Peter Lohmann's Newsletter - Issue #153

The Most Important Formula For In-House Maintenance

[Not running in-house maintenance? You can skip this!]

If you’re running an in-house maintenance department at your property management company, I need to share some secret sauce with you right now. We have a $1M/year in-house maintenance department at RL Property Management, and this is my live-or-die formula to understand if the department is actually making money.

Let’s assume you have 3 in-house technicians who are paid as W-2 employees by your PM business (or a related entity). Each day, they are sent out to complete work orders and/or unit turnovers. As their timesheets come back, invoices are created and billed to property owners (including material costs), resulting in maintenance revenue.

The question you should be asking yourself is: How much maintenance revenue should I expect on a monthly basis from these 3 technicians? Answer:

Breaking this down:

• 40h = 40 hours per week

• 4.33 = 4.33 weeks per month on average

• Billing Rate = The average hourly billing rate you charge clients. It should be AT LEAST 3x the hourly wage you are paying your W-2 employees. If it’s below that multiple, it will be nearly impossible to run a truly profitable maintenance department.

• # Techs = The number of FTE (full-time equivalent) maintenance technicians that are billable.

• Utilization = Utilization Rate = Total hours billable / Total hours paid. I suggest using 88 to 92% as a target here, to allow for non-billable tasks such as meetings, PTO, and paperwork.

• 1.2 = Material multiple. PM company maintenance revenue, as it passes through to 4710 account on the corporate books, includes material costs that have been billed back to the owner. In my experience these material costs make up ~15% of the overall revenue. So, we must take the labor-only portion and multiply by 1.2 to reach that figure.

So, taking our example with 3 FTE techs, assuming an $84 billing rate and a 90% utilization rate, it would look like this: 40 × 4.33 × 84 × 3 × 0.9 × 1.2 = $47k. 

In this example, the “4710 - Maintenance & Repairs Income” account on your corporate books should be booking $47k a month on average!
If it’s not, you have problems!

You MUST have a clear idea of this number and track it monthly to run a profitable maintenance business. If you don’t have a target and measure against it, I can personally guarantee that over time, your maintenance revenue will start slipping and, without even realizing it, drop below the level of profitability. What does that mean in reality? It means that YOU are PAYING YOUR OWNERS for the privilege of fixing their properties.

How does this happen? Usually one of these three things:

1. Technicians not billing enough hours per week (most common). Three things can cause this: Techs just plain working low hours per week, techs billing a bunch of hours to overhead, or techs putting down hours on their timesheets that don’t actually tie back to anything in your system. Solution: tight oversight of each tech’s hours billed per week (and vs their timesheet). One person at your company must be accountable for this on a weekly basis.

2. Material costs not getting captured on the invoices. It’s really easy for techs to just swipe the company card or Lowe’s card and forget to attach those materials charges to the work order. Or even just buy tools for themselves. Solution: audit your company credit card statements against owner invoices to ensure 100% of material costs end up getting billed back to owners. This is a very painful manual process, sorry.

3. Invoices somehow getting lost or sitting around unbilled. It’s unbelievably easy for work orders to just sit around unbilled. Lots of times you’ll check into this and find that tech has 7 open work orders going back six months, and when asked, he will tell you “sorry I just need to get back there to finish things up.” Solution: develop a process to track ALL work orders ever opened (with at least 1 billable hour), and ensure 100% of them make it all the way through to completed-billed.

I hope this helps you understand your maintenance department better and run it more successfully. In-house maintenance, if run properly, can be a huge “triple win” for you, your owner clients, and your residents. It should result in profit for you, cheaper repairs for your clients, and faster repairs for residents (compared to outsourcing everything).

If you want to go deeper here, my business partner, Adam Rich, who built our maintenance department from zero, developed a course on this exact topic. Note for Crane members: This course is included with your membership, access it here.

-Peter

Guidance for Property Management Company Sellers

If you’re evaluating offers to buy your PM business, this article from CAM Advisors is a must-read. It details the six LOI (deal) terms that PM owners shouldn’t ignore:

Click through to read the full article with all six items.

New Property Management Companies For Sale This Week

• Here is an HOA management company for sale in Austin, TX (asking $950k)

• Here is an HOA management company for sale in Los Angeles, CA (asking $350k, 19 communities)

• Here is a property management company for sale in Estes Park, CO (asking $475k)

• Here is an STR management company for sale in Nashville, TN (asking $700k)

• Here is a small management company for sale in Sacramento, CA (asking $250k)

This section is sponsored by RentCast.io*. My team has tested every rental comp tool out there, and RentCast is the one we trust and use every single day. Their reports are accurate, fast, and easy. Try their free version, or use code PETER for 20% off Pro.

Interested in sponsoring? Get in touch to partner with Peter.

Industry News & Events

• RentEngine’s Q2 Leasing Data & Trends report is out now. HIGHLY recommended reading for anyone leasing properties.

• Reconvene, the real estate private equity “un-conference” run by Moses Kagan, is coming up in September. There are 3 scholarships available, sponsored by AppFolio, and the deadline to apply is TODAY. Moses told me he’s looking for folks in property management to apply, especially women.

• Nate Smoyer put together a nice roundup of Proptech companies that made the Inc 5000 list this year, including some familiar names like Rentvine, Obie, PURE, Evernest, and Ziprent.

• Last chance to register for my upcoming webinar, all about how we sell $300 pre-inspections prior to signing on new clients. Over 300 registered so far. This is a new process for us and is working exceptionally well to filter out bad-fit clients and streamline onboarding. We’ve sold 100 of these since February!

• Thursday: Catch Peter & The Wolf live. We’re going back to basics on building amazing processes that your team will actually use.

Closing Thought

A few quick things before you go…

• Last week’s issue went to 17,941 readers (62.5% opened, 5.1% clicked)

• The most popular link was Peter’s Upcoming Webinar on Selling $300 Pre-Inspections (356 clicks)

• Want to start your own newsletter? I use Beehiiv and highly recommend it.

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The content of this newsletter is for informational purposes only and does not constitute professional advice. I may have consulting agreements with, or financial interests in, companies mentioned in this newsletter. Additionally, some of the links included in this newsletter are affiliate links, meaning I may earn a commission if you make a purchase through these links. Always perform your own due diligence before making any financial or business decisions. *Affiliate link.