Scott Bateman On Whether Tech Can Fix Property Management

In this episode, we pose a confronting idea. What if property management in its current form is fundamentally broken?

Owners often feel underserviced, tenants feel unheard, and property managers themselves are burning out under outdated systems. If the model is cracking under the weight of rising expectations, maybe it's not about incremental movements, but about reinventing the whole thing.

To explore this, we're joined by Scott Bateman, a strategist and innovator who has led transformation across banking, insurance, and real estate. Welcome to the elephant in the room. This is the podcast where we love to talk about the big things in property that never usually get talked about.

I'm Veronica Morgan, real estate agent, buyer's agent and buyer's agent mentor, co-host of Foxtel's Location, Location, Location Australia, author of Auction Ready and co-host of Your First Home Buyer Guide.

Hi, I'm Chris Bates, ex-financial planner and mortgage broker, currently ranked number three in the annual MPA Top 100 Mortgage Broker Awards. Before we get started, everything we talk about today is not personal advice, and we recommend you engage the services of a licensed and experienced professional.

Our guest today is Scott Bateman. After heading Australia's largest property management business, Scott launched property management platform Colmio to rethink the industry from the ground up.

In our conversation today, we want to unpack what a truly disruptive model could look like, why so many agencies struggle to adapt to changes, and what the next decade might hold if property management dares to invent itself or reinvent itself. Now, Scott, it's been a long time coming.

We've had a lot of conversations off air and away from the podcast. So it's great to have you come on today. Good to see you.

It is great to be with you. Thank you.

Scott, I mean, we want this episode not to be around pitching your technology, but more of a discussion really around the challenges with the old property management model. both from a customer's point of view, but also a tenant's point of view. I guess they're a customer as well.

And why is that so outdated? And where do you see the future of that going?

Let me answer it this way. I think there's two parts. There's what's not working, which is one whole thing. And there's of the many different ways that it could get solved. How do we think that it might? And what does that mean?

If we kind of take a step back, there's two big issues here. One is most of the way that the property management side of the industry works was kind of shaped during a time in which people rented for a very short period of time.

Generally, it was in between leaving home and getting a mortgage, whatever the case might be. So we built this model where the people that were selling the homes, whether they meant to or not, ended up managing the properties.

Now, these are normally very different skill sets, cultures, processes, like they should be very separate businesses, but it's just kind of ended up together.

The problem with that is that now that the world is increasingly renting and renting for most of their lifetimes, everything that is set up to support that isn't really in line with what people would expect for a multi-decade long relationship that we would normally expect for something like housing.

If you look within the real estate businesses, property management often isn't particularly profitable as an exercise to run. Sales is. So you've got this tension between the part of your business that generates most of your profitability versus the part of your business that at some point will be worth something to sell.

Property management is the long game. We sell the rent roll, but we don't really make money in the short term.

And as a consequence, if you are a principal who's just worried about surviving, which many of them are, and you say to them, I've got a dollar to invest in something to improve my business, where do I put it?

Well, more often it'll go into sales because sales is the thing paying the bills day in, day out as they've tried to navigate the next sort of decade or so. So we've got this issue where people's expectations have changed and changed a lot. The nature of renting has changed and changed a lot.

But as a consequence of this, we've got a model that's completely misaligned when we look at who serves those properties and what they've got to do. When you go COVID and beyond, it's just got much, much worse. A third or so of the industry left.

We've seen enormous amounts of additions of regulation and legislation. So we've taken a model that wasn't working, pulled out a third of the people that were there to do the job, added 100 new parts of legislation, and then stood back and said, well, you know, how's this thing going to go?

Unsurprisingly, not well. Then when you say, well, what does the future hold? And we're looking at the advent of AI and the different business models that we foresee. And it's a pretty kind of wild time in front of us.

I'm really interested to see what sort of wild time you think this could be. I think I've mentioned on the podcast before I started a property management business last year. I went into business with one of my original bosses when I first started in real estate 25 years ago.

So Kate has enormous experience in both running a business and also in running a property management business. For me, not having been in it, but being in the industry, I was so enthusiastic about the software that we were going to be able to pick and choose and have this lovely automated end-to-end solution.

And I can't tell you how... Firstly, shocked I am at how that is not the case because it's quite widely known that there's lots of automations for certain pieces of the process, but they just do not stitch together. They do not talk to each other. There is no integrated system.

And so I was really amazed and astounded and very disappointed, I will have to say, because I was all just gung-ho about this.

So I would imagine tech has to be part of the solution, but it seems to me tech has been part of the problem as well, to be honest, because of this Frankenstein that everybody has to have in terms of tech to get anything done.

So you've taken on the challenge of redesigning property management from scratch and you are a tech platform, right? So I'm curious, what are you keeping? What are you going to throw out? And what fundamental changes are you planning for in that?

So we say very openly, we didn't build Colmio because we thought the world needs more property management software. It doesn't. There's stacks of it. The case that we were making is that at the time, we were running the biggest property management business in the country.

And there's north of $100 million invested in it, pretty significant asset. As we looked to the future, we just had no confidence that you could build a business to really navigate that future using the tech that was in market.

And we weren't seeing signs from those providers that they even had a clue where things could go. And as a consequence, the roadmap was uninspiring. So we didn't build it because we thought we need software.

We built it because we saw the business model itself was changing and we felt innovation needed to move with the business model, not necessarily make the pink button purple or this takes four clicks, make it three. It's like, how do you kind of reimagine the economics of real estate?

And that's why we've built what we've built. The challenge that you've spoken about His two kind of competing schools of thought.

Around 2008, 2010, as we all started to kind of fragment the experience into multiple little isolated products, the biggest benefit that came from that is that each of those products on its own does a better job than one product end-to-end could ever do.

So if you've had a little Frankenstein of all these things, switching to a product that does it all end to end is actually worse at every one of those touch points in terms of quality, but it's a bit more frictionless when you look at how the whole thing fits together.

So we find when you show someone a product that is used to the Frankenstein mix and it's end to end, they'll say, yeah, but I want these 12 features when I do an inspection. I want these 16 features when I sign a document.

And you might be saying, well, I can give you 10 of the first and I can give you six of the second. So there's actually no perfect solution.

You've just got to stand back and say, mindful of my objectives, which product does the most that matters and avoids the things that would cause me the greatