The property management industry is incredibly complex, with countless moving parts. When operating in such a complicated space, tracking the right KPIs is key to running your business like a well-oiled machine. However, many struggling property managers throw KPIs to the wayside and operate using gut feelings and other outdated practices. This is unfortunate, as tracking just a few KPIs can help you make better decisions and drive top-line and bottom-line growth.
If you want to take your property management to the next level, we’ve put together a definitive guide on everything you need to know about KPIs and which ones you should be tracking.
What is a KPI?
A KPI, also known as a key performance indicator, is a way to measure the performance of a business. KPIs are metrics that can be used to gauge how efficiently a business is operating and whether or not it is on track to meet critical objectives or initiatives.
KPIs are a great way to measure the company’s overall health and make necessary changes to operations. KPIs will serve as a red flag, signaling when company-wide strategy needs to change. When your company is not operating as it should, it will certainly be reflected in your KPIs.
Developing useful KPIs for a company and tracking them is key to keeping your business running at peak performance, validating progress made through internal initiatives, and keeping teams on track.
What KPIs Should Property Managers Be Looking At?
While there are always niche KPIs that will be unique to each business, there are seven KPIs that every property manager should be tracking.
Revenue Growth
Revenue growth and trajectory are incredibly important in any business, especially real estate. While revenue in the real estate industry typically doesn’t grow particularly fast, it’s important to keep an eye on whether revenues are growing or shrinking and at what rate.
Why is measuring revenue growth important?
Once you know how revenues stack up against the previous year, you can look at your market as a whole. This can be done by comparing current average rental rates in your area to the previous year’s figures. Using this data, you can determine whether your revenues are growing at the same rate as the market. If they are growing slower than the broader market, you may want to consider increasing rents to bring your revenue growth in line with your local market.
Profit Growth
Profit growth is the second major piece of the financial puzzle. Since your property’s profits are tied to its revenue, you should typically expect a property's profits to grow at the same rate or faster than revenue. After all, what’s the point in growing your revenues if you aren’t generating more profit, right?
Why is measuring profit growth important?
Growing revenue while profit shrinks typically denotes an inefficiency or overspending in your operations. Lately, there have been plenty of inflationary factors that can put a damper on profit growth, so don’t be too alarmed if profit growth isn’t keeping pace with revenue growth. Nonetheless, you should still continue to keep an eye on where your profits are trending and adjust your strategy as needed.
Vacancy Rates
As we all know, vacancy is a huge expense in the real estate industry. Properties with high vacancy rates are underutilized, which means there is money being left on the table. However, properties with no vacancy might present a completely different problem – rents that are substantially below market value.
Why is measuring vacancy rate important?
Property managers should always pay attention to their vacancy rate, as it will have a significant impact on the operational moves that are made. For instance, if a property’s vacancy rate is very high, you may want to ramp up marketing to get more exposure for the property. Whereas if a property is at 0% vacancy with long-term residents, you might want to do some research on the rental market, as you may be charging below market rent.
Average Days-to-Lease
Average days-to-lease is an often overlooked metric; however, it’s very important, as it’s tangentially related to a property’s vacancy rate. The concept of average days-to-lease is fairly self-explanatory—it’s the average amount of time it takes to fill an apartment once it becomes vacant.
Why is measuring average days-to-lease important?
Much like the vacancy rate, it’s best to keep a property’s average days-to-lease low. However, the time spent turning over an apartment is likely related to something other than your marketing. For example, you may not be able to get a new resident into an apartment because you’re waiting on a construction crew or cleaning service.
If you’re experiencing long lead times for services related to apartment turnover, it might be time to shop around for a faster service, or broaden your pool of qualified applicants by utilizing Rent Coverage from TheGuarantors.
Resident Turnover Rate
The resident turnover rate is the amount of time a resident stays in an apartment. This is an important metric because getting an apartment rent-ready can be expensive and time-consuming.
Why is measuring resident turnover rate important?
It takes a long time to show an apartment, review applications, select the perfect resident, and get them moved into an apartment. Not to mention, it also costs a good bit of money to make minor repairs to an apartment and have it cleaned before the next resident moves in. The average cost of turning over an apartment is around $2,500.
Conversion Rate
The conversion rate will be an important KPI for just about any business. In the case of rental real estate, this means the percentage of people who view your property and apply to rent it).
Why is measuring conversion rate important?
Conversion rate is a bit like vacancy rate: you don’t want a “perfect” conversion rate. If every person who views your property applies, there’s a good chance they’re not applying because it’s the “ perfect apartment.” Instead, you’ve probably underpriced the apartment. If you’re not receiving many applicants, you may be pricing higher than the market rate, or you might be missing some key amenities that other properties offer.
Average Repair and Maintenance Costs
The costs of repair and maintenance are some of the largest costs associated with running a rental real estate business. Letting them get out of control can have a serious effect on the business.
Why is measuring average repair and maintenance costs important?
If the costs of getting repair/maintenance work done are increasing, and you’re not getting quotes from other providers, you might be overpaying for services. While working with the same provider for everything might be nice, since there’s little legwork on your end, you may be paying a premium.
However, if your repair/maintenance costs are increasing, it might not be the contractor's fault. Consistently spending money on band-aid fixes for expensive components, like HVAC or a roof, can end up being more expensive than a large capital expenditure to fix it the right way.
Want to Start Tracking KPIs and Improving for Your Company?
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