The Property Manager’s Worst Enemy

Being a landlord is never easy — especially when it’s not your full-time gig.

And there are a lot of those. More than 60 percent of all property managers own and manage fewer than 20 units. Dealing with the headaches of marketing rental properties, vetting renters, getting leases signed, collecting security deposits and then servicing tenants means that these part-time landlords outsource those tasks to property managers who take a pretty hefty cut of their revenues.

It’s a problem that Sean Heiney, Founder and CEO of Rentr.com, has set out to solve. Heiney’s just getting started and is focused on taking the hassle out of being a landlord by being a digital intermediary that removes the frictions in the landlord-tenant relationship.

In this week’s episode of The Matchmaker Is In series, hosts Karen Webster and David Evans, economist and author of “Matchmakers: The New Economics of Multisided Platforms,” talked to Heiney about his plans to disrupt property management and the role that payments play in the process.

“[Renting apartments] happens to still be the only place people typically get out their checkbook every month to make a payment. Leases are done in a manual, archaic manner, and qualification typically goes on gut instinct rather than a systematic process,” Heiney explained.

That, on top of the vastness of the $14 billion domestic market for property management, was enough to convince Heiney that property management was ripe for disruption.

Here is an excerpt of the conversation.

KW: There are lots of platforms that just connect a renter with a landlord. What friction are you solving for?

SH: Our philosophy is a little bit different. We’re going after a very specific demographic of both landlords and tenants. About 60 percent of rental units are owned by someone who owns 20 units or less. So, it’s typically a landlord who may not do this as a full-time function and may not have a staff. Internally, we call these part-time landlords.

Right now, those landlords typically have to pay a property management company about 10 percent of total revenues. The property management company passes all costs of servicing the property onto the landlord, provides very little value-add and typically will market a little bit but keep the first month’s rent in exchange for that. It’s a really nasty process, and they aren’t incentivized in any way to make sure the tenant is the best tenant for the landlord. They’re incentivized to collect payment fast and minimally touch the client.

We set out to automate that whole process and replace that manual property manager using AI and other systematic automation for the processes of marketing, leasing, showing a property, making payment, dispatching maintenance agreements and filing taxes. We intend to make that all automated so the part-time landlord can go and worry about their primary business, whatever that is.

DE: Are you guys also substituting for the real estate broker? Or do you come in after the matchmaking has taken place between the person that wants to rent and the landlord? 

SH: Right now, it’s a little bit of a chicken-and-egg thing, and we are definitely keeping an open mind about how this evolves. We are still in the earliest stages and are rolled out in a couple of test markets with a selected group of beta landlords. So, we are starting to collect this feedback. Right now, we sit in the spot where we are the service platform for the landlord. Ultimately, the landlord is using our service to syndicate marketing. So, they are bringing the tenants into our platform.

We have our own proprietary algorithms to assess a tenant that are a little bit more valuable than just a FICO score to the landlord. That also obscures private information from the tenant sharing it with the landlord. In today’s world, you might go to apply to a property owned by a private party, and you have to share your driver’s license and Social Security number, and this person you don’t really know or trust gets access to all your most private and confidential information. Then, they typically do this maybe five or six times, and then, they get a gut instinct feel to select that person. In our system, we are obscuring all that private information so we give a more realistic score on how that tenant is going to be a fit for the property and the likelihood of success based on our algorithms.

We want to hook landlords with the concept of automating their life — all the things that frustrate them and give them headaches. At the same time, that’s building a base of happy tenants that have enjoyed the way they’ve interacted with the landlord and the service with a portable renter’s profile that they can use with other landlords.

KW: What is it that a renter score really certifies to a landlord? And why are you confident that will give the landlord confidence that he or she is a good bet?

