Property Management Of The Future
Had you gone VC funding, rather than bootstrapping, do you think you would have been as successful as you are now?
BVB: I don’t. I’ve made some pretty bold decisions that no VC would have allowed me to make. First of all, this whole Covid thing has been pretty tough on Tether because we’ve had to shift our focus on how we are going to add value to our business in other ways, outside of monitoring.
People don’t install monitors during Covid. It’s very difficult to get access to houses and install environmental quality monitors, or energy monitors, especially within the government sector during a Covid pandemic. We’ve had eight or nine months worth of slowdown from a monitoring perspective, which is our core business. It’s also allowed us to put money into the building of the compliance app.
The compliance app is completely Tether funded. No one’s paid us to do it. We’ve taken a gamble, led by Property Brokers. We wouldn’t be here if it wasn’t for Will, because he’s believed in us and what we’re doing and has a shared vision for what this connected property management environment can look like.
We had to take a leap of faith and spent hundreds of thousands of dollars in development time to solve this problem and it may still not work. I think it will, but until you’re going to test it in the market, you won’t know.
It’ll allow anyone to download our app, any New Zealander. So even a tenant could download the app, could run a check on their property and see whether their property is compliant or not. It’s a step change in what New Zealand can expect from a tool like this, but it’s also a step change for Tether, but it took some big Kahuna’s because if a VC had asked, ‘You want to spend how much money, and you’re not really sure whether it’s going to work or not? Yes, we can see it solving a problem, but what’s the total addressable market? What’s the return on investment? How much money are you actually going to spend?’ All of these things would have been pushed on to me as a founder, which are all great questions, but there’s a part of me where I just trust my guts.
I’m like, ‘It’s going to work. I’m just going to do it. And if it doesn’t work, I have to pay the price.’ But that’s what you do. You take risks and you have to fall in. I do think we will VC fund, eventually. I don’t think we’re going to be bootstrapped forever, but when we do raise, we’re going to raise with a very specific intention. We’ll have a ring fence, a piece of functionality or scale that we need and raise on the back of that.
You mentioned the renter generation and that shift away from the quarter acre dream to being more renter-based, what does that mean for a company like Property Brokers?
WA: We’re dealing with people. It’s a relationship business as well, you’re dealing with people for long periods. A lot of investors out there now, for example, see a property manager as part of their team, so it changes that. You’re working with people for a long period of time. You’re working with a lot of people now, for example, the owner to property ratio is climbing.
On average, across New Zealand, one owner has 1.7 properties. You’re now dealing with people that are long-term investors that are there to provide. That’s a strategy. Not the mums and dads that inherited a deceased estate or that sort of stuff. That’s where we’re heading, I suppose.
The Kiwi dream of having the quarter acre section, maybe that’s changing. There’s a cultural change. New Zealand’s wonderful in the fact that we have so many cultures. The typical New Zealand culture is to have that section and all that kind of stuff, but that’s not how a lot of cultures live. They want to lock up and leave. I spend three hours every weekend mowing my lawns, and I’m over it, but I’ve got the big section. But people don’t want that, people work, they have busy lives, they just want no responsibility.
With all these changes in regulation, it’s giving tenants a lot more opportunity to create homes and make that conscious decision to say, ‘I’m not going to buy and own a property, I’m going to rent.’ For example, one of the amendments to the act is tenants are allowed to make minor changes to the property, which I think is great. It obviously needs to be watched closely and the legislation is very clear about what constitutes a minor renovation. Tenants are responsible for reinstating it back to the original condition at the end of the tenancy, but that’s all about that whole cultural shift.
‘I want to rent a property, I don’t want to own a property. I don’t want to have a big section of lawn. I want to come home on a Friday, lock up and leave, go down to the cafe.’ That kind of lifestyle. I think it’s changing. If you’re an investor, that’s the typical target market now. And, um, yeah, so big change.
How did you get into the business?
WA: I’m an engineer as well. I was athletic and ended up becoming a professional cyclist and raced overseas for many years, raced on some big teams and it was great. Then I had a major crash in 2008 and couldn’t really ride anymore and couldn’t recover.
My mother was the CEO of Barfoot & Thompson. I was a washed up cyclist and she said, ‘Try property management.’ So, cut a long story short, I started in property management and started with Barfoot & Thompson and worked my way up to the top there. I then decided to start my own software company, collating data to make better business decisions.
