentive a business has to provide great service.
Lack of Focus
Property management is usually not the majority of what most property management companies do. More often than not, they’re brokers, developers, contractors, or all of the above, with a side business in property management.
A realtor who does a little management calling himself a property manager is like Kim Kardashian calling herself an app developer.
And when an aspect of the business isn’t the main focus, it’ll naturally get the fewest improvements.
Outside Owners Are Easy Targets
Most real estate investors don’t live near the properties they invest in. To find the best deals, you have to look outside your own backyard.
But outside investors are completely reliant on others to keep them informed about the state of their properties. Sadly, this makes them a target for scammers and disingenuous characters.
Billed for an expensive repair? You often have no idea if your house really needed it, and no easy way to find out.
Yes, not every property management company is horrible (although it sure seems like it sometimes). But structural issues in the industry conspire to make the average quality of management far lower than that of, say, dentists.
Had a property manager you really loved? Really hated? We’d love to hear about. Get in touch.
Glob: The Magic of Google Docs, APIs, and Open Source
A couple weeks ago, I had a problem: I wanted to send Google Docs through the mail. Specifically, I wanted to send physical copies of legal notices to our tenants.
I had pieces of the puzzle already in place. The templates were in Google Docs, where I could edit them for the specifics of the situation (ex. name, address, date). The mail aspect worked through Lob, which takes a PDF, prints it, and sends it via USPS to any address you specify. I made the system work manually, but it was an obvious case of using humans to do work best suited for computers—the antithesis of the automated property management that Castle is working to achieve.
Like a good digital native, my first instinct was to Google exactly what I wanted. The second result was Glob, an ad-on for Google Docs that sends a doc to Lob using the latter’s API. Jackpot, right?
I sure thought so. As it turns out, though, the program had a couple serious bugs, and there hadn’t been any development in two months. Not exactly the silver bullet I was looking for.
Here’s where the magic of open source and GitHub come in. Instead of moping about my best hope being a mere mirage in the desert of search results, I resolved to fix the bugs myself. I forked the original repo, made the changes I needed, and pushed the results.1 Now I had a solution I could share with the world! I encourage you to check it out, use it, and report any issues you have through GitHub.
Glob in action
Reflecting on the process, I have three main takeaways:
- Google Apps Script, the scripting language for Google services like Gmail and Docs, is a casual hacker’s paradise.
- APIs are the secret sauce that makes the internet so great.
- Open source software is a gift to mankind.
Big thanks to Mike Steele, the original creator of Glob, for wading through the Google Apps Script and Lob API documentation and putting together the original working product. Thanks also to Scott, Castle co-founder and CTO, for answering my dumb questions and encouraging me to build things.
- I also accidentally pushed our Lob API keys, which is the internet equivalent of publishing your Social Security number in your company’s advertisements. Thankfully, API keys are easy to regenerate.↩
Tenants Are Our Customers
At my last startup, we made a security game for website owners. We gave the product to site owners for free, and made money by selling ad space within the game. This meant we marketed to two completely different groups of people, with two completely different needs: web publishers, who wanted to improve their site’s security or user experience, and advertisers, who wanted to promote their products or brands.
So, who were our customers? The advertisers are the ones who paid us, so maybe they were our customers… but without enough site owners using our product, we’d have no ad space to sell.
A branded game for Chevy from Are You a Human
Startups—especially ad-supported and marketplace companies—face this problem all the time1. Are Facebook’s customers the people who browse the site, or the advertisers who pay to sell to them? Are 99designs’ customers the people who buy design work through the site, or the designers who provide it? Most startups, at least the successful ones, ultimately find some balance between the two.
Like all property management companies, we face a more extreme version of this problem. Our main customers are the rental owners who pay us, but there’s another group—tenants—who we deal with almost as frequently. And in a sense, our “product” is the entire experience of living in their home.
But most property management companies fail to strike a good balance between the needs of these two groups. To many, tenants are a nuisance to be dealt with as quickly and dismissively as possible, and owners—the ones with the money—are the only ones worth listening to2.
