Deal is home run for Real Property
Real Property Management serves accidental landlords, as founder Lukas Krause puts it.
Lukas Krause’s baseball dreams fizzled after a stint in the minor leagues, but the 37-year-old CEO of Real Property Management can boast he’s batting at least .300 as his Salt Lake City-based company profits from tectonic shifts in American real estate.
Started in 1986 and franchised since 2004, Real Property Management is a third-party property management company focused on building its roster of primarily residential, versus commercial, clients. It profited mightily during the recession, which created a lot of accidental landlords, as Krause calls them, as scores of single-family homeowners sought to rent out their homes for a wide variety of reasons.
Like most property managers, Real Property Management covers the landlord duties so property owners don’t have to. That includes ongoing communication with tenants, marketing and advertising, tenant screening and selection, inspections and repairs, rent compliance and, if things go south, tenant evictions. Krause admits the work is few people’s idea of a walk in the park, but he contends the category offers one of the best returns he’s seen in franchising.
“You have very little capital outlay,” Krause said, “and it’s a subscription-based business so you sign contracts for a year so you’re not having to recapture the customers on a daily basis—the margins are great.”
Bolstering his company’s outlook is a blockbuster deal last summer that added 600 single-family properties to its growing roster in Reno, Nevada. Tony Chinnici, a Reno-based entrepreneur and president of Corazon Real Estate, converted his portfolio to Real Property Management, which Krause sees as a major part of his plans to add 50 to 75 new offices by the end of 2017.
With 285 franchisees and approximately 50,000 single-family homes under its umbrella, the company’s growth plans call for a ramp-up of similar deals to bring overwhelmed or less sophisticated property managers into the Real Property Management chain.
As smaller-scale property managers like Chinnici grow their portfolios, Krause said, many begin to struggle under the weight of managing so many properties—as well as owners and tenants who often have different priorities for the de facto landlord.
“The tenant looks at it like it’s a dump and it needs to be repaired all over, and the homeowner thinks it’s a castle,” Krause said of the typical client-tenant dynamic. “Owners are cost-conscious, so you get caught in the middle of that and you have to manage that wrestling match.”
Successfully threading that needle, he added, means front-loading expectations for both parties and maintaining constant communication between the owner of the houses, as well as rental tenants literally keeping the lights on.
Ten years after the dawn of the Great Recession, property management’s fundamentals remain strong in light of homeownership rates that have been dropping for a decade and, this year, hit historic lows.
After beginning to fall in 2007—when 69 percent of Americans owned their homes—the latest from the Census Bureau put the figure at 62.9 percent, which is the lowest rate in more than 50 years.
Krause sees this ongoing shift away from homeownership as a boon for his company, and one that makes Real Property Management particularly resistant to damage if the economy dips back into recessionary turf.
Further fueling the fire is Wall Street’s growing interest in the profit potential of single-family ownership. Rather than encouraging risky lending through credit-default swaps, large-scale property management allows institutional investors to become involved in single-family real estate without extending home loans to customers who can’t afford the ongoing payments.
“You have this whole other investment category where folks are erring toward buying a home for retirement planning” versus the market, he said. “It’s a tangible asset, they can understand it. They’re not having to look at charts and try to compete with folks who have a lot more technology and insight on where a stock is going to go.”