How I Built A $400K/Month Property Management Tool Because I Needed The Product
Originally posted on https://www.projecthatch.co/interview/how-i-built-a-400k-month-property-management-tool-because-i-needed-the-product
Rental property software-as-a-service is a niche very few have heard of. Nathan Miller stumbled upon it through his own property management struggles and created his own software. He now helps those in the industry operate portfolios of up to 2000 homes. The company makes $5m/year in recurring revenue and more importantly, Miller has an opinion on Slack that is difficult not to agree with.
What does Rentec Direct do?
Rentec Direct provides property management software to landlords and property managers that have from 1 to 2000 properties. We specialize in working with property managers that don’t have the budget to spend tens-of-thousands on software, but want all those cool features. In fact, because our software is newer and more agile than many of the “oldies” in the industry, Property Managers on our platform are outperforming some of the old industry-standard software.
Who uses it and how much does it cost?
Our pricing starts at $35/month, and we are the only option that has no setup fees. It makes it really easy for somebody to get started and organize their operation really fast. We also uniquely don’t have any hidden fees. We include all the core components necessary to be a property manager in the software including a merchant account to accept ACH and CC payments, electronic signatures, and email/text communication right within the platform at no additional cost. We also offer wholesale rates on tenant screening which saves our clients about 50% over our competitors. We’ve attained this by making some amazing relationships in the background check community as well as aggregating over 14,000 property managers.
Was it a lightbulb moment or gradual process?
Lightbulb moment. I was a landlord and there were no suitable or affordable products that I could find to manage my rentals. With a background in development, I created a free product designed with myself as the consumer and made it available to all landlords nationwide. The first version was ugly but functional, and about six months later I was astonished to see hundreds of people using it. Ultimately, the demands from the users outgrew what my personal needs were so it became necessary to hire development and support staff and create a Pro version with a simple pricing model that anybody could afford. We had a lot of people switch, and that jump started what Rentec is today.
Have you been involved in the industry/started your own company before Rentec? And how did you validate the idea?
I was managing about 5 properties myself, using spreadsheets and old fashioned pen and paper. [ Side note: I’m astonished how today in 2019 there are tons of landlords still doing it this way, even with dozens of properties. ] I was spending too much time keeping track of records and I was even forgetting fairly important things; did I already charge them a late fee, or which house was it that needed the new fridge. It was clear I needed a better way to manage these properties. I was extremely familiar with the internet (it was my job), and did a thorough review of options available to me as a small time landlord.
I found software that property managers used at the time, but the costs were in the tens of thousands of dollars, so that wasn’t an option. I also found a couple of startup software packages that claimed to do what I needed, but they were buggy at the time and had a questionable future. Fun fact: One of those software packages I considered over 12 years ago is today one of our closest competitors – but they went the funded route whereas we went at it organically so we have starkly different business models.
Did you have any experience/expertise in the area?
I’d been a landlord for roughly 10 years, and a software developer for 15 so I understood both industries. I also had business and management experience from my prior business life at VISP.NET. That experience provided me with a wealth of knowledge so I was able to get things at Rentec going on my own, with no investment.
How did you fund the idea initially?
Blood and sweat and about $500 from my wallet. In its infancy Rentec was pretty bare bones. We used a couple of old Dell servers, which I did the configuration and development on myself. Even though the equipment was old, I was emphatic about it being reliable, so for every old server we turned on, there was a 2nd old server configured to take over. Once we had a few hundred users, the revenue paid for servers at Amazon which allowed us to scale rapidly. Amazon also had a “free tier” which really helped us out that first year as well.
How did you get your first 10 sales?
We gave the software away for free for about a year, followed by an optional Pro version which free users migrated to. Being pretty cheap myself, I assumed nobody was going to switch. But to my surprise, there was a huge percentage of people using the free version that were eager to get their hands on new features and live customer support.
Why have you chosen not to take on funding?
My goal, above and beyond profits or fame, is to create a long term positive environment for myself, our employees, and our customers. People being able to love coming to work not just because the job is cool, but because the people are cool. The funding model often destroys this sort of vision and I wanted to avoid that at all costs.
While you hear about funded companies giving huge bonuses to core staff, and all of those staff running off and immediately buying Teslas, what gets buried more often than not in those stories is how two years later they don’t meet their projections and they lay-off half or more of their staff. I know this because we’ve hired those laid off employees from Silicon Valley a time or two and have given them stable careers here at Rentec.
There’s actually a surprising amount of truth in the show “Silicon Valley”. I sure hope they release the next season soon. Aside from that, I had a great job that I could have stayed at the rest of my life when I founded Rentec, but when I saw that Rentec could positively affect more lives than the position I held, I got really excited about the possibilities of that and devoted a lot of my spare time to the project.
Where did you meet your cofounder/founding team/early employees?
Craigslist mostly. Our first employee worked on a commission and made something like $23 her first month. We love to reminisce about that today. Today, she is still with the company and makes a bit more than $23.
Who built the software – do you code? How do you hire top developers?