Although it may seem welcoming, most tenants prefer that you don’t write “TENANTS” in big letters on the wall of their new home.
Why is this the case? A comprehensive answer would touch on a huge variety of influences, from unintentional sloppiness to the class struggle between laborers and the landed. But ultimately there are just two main factors that account for this dynamic: high switching costs and the force of the law.
A business has high switching costs when it’s difficult for users to leave. If your grocery store is selling rotten food, it’s pretty easy for you to find a new one. But if the company that manages your house is treating you like crap, there’s not much you can do besides move (and even then, you’re probably locked into a long-term lease).
Meanwhile, the force of the law means that management companies don’t really have to incentivize their tenants to behave well. Uber drivers can stop driving for Uber for any reason, so it’s in Uber’s best interest to treat them fairly. But if tenants stop paying their rent, they’re breaking a legally binding contract. Too many management companies rely solely on tenants being forced to pay rent, and don’t spend any time thinking about how they can make tenants want to.
At Castle, our philosophy is simple. The customer experience should extend to anyone who comes in contact with us, whether they’re an owner, tenant, contractor, or even a sales lead we lose to a different company. They may not be the ones who are paying us, but the tenants are our customers. Keeping them happy is good for everyone.
- The phrase “If you’re not paying for it, you’re the product” encapsulates this dilemma nicely. ↩
- And even owners are often treated terribly. There’s a reason almost everyone who’s ever used a property management company has a horror story about it. ↩
Why Detroit? An Answer in Three Parts
A month or two ago, someone came by the Rebirth Realty house to chat about that project and the community we’re building here. Of course, since the projects are so intimately intertwined, we ended up discussing Castle as well.
Max handled most of the questions, pitching the idea and elaborating in all the right spots. Eventually, the question came: why start Castle in Detroit? I jumped in right away with my answer.
One: Detroit = Real Estate
As I wrote about in an earlier blog post, Detroit is synonymous with real estate—in my mind anyway. The negative side of the association is, of course, blight; we practically define the term “ruin porn.” The positive side, however, is the massive opportunity for redevelopment. The secret’s out by now of course; previously abandoned buildings are coming back to life all over the city.1
Two: Property Management Here Is Terrible
The bar here in Detroit is low. Very low. Ask any rental property owner in town to recommend a property management company, and they won’t be able to honestly provide you with a single name. The market is here, but it’s radically underserved. The larger area of Southeast Michigan has some great options, but firms who operate in the suburbs generally hesitate to head into the city. We’ve heard it over and over again: a property management company in Detroit that’s actually good can make a killing. We’re not really in it for the money,2 but we do have to make payroll every other week.
Three: Our Roots Are Growing Deep
As it turns out, living in a place for more than two years earns you a certain familiarity with it. We started with the VFA network of Fellows and supporters, but now we have our own networks too. Of particular importance are the connections in the investor and real estate communities, both of which operate on personal relationships. Why would we uproot ourselves now, just when we’re starting to see returns on our network-building efforts?
In short, we’re in the right place, in the right market, with the right connections. Combine the old real estate saw of “Location, location, location” with the startup mantra of “Team, market, product,” and you can see why we’re pleased to call Detroit home.
Optimizing for Learning
“So, how’s Castle going?”
I get asked this question all the time—by friends, family, acquaintances, strangers, and Tinder dates who Googled me before we met1—and I never know how to answer.
I procrastinated all morning, but a bunch of inbound sales leads came in without my doing any work, so we gained three customers even though I wasted half my day. Good or bad?
An investor told me he’s not interested in our business, but he wants to support us personally, so he’s investing anyway. Good or bad?
We signed some new customers and made some great improvements to the product, but I’m filled with a horrible sense of free-floating anxiety for reasons I don’t understand and can’t explain. Good or bad?
Free-floating anxiety, courtesy of the always-brilliant Garfield Minus Garfield
Most of the time, I can answer the question anyway. I just say “It’s going great.” Or “It’s challenging, but rewarding.” Or, “Everything’s fine, mom, now leave me alone!”