Tim Mordaunt, who owns Property Brokers is a family friend, and they were going through some challenges and said, ‘What are you doing?’ I said, ‘My own thing. What are you doing?’ And he got me on board. That was two years ago.
As an engineer, I’m very much about making decisions based on data. I’m methodical, structured and I love the technology side of things. Tools help us do our job. It’s not the be-all and end-all, it’s a tool. But property management is based on volume and in order to make money in property management, every property manager should manage about 120 properties for a good business model. With all these changes it’s coming down and down. The industry average is about 85 now.
When I used to manage properties, I managed 250, but that was before iPhones. I could walk home at 5pm and not get emails. So in order to offset that shrink, you need the technology and the tools to do it. That’s why I enjoy the industry. I think it’s got so much potential to look at the data, use the data, streamline it, build out the portfolios big and create really good business models.
You go through peaks and troughs. So through Covid, no one really sold properties, but there wasn’t even a blimp in the revenue that we took from property management, because people have to live somewhere. It’s such a robust part of the business and any good realtor who’s been in real estate beyond the GFC knows that every good business needs a property management business.
That’s what I like because it’s the biggest real estate picture. If you want a good real estate business, you’ve got to have a profitable portfolio that can cover the bills if the sales stop.
This year has been uncertain for not only staff, but families as well. How was that for you, dealing with the families who are dealing with the uncertainty and maybe not being able pay rent, but also also the staff as well?
WA: It has been very challenging and very sad in instances. I won’t go into the stories, but pretty raw stuff where people are looking to take their own lives and property managers catching them in the act. Pretty brutal stuff. I grew up in a real estate family and my mother has always said to me, ‘People and property, that’s what real estate is.’
I guess you could say the property part is the data and refining the business and building profitable business models. But the people are a big part. Working with people through COVID has been scary. The uncertainty, the emotional strain on my team. My number one priority right now is the people, my team.
It’s taken a toll for sure. It’s the uncertainty and the financial hardships. We’re used to dealing with people that struggle to pay the bills, who are supported by WINZ. WINZ is an amazing service that New Zealand provides and we’re used to that. We’re used to rent arrears.
But what we’ve seen through Covid is people that are super proud, that have always stood on their own two feet, they’ve never needed any support and bam, overnight they’ve lost their job, they can’t pay their bills. And that’s different. Those are the people that are in a really tough position. They are super proud and have never been there before. How do you deal with that? That’s been really, really, really challenging.
The best thing we’ve done is right through Covid, our strategy was never send a rent arrears letter. Get on the phones before you do anything and figure out what’s going on. We use net promoter score. Through COVID, our NPS went through the roof because we had the time to do the personal people stuff. It’s been an interesting journey, for sure.
From a leadership perspective, how do you deal with the uncertainty element? Did you have to pick up any skills this year that you didn’t maybe need last year?
WA: I think the best advice I can give to any leader or any property manager is humility and just peeling back the layers before you make any big decisions. We’re all Kiwis, we’re all batting for the same team and we’re all human. Having humility is what part of being a human is.
Do you find that there’s a discipline that you bring in from your cycling career into business?
WA: Absolutely. My day started at four, did my run, jumped on a plane, flew up here, had two meetings before this one, got a board meeting shortly, then back down to Palmerston tonight. Just boom, boom, boom, boom, boom. That’s the discipline.
When you’re an endurance athlete and not in a team environment, like the All Blacks for example, the only way to motivate yourself is yourself. And for me, the disciplines that I used in cycling have overflowed into my career, for sure. To get up on a rainy day and go out to Helensville and back on your time trial bike in a driving headwind, you’ve really got to dig deep on those days.
You’re robust and when people get sick and start stressing out, that’s when you kick into that next gear and go, ‘I get better when it gets busy.’ That’s the competitive side of me coming out. I think you learn a lot of disciplines and a lot of self motivation.
My mother used to say to me, ‘If blood isn’t gushing or bones aren’t shattered, no one gives a s**t.’ That’s the way I approach it. No one cares, just get on with it. You’re surrounded by people like Brendan and guys doing fantastic stuff and it just makes you lift your game.
Any thoughts about the perceived criticism that property investment is soaking up money that could go into other productive sectors that could fund innovative businesses?
BVB: When you buy a property, you’re actually starting a business. A lot of people don’t think about it that way, but you’re buying a product that you’re selling to a consumer and that consumer has essentially the same rights, if not more, because actually the product that you’ve decided to purchase and sell is one that this person has to interact with on a daily basis.
