How Resident Satisfaction Impacts Net Operating Income

Have you considered the role your maintenance process plays?

Of the various approaches to maximizing net operating income (NOI) for a rental property, improving resident satisfaction is often overlooked. This is largely because it feels like a qualitative measure when compared to other more historically quantifiable expenses that directly impact the bottom line. This is also precisely why improving resident satisfaction may be the key to improving your NOI.

First, let’s talk key performance indicators. More specifically, let’s talk
leading versus lagging indicators. Leading indicators tell us what will happen; lagging indicators tell us what has already happened. Both are essential in managing any investment.

Most of us tend to focus on lagging indicators, often because they’re more readily identifiable and available. However, both leading and lagging indicators are essential in predicting and verifying quality of outcomes. Another important distinction to consider is that an indicator can be both a leading indicator in one context, and a lagging indicator in another. Such is the case with resident satisfaction.

One way to maximize NOI is to minimize resident turnover. The reason has as much to do with transaction cost, as anything. Put simply, regardless of length of residency, when a resident decides not to renew a lease, a number of tasks must be completed before the next renter moves in: move-out inspections, deposit disputes, turnover repairs and cleaning, marketing the property, showing and leasing the property, move-in inspection and others. These tasks create costs for the property’s owner and to the property manager.

One key factor in minimizing turnover is resident satisfaction. It stands to reason that residents who are satisfied with the quality of their home are less likely to move.

Controlling the Controllable

A variety of factors affect leasing churn. Property managers have control over some of them (e.g., rent price and overall experience). Other factors, such as job loss or transfer, are outside the property manager’s scope of influence.

In any business, the higher the cost of customer acquisition, the greater the impact on the bottom line. Any business owner will tell you it costs far less to retain an existing customer than to acquire a new one. A resident’s maintenance experience can have a meaningful impact on their decision to renew their lease—nearly a third of nonrenewals list lackluster maintenance as one of the primary drivers for not signing a renewal.

Data Helps

Residents’ maintenance experience comes down to two core needs: speed and transparency (in that order).

Data is available to help identify some of the common elements of a happy resident. One of those is the speed of a repair. When you ask someone in the industry what defines an excellent maintenance experience, you might hear phrases like “personal touch” or a “human experience.” Data tells a different story.

Residents weigh speed heavily on the repair, and the data confirms just that. Here is some broad guidance based on statistical information:

  • HVAC repairs should be completed in less than three days.
  • Plumbing repairs should be completed in less than 4.5 days.
  • Electrical repairs should be completed in less than five days.

If your repair times start stretching beyond that, the statistical likelihood of a happy resident falls drastically.

How to Control the Outcome

Property management is seeing some of the most impressive growth of any industry and demonstrating incredible resiliency. Much like other rapidly growing sectors, there are learning opportunities. Among these is clarifying the most relevant key performance indicators (KPIs), specifically those that correlate with lease renewals. Among these are two that, at a minimum, you should monitor closely:

Speed of repair measures the time from the submission of the repair request to the time the repair is complete.

Some firms track the entire length of time a work order is open (to include time waiting on an invoice). This muddies the waters a bit and makes the indicator less useful for gauging resident satisfaction.

Practically speaking, there are reasons to also measure the time a work order is submitted until it is closed at receipt of an invoice. This is a different KPI and more useful in gauging the cashflow cycle impact and process flow with the billing department. It will not predict resident satisfaction. Tracking time to completion from a resident perspective can help the property manager better understand its impact on resident satisfaction. Standardizing the methodology to exclusively measure time of repair will also help you benchmark your operation against others more effectively.

Resident satisfaction is the average satisfaction score residents provide, based on maintenance activities.

Once again, measurement methodology is critical. If you allow this KPI to become a marketing exercise, wherein the system is gamed to ensure the highest score, you’ve already lost. You want to understand your actual resident satisfaction, not your opinion of your resident satisfaction. A good KPI sets the standard. The goal is not to adjust the KPI to meet your standards. The goal is to adjust your processes and thereby raise your standards to meet those set by the KPI.

Resident satisfaction should be checked within 24 hours of the repair completion and must be requested for all repairs. If you pollute your measurements with subjectivity, omitting repairs that may mess up your data, the KPI is meaningless. Automating this process prevents subjectivity from creeping into the process. Automating this process gives you consistency. Consistency gives you an honest score.

Both metrics are critical for creating a measurement process that includes both leading and lagging indicators. In terms of the repair itself, speed of repair is the leading indicator, and is verified by resident satisfaction as the lagging indicator (note that resident satisfaction also acts as a leading indicator in predicting resident turnover).

If your team has visibility into repairs lasting more than five days, they have an opportunity to improve processes (control their controllables) to reduce these repair times, which improves the likelihood of a renewed lease. Viewed through this lens, maintenance is much less the “set it and forget it” process of yesteryear. It’s more a series of customer touchpoints to be proactively monitored and managed in order to deliver consistent and predictable resident satisfaction.

The Impact

Implementing these KPIs will significantly improve your renewal opportunities, maximize your NOI and help to establish a culture of discipline throughout your maintenance department. If these KPIs are properly monitored and corresponding processes are skillfully managed, you can predict a positive impact to perhaps the most relevant lagging indicator—your bottom line.

Author

  • Ray Hespen is the CEO and co-founder of Property Meld, a maintenance automation software company. Hespen and co-founder David Kingman started Property Meld in 2014 to bring automation to the property management maintenance world. Hespen’s background is rooted in the manufacturing business. A degreed engineer, his previous roles have involved reducing operating expenses while improving quality and consistency. He has combined his operational knowledge with technology to start one of the fastest-growing real estate technology companies in the United States.

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