I wrote the first version of Rentec. It was very functional, but super ugly. I designed the software using my properties and tenants as a model, then later on expanded into the property management field. We’ve gotten most of our current developers from local job ads or word of mouth. The big job sites don’t work in Southern Oregon, so we rely on Craigslist and word of mouth to get our open positions out there. We’re in a small town and when somebody hears that there’s an opening at Rentec it creates some buzz because everybody knows how much fun it is to work here.
Does it work outside the US?
Yes, the software works worldwide, but the bulk of our clients are US. Some of the extras we offer like tenant screening and online payments only work in the US. As such, we’re really focused on the US only at this time.
What features are you planning to add? Any upsell plans?
We just added a cash payment network so tenants can pay in cash at over 20,000 locations nationwide, including any 7 eleven in the country. We are also in the midst of a very large overhaul which will give our software a fresh modern look and feel.
What has been your best marketing channel?
Google was great at first because we had a good product and it ranked really well. Back in 2009 Google still offered organic results and would rank good, legitimate products.
Now most leads are either paid via a channel that caters to property managers (like Capterra or Software Advice.. both owned by Gartner) or come to us through our educational blog. Over the past 4-5 years we’ve really put a ton of energy into creating quality material that helps property managers become better at their jobs. That material has paid off because property managers are reading our content and relying on it, and when the day comes that they want to automate their operation or replace their current software they look at us as an industry leader.
What stage were you at when you raised money?
Well….. The $500 that came out of my wallet was the only money we “raised”. So it was definitely in the startup stage.
How is Rentec better than its competitors?
- Primarily we have superior customer service. We accomplish this by hiring customer service staff who have experience in the industry. Sure it’s more expensive, but our customers get 10x better support than they would at any competitor. We literally blow our competitors out of the water when it comes to happy clients.
- We also have more attractive pricing. For a property manager starting out, our pricing begins around $35/m vs our nearest competitor at $200/m. That $155/m savings can mean the difference between profitability or not for a new property manager.
- We don’t have investors to listen to. I see our competitors consistently raising their prices as frequently as 2x a year, and operating in a way that makes their investors happy rather than their customers. We don’t have investors, so we can focus entirely on our customers. Fun fact: we’ve never forced a price increase on our customers, ever! A few years ago we were able to drop our tenant screening prices from around $29 to $15, but that’s the only rate change we’ve done to our clients, and it was very well received!
What is stopping a clone from taking market share?
Nothing really. That’s the beauty of a free market and it’s a really good thing. Knowing that XYZ Corp could start up a new property management software tomorrow keeps us on our toes and keeps us innovating. Can you imagine how degraded modern software would become if there wasn’t competitive pressure to keep them innovating? There’s a lot of market share, and we’re happy to welcome new competitors, but nobody will ever be able to touch our excellent customer service.
What are the top apps your business could not run without?
- Google Apps. The collaboration available within Apps is so refreshing and necessary for our organization. Not to mention apps comes with corporate email is nice.
- PHPStorm – our developers love this application for developing our software. The software costs about $200 per seat, but easily saves us hundreds of hours per year, so it pays for itself 50x over!
- Slack – I actually feel Slack is sort of a trendy chat client for businesses today that doesn’t necessary provide the value it should for the cost, but we do need an internal messaging platform and slack is as good as any. We appreciate that it integrates with some of the other services we use, but honestly we’re not married to Slack if another platform came along.
What are you going to work on in the future?
I’ll be focusing on Rentec Direct for some time. It’s growing, it’s fun, and there’s plenty for me to do. We’ll continue adding features and functionality and strengthening the system to work well for our clients for the future.
Are there any releases you can tell us about?
It’s a long way out (probably 9 months at least), but a fresh overhaul of the entire system is in the works to be responsive and will also include a fully functional app usable on all tablets and phones. None of our competitors have that so it’ll be an amazing differentiator – assuming they aren’t also working on that right now of course.
Where do you see the company in 5 years?
In 5 years we’ll hopefully have been on the INC5000 for 8 years running, our margins will be stable and growth remain around 30% per year. All while maintaining a tight group of no more than 20 employees. Rentec will be contributing greatly to our local economy and helping our community thrive through local neighborhood improvement projects.
How are you staying ahead of competitors?
We’re far more agile than our competitors. When we decide to attack a new feature, we can typically do it in 1/5th the time of our competitors and with 1/10th the staffing. We’ve found ways to be immensely efficient and the payoffs are huge. Our efficiencies also make us more profitable, so we’re able to provide a product that is feature-par with any of our competitors that costs 30-50% less. It’s incredible to think about this, but we have about 14,000 customers and our nearest competitor has somewhere around 15,000. Yet, we have 15 employees, and they have around 300. We’ll be able to use these efficiencies to remain relevant and very competitive.
Would you ever sell Rentec?
I have zero interest in selling. Provided my staff and I are having fun doing what we do, it’s not even on the table. We consciously make choices to keep, what could be a fairly boring business, fun and exciting for our staff. Part of that is honing in on the market that *we* want to serve rather than trying to expand outside of our ideal customer. We work with the fun customers and let our competitors deal with the headaches. Aside from that, I truly enjoy what I do and I enjoy coming into the office every day. This month we have a cornhole tournament among staff, and the winner gets the prized covered parking spot. Next month will bring more fun and games, and of course awesome improvements to the software as usual.
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