A lot of landlords don’t see themselves as directors of a business or a CEO of a company. What you’re doing by hiring Property Brokers is you’re hiring a really s**t hot CFO and COO to manage that company for you. Or maybe sometimes if you’re a good landlord, you’re a CEO. Sometimes you’re just an investor that sits in the background and every now and again asks the board how they’re doing.
What’s my return on investment once a year? That’s sometimes where you can go. But ultimately, every single landlord is a business owner and they need to be able to treat the fact that they have this investment, this product, that makes a return on investment – hopefully, sometimes there’s problems with it, sometimes you have to fix the product, sometimes you have to improve it, but you always need to be in a position to sell it.
The issue that New Zealand has is selling products has been really easy for a very long time and by just buying a product, you’re just expecting it to sell. You don’t want to improve it, you don’t necessarily have to upgrade it or run the company hard or do stuff with the balance sheet to try and make it work.
It’s really easy to be a CEO landlord at this point. This is my perspective, obviously, but the perception is that it should always just be easy. If I’ve got the money to buy a house, it should just work. Why am I not making my 20%? Why is my capital gain not going up and up and up and up? Eventually those chickens are going to come home to roost and you’re going to realise that every market has its ups and downs and good leaders or good CEOs manage to get through those times and end up making money on the upside. And bad ones lose their businesses.
It’s an interesting analogy, but it’s definitely worth thinking about. I think every single landlord should think about it in those terms. If I’m going to buy a property to rent out to someone else, I’m actually starting a business and I need to be comfortable with starting that business and all the risks around it.
It’s not as easy as just buying a property, putting it on the market and just hoping it goes away and I ended up making my return at the end of it; there’s some management involved in this. So when it comes to the criticism that people are soaking up property and they’re not putting money anywhere else, my question is, where else would they put money? Are they going to put money into shares and stocks? Are they going to put money into startups? Are they going to put money into the bank, with absolutely no interest rate? So those options need to be looked at as well.
If you become the CEO of something and you’re actually going to have to manage something, a lot of people aren’t even qualified to do that. Would you want to buy shares in a startup if you don’t know what you’re doing? Probably not, you’ll lose your money tomorrow.
It’s seen as the safest investment, which is a disservice to the property management industry, because it shouldn’t be seen as a safe investment, it should be seen as a privilege. You’re starting a business, you have to start something from the ground up and you’re having to manage that. If you do it well, you can make a big return on investment. If you do it badly, you end up losing how much money.
You mentioned the number of properties that investors have is changing. Do you see that trend? That people are starting to treat it more like a business and bring some professionalism into it?
WA: Yes, they have to. What Brendan said is absolutely bang on. It is a business now they’ve had an easy run for a while. I read a good article the other day about Sir Bob Jones. That’s the kind of people that we will see coming out now. They’re the ones that buy in the bad times and reap the benefits in the good times. A lot of people are like that.
I’ve worked with the New Zealand Investors Federation for many years. The one common denominator across every single investor, the one thing that makes them successful, is that they hold properties. That’s it. You talk to the Bob Jones’, or anyone that owns 10 properties, the common denominator is, ‘Oh, I bought this in the eighties. It was just $30,000 at the time and I was just going to hold onto it for a couple of years and then 40 years later, it’s worth 2,000 times more.’
Those are the people that we’re going to start working with more. They will look at it as a business and will make much more objective decisions without emotion. It is what it is, get on with it, but budget for it. This stuff is not scary if you look at it from a business perspective and go, ‘I can’t bank on 52 weeks a year in rent. I should be banking on 48 to 50 weeks tops. I should be banking on accumulating $5,000 per year, potentially for maintenance.’
It’s like a sinking fund in a body corporate. You accumulate money for the big stuff. So when we give these people bills to pay because the hot water cylinder blows up, it’s not a biggie. They’re ready for it.
What’s the best piece of advice you’ve ever been given?
WA: Integrity is doing the right thing when no one is looking.
BVB: There’s one that springs to mind, but I don’t know if it’s the best piece of advice or just something to base life on. My grandfather used to say to me, ‘A man without a plan is a man planning to fail.’
I always have a plan for everything. I’ve had advice from lots of people and all of them worth mentioning, but that one just sprang straight to mind.
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