The Difficulty in Getting Rid of That Whale of an Account

The Difficulty in Getting Rid of It:

That Whale of an Account

When you first start your company, you are in growth mode. Your business is fresh, and you are excited when one institutional investor approaches you. Forming a business relationship with them is thrilling. When we were just a small company, we were ecstatic when someone approached us with a portfolio of forty homes. As we signed them up, they told us that they had referred a lot of business in the past and would do the same for us.

Our whale investor does business by purchasing under-market properties, buying pre-foreclosures, and renegotiating short sales. Once they are purchased, he fixes them up and makes them look good again. He gives the property to us to place the tenant. After placing the tenant, he flips the property to smaller investors. When the property is purchased, he then recommends for the new management to stick with our property management company.

I have to admit that this kind of growth was amazing. Bringing in five to ten properties every month so easily makes you comfortable and lazy. Until last January, we only marketed to real estate offices. Our whale investor provided half of our growth. For a while, we thought we were totally safe. It was not just one portfolio because he sold his homes to so many different people. We were constantly getting new, individual investors with one to four homes in their portfolios. Since the whale was selling off all of his homes, his portfolio was not that significant. Throughout that time, we were careful to monitor his referrals so that they never exceeded more than a third of our properties under management. You probably suspect where I am going with this.

When we started thinking about our exit strategies a year ago, we realized that any exit strategy would be difficult because of the whale investor. If you are ready to sell, a potential buyer does not want to see more than five percent of your business in just one account. The same rule applies if you are merging your business with another. You do not want to bring this business along with you because someone will think that you are beholden. If he does leave after you make a change, it is better for him to leave beforehand.

While we were aware of this, we were quite comfortable. We were growing our company, living life, and enjoying nice trips. Then the trigger moment occurred. He wanted to purchase one hundred and forty homes in a wholesale package. This situation would have had us manage the homes during the two-month flipping process without doing any repairs for the tenants. There would be no sign-up or cancellation fees, which meant it was basically for free. He got us to take these accounts by saying he would not flip them and encouraging us to hire on a new Property Manager.

Luckily, we were smarter than that. We put a cancellation fee into the contract. Before long, our relationship began to fall apart. He was planning to buy more wholesale packages, which did not agree with our business model of providing great services for our small investors.

Several months later, as expected, we received the cancellation notice. We were fine with that and wished him well on his property journey. Unfortunately, he began a campaign against us. He reached out to each person who they referred to us and pressured them into signing up with the whale’s new company. This was a surprising, unexpected turn of events. They were running the campaign against the rules of the Department of Real Estate’s ethics and laws about illegally soliciting contracts from an existing business.

Now that we were stuck in this scenario, we had to figure out what to do. What are the options? What can you really do to stop this activity? You can file a claim with your Department of Real Estate, start a lawsuit, or send warnings. You can stop your vacation and head home to get actively involved. You could also just relax, finish your vacation, and hope that the great services you provided for years would be enough. We hoped that taking the high road and providing excellent customer service would be enough.

Our entire goal was to stay away from any litigious actions and double down on our customer service. We matched the new company’s fees and asked the affected clients to stay with us. At the same time, we budgeted for a mass exodus. We made sure that we would be able to survive financially if everyone left.

Since we anticipated the parting months before it would begin, we began a large marketing campaign. We attended the PM Grow Summit in Palm Beach, Florida last January and learned new ways to attract accounts. Throughout this time, we had transitioned our business back into a growth mode. In total, there were 81 accounts at stake. Ultimately, we only lost seven of them. There may be more lost accounts in the works, but we believe that this experience has only made our company stronger.

Before this experience, our property management team lacked a marketing department. Now, we have a marketing team and have improved our customer service. We carefully combed through all of the ways people could leave us and patched up each hole. In the end, we boosted our customer service and emerged as the winners. Today, we are a stronger company and do not have a single account that accounts for more than five percent of our total portfolio.

Current editions of the award-winning Residential Resources magazine is sent eleven times a year to members. Join NARPM to receive all of the benefits of membership and receive current editions.

Residential Resources: December 2017 Issue | Volume 28 | Number 11