SH: We know the FICO score doesn’t work. We know that FICO does not represent a statistically probable likelihood of success based on typical landlord relationship data that we have. We intended to build an algorithm that would get a better likelihood of fit, specifically to the actual unit that the landlord is soliciting. It’s part of our secret sauce. We believe that we’ve built a system that is much better than any other credit profiling model, specifically for landlords and tenants.

KW: How do you get landlords on board?

SH: We wanted to interact with the landlord where they happen to be, and that is in the credit checking process. Landlords are looking for a place to credit check their prospective tenants, and we know that they are frustrated with the options that are out there.

So, for us, that’s a great place to capture the landlord. We provide the credit score or the renter score as a service free to our landlords. With any other service, they would have to go and pay $15–$40 depending on the third-party service for that. If we can capture the landlord for that cost, we think we’ll be able to pick up a lot of landlords very quickly.

KW: What is your strategy for scaling the platform?

SH: There’s some logistical complexities to scaling. From a legal perspective, different communities and different states have different legislations and requirements when it comes to leases and how you hold deposits for units. Our plan is to continue to roll out in selective geographic areas in states that make sense rapidly over the next 18 months, and we are looking at a full-scale national rollout within the next 24 months. We’re picking up cities as we have the time to embed their legal requirements into our system, which is cumbersome.

KW: The one thing you mentioned earlier is the complexity with respect to the overall process. Where do you stop in the landlord-tenant relationship? Once the lease has been generated, do you continue to service that landlord? Do you enable the tenant to make a payment for their monthly rent to that landlord?

SH: We make money based on the relationship between the landlord and the tenant over time. We are the payment platform for the landlord and tenant. The tenant can pay the landlord, schedule monthly payments, split their bills with roommates, automatically get a grace period — our platform supports the entire payment process.

From a maintenance perspective, our platform is the communication platform between the landlord and tenant. We are also the place that holds the lease. We’re the digital filing cabinet. We hold the lease in the cloud for the landlord and tenant. We also provide a system that allows the landlord to account for all their financial relations.

We intend to be an all-in-one stop.

There’s a lot of upsell opportunities. It’s a large ecosystem platform that essentially automated the landlord interacting with multiple third-party providers to facilitate the management of their property.

KW: Does the tenant know your brand? Or are you effectively white-label?

SH: Absolutely, they know our brand. Our goal is to build up strong relationships with the tenant. Something that’s in the early stages of our platform is facilitating a platform for both landlords and tenants to leave feedback on each other. We intend to build a relationship with both parties and be the guys that moderate that relationship. We want to keep landlords really happy and provide a lot of value-add to renters so we can incentivize renters to go to their next landlords and use this.

It adds the peer-to-peer community accountability system into this, which really isn’t functional right now. There’s no good system to tell if your prospective tenant is a deadbeat or not — other than legal records and eviction notices, which come pretty late in the process. You can be a really bad tenant and never have been legally evicted. I think we will add a lot of value to make good tenants really shine and bad landlords stand out.

There’s a lot of data that can help show where this is going. About 55 percent of renters are in the millennial generation, and these are groups of people that don’t typically like working with humans for anything. So, they’re looking for this service. At least 55 percent of renters we’re going to keep really happy.

KW: Who or what matchmaker inspired you? Where do you draw your inspiration?

SH: I’ve been lucky to work with some very good mentors, specifically in Silicon Valley, and some guys that have taught me to avoid BS in the process of building a business. One thing that got instilled in me very early on in my career was a mentor who told me, “If you’re going to go build a business, build one that people already want.” It’s easier to sell something people already need and want than to evangelize something new or exciting — although that might be fun and I’ve done that before. If you’re in the business to make money, then I think it’s easier that way.

If you can disrupt or change the paradigm on any business and people are hungry for that change, then you’ve got a really good business. In working with a number of Silicon Valley people over the years and through a number of processes, I figured out that this is the perfect business to go after. People are definitely hungry for the change. This is a service that is rapidly scalable with a low cost of operations and where we can provide a lot of value for a very low cost of goods. What could be better?