Still, the question begs another: how should we best measure our progress? Yes, we have metrics: new customers, movement on the product roadmap, owner satisfaction. But while those metrics help reveal how the business is going overall, they don’t say as much about how it’s going for me personally.
That’s why lately, my focus has been on optimizing for learning. Whether the tasks I spent my time on succeeded, failed, or hit somewhere in between, my week was a success if I came out knowing a whole lot more than I did when I went in.
Viewing my experiences through the lens of learning changes how I feel about them. Lost a customer? It’s okay, as long as we learned from our mistake. Gained ten customers? Celebrate all you want, but if we don’t know why we closed them, or how we can replicate that success going forward, it’s not much of an accomplishment.
I’ve learned more in 2014 than I have in any other year of my life by far. Here’s hoping—no, planning—to make that rate of learning even higher in 2015.
- I swear this actually happened. ↩
How My Creative Writing Background Prepared Me to Run a Startup
Q: What’s the difference between an English major and a large pizza?
A: A large pizza can feed a family of four.
I heard this joke all the time when I was in college. And it only got worse when I revealed that my concentration was creative writing. As if being an English major wasn’t enough, I had to spend all my time doing… well, what is it exactly that creative writing students actually do?
If your family is anything like mine, you actually need more than one large pizza to feed them.
I didn’t become a creative writing major with the intention of getting a creative writing job (whatever that is) after college. My school wasn’t very career-focused, and I figured I’d spend my college years doing whatever I enjoyed doing, then figure out the rest later1.
And for a the first couple years, I did just that. I had a few opportunities to use my English chops writing marketing copy and press releases at my first job, but there weren’t any moments that made me say “Thank God I’m an English major.”
A classic from For Lack of a Better Comic
Then I started Castle.
As CEO, I spend most of my day doing exactly what I practiced during all those late writing nights: storytelling. My job is to communicate the story of Castle to customers, to investors, and to the team. In fact, almost everything I do involves storytelling:
- Sales (stories sell, features don’t)
- Web design (start with the words)
- Interface design (copywriting is interface design)
- Fundraising (investors back the company you can become, not the company you are now)
- And, of course, hiring.
You could even argue that our financial projections are a form of storytelling2. Yes, they’re a bunch of numbers, but those numbers tell our story for the next year: how much business we plan to do, how many people we plan to hire, and how much we plan to spend on yachts.
Just kidding.
So while I’m not going to get a business card reading “Chief Storyteller” anytime soon, those trusty old writing skills have served me very well with Castle so far. My English degree may not be feeding a family of four anytime soon—but it’s done a pretty good job feeding a founding team of three.
- Apparently my attitude isn’t very common: English, like the rest of the humanities, has been steadily declining as a major for several decades. ↩
- Any seasoned entrepreneur will tell you that they’re definitely fiction. ↩
Michigan’s Foreclosure Redemption Laws and You
While the foreclosure crisis is largely in the past, foreclosure auctions are still a great way to obtain new investment properties at below-market prices. If you’re buying foreclosed property in Michigan, there are some new laws on the books that could save you from financial and emotional pain. On the flip side, if you are an owner whose property is entering foreclosure, the new laws in Michigan may help you hold on to your home.
Before we wade too far into the weeds, let’s clarify some terms:
Foreclosure is when a lender forces the sale of a borrower’s assets to cover a debt the borrower owes but can no longer pay. The most common example is a home foreclosure, where a bank forces the sale via auction of a borrower’s house, to cover an unpaid mortgage.
Redemption is when a borrower pays an amount equal to the highest bid at the foreclosure auction, plus interest and fees, thus regaining the auctioned assets. Redemption allows the foreclosed-upon owner to buy his property back before it is officially sold to the auction winner. The period between the auction and the transfer of the assets to the auction winner is the redemption period.
In Michigan, the redemption period for a foreclosed piece of real estate varies depending on the property in question. There are four cases:
- Abandoned property: one month
- Property with more than two-thirds of debt still owed: six months
- Property with less than two-thirds of debt still owed: twelve months
- Agricultural property: twelve months
Note that the above rules apply to properties with no more than four units. Residential property must be smaller than three acres, while agricultural property must be larger than three acres.
Note also that a foreclosed owner may occupy his foreclosed property until the redemption period ends. Any experienced real estate investor can spot the problem here: a tenant with nothing to lose and no intention to redeem has six months or more to strip all valuables from his foreclosed property. Since the property is still his until the end of the redemption period, the highest bidder at the auction has no choice but to sit and watch the foreclosed owner plunders the house.
So far, everything covered is part of Michigan’s Revised Judicature Act of 1961. Effective January 10th, 2014, Public Act 104 of 2013 amends and revises the RJA to help prevent house stripping by foreclosed owners. Specifically, the winning bidder has the right to inspect the house inside and out during the redemption period.
The law lists further specifics about the inspections, but here’s the upside: if the winning bidder finds damages to the property during an inspection, he can sue the foreclosed owner for possession of the property. Again, the law lists specifics about what constitutes damage. Further, I’m not giving legal advice, and you should always consult your attorney before taking legal action. However, I believe it’s important that everyone in the foreclosure process knows their rights.
At Castle, we take pride in being real estate experts. We’re always looking for new topics to address, so email us at team@entercastle.com with any subject you’d like to see us write about.
Pitching Is Believing
Castle is an investor-backed business1, and as such, a key part of my job as CEO is selling investors on our vision for the company. Pitching is really just storytelling; in fact, the first two-thirds of our pitch deck simply steps through a story one sentence at a time. My initial draft of that deck wasn’t even a deck at all—it was just those sentences written out in a two-page document2.
What is the purpose of pitching? This seems, at first, like a stupid question: obviously, you pitch in order to convince investors to give you money. Indeed, if you’d asked me a few months ago, I would have told you that the purpose of pitching was exactly that. In this version of the story, the pitch is something external-facing and completely separate from the company: you start building your company, and then you make this thing called a “pitch,” which you deliver to outside parties.
After a few months of practicing, pitching, re-doing the pitch (more than once), and pitching again, I no longer believe that this is the main purpose of pitching. Yes, through honing and delivering our pitch I’ve convinced several investors of Castle’s merits, and I hope to convince many more. But there’s someone else I’ve convinced, who’s not an investor, and who matters even more.
And that someone else is me.
The author, pitching.
When you’re running a business, it’s easy to get bogged down in the details. On any given day, I have a seemingly endless list of things to do, most of which are short-term, immediate tasks. It’s not easy to make time to think about the big-picture vision for Castle—and even when I do, it’s hard to avoid viewing that vision through the lens of the ten thousand little things we’ll have to accomplish in order to get there.
My Trello task list as of November 25, 2014.
Crafting our pitch forces me to spend time3 thinking about where I want Castle to be years down the road. Even more importantly, as I tell our story, I cement my own belief in it. When you say something over and over, you can’t help but start to believe it more and more. And the more you believe, the better work you do. It’s a self-reinforcing cycle of positivity.
It’s this—making myself believe—that I’m now convinced is the most important result of pitching. Yes, without the money, the company would shut down. But without the belief, we wouldn’t have a reason to exist in the first place.
- More on why in a future post. ↩
- Once we’ve closed this round, I plan to share our deck on this blog. ↩
- And boy, is it a lot of time. It’s common startup wisdom that when the company is raising money, fundraising occupies almost all of the CEO’s time, and that’s certainly turned out to be true in our case. When I’m finally done, it’ll be like we’ve gained another employee. ↩
Detroit = Real Estate
Detroit is famous for a lot of things: Henry Ford and his Model T, the Arsenal of Democracy, Motown, Eminem, and more. It is equally as infamous for some others: race riots, corrupt mayors, and the largest municipal bankruptcy of all time.1 In the popular imagination, I think Detroit means one thing: blight.
The classic Detroit blight photo. What you don’t see is the row of beautiful, occupied houses just down the street.
Anyone who is at all familiar with the city knows what I mean: the vast sea of abandoned, beat-up, burnt-down structures that seems to cover all 139 of Detroit’s square miles. Every neighborhood in the city, from Brightmoor in the west to Indian Village in the east, has at least one of these eyesores. Not even Downtown is exempt; even now, the Wurlitzer Building continues its run as a black eye on the skyline. Blight is such an issue that Detroit has an entire Blight Removal Task Force dedicated to conquering the problem.
Take a step back, though, and you’ll see that blight is only one aspect of a greater whole: real estate. Real estate is a constant subject of discussion in Detroit, from blight and demolition to rehabs and construction. Take a drive down Woodward, Detroit’s premier avenue, and you’ll see what I mean: skyscrapers in Downtown, the Ilitch’s nascent entertainment district just across the bridge in Midtown, new construction all around Wayne State, and a whole hodgepodge of buildings up through Eight Mile. You can’t make that trek without thinking about the past history and future opportunities of real estate in Detroit.
The idea of real estate isn’t just in the city—it’s in the citizens, too. The status of buildings and neighborhoods is a constant subject of conversation. People at parties will speculate about what the old apartment building down the street will be in two years, or what the M-1 Rail will do for Woodward’s storefronts, or what neighborhood all the young people will flock to next.
The fabled $500 house is the keystone example of the imagination spent on property in Detroit. The price tag lures you in, tempting you to build a real estate empire in your mind. Of course, the unpleasant reality of a dirt cheap house is the expensive rehab to go with it, and your empire pops right out of existence again. Once you start investigating property in Detroit, though, the dream never fully leaves you. We started Rebirth Realty as part of that collective dream, and we’re working on Castle to help investors and landlords with dreams of their own.
Bit by bit, the dreamers are finding the true real estate opportunities in the Motor City and making an impact. The city’s renaissance is here, and real estate is the linchpin holding it all together. Here on the ground, Detroit means real estate.
- I won’t weigh in on which camp ICP falls into.↩
Property Management, Detroit, and Looking Where Others Aren’t
The other day, I was having breakfast with another founder when he asked me why no one else is trying to do what we’re doing.
It’s a good question. Other people aren’t stupid. If you have what you think is a good idea, but you can’t explain why no one else is pursuing it, then at least one of two things is usually true: either other people are pursuing it and you just don’t know about them, or it’s not really a good idea.
There are lots and lots of property management companies out there, filled with lots and lots of people, most of whom are doing simple, repetitive tasks (collecting rent, preparing statements, taking calls, answering basic questions) over and over. So why is no one else building an automated property management company?
I think a big part of the explanation is that property management isn’t sexy.
When the first Google Image search result for “sexy property management” is this guy, you know the industry isn’t very sexy.
There’s a reason we have so many photo-sharing apps—smart, ambitious, creative people like to do things that sound cool when they describe them to other people at parties1. As the head of another property management company told me the other day:
“I wish I could hire a bunch of smart, driven kids right out of college, but they’re just not interested. For most people, this line of work isn’t a first choice.”
This is not to say there aren’t great people working in property management—there are, just like there are in every field (remember that rapping flight attendant?) For the most part, though, it’s not exactly an industry that attracts the best and brightest, or makes you sound cool at a party2.
But the best opportunities are often found where the fewest people are looking. It’s why I moved to Detroit, and it’s why I bought a house there. And it’s why we’re starting this company.
For all I know, there are other people out there working on similar companies—frankly, I’d be surprised if there aren’t. But if our idea is one that most people haven’t had before, it’s because most people take one look at an industry like property management and move right on.
We kept looking. And so far, we’re excited by what we see.
- This isn’t a criticism of photo-sharing apps, by the way—the whole “We wanted flying cars, instead we got 140 characters” thing is snappy, but misguided. I’ll take instant connections with friends and strangers all over the world over flying cars any day, and throughout human history, new forms of communication have been just as impactful as new forms of transportation. ↩
- Or on a date, as I discovered this past weekend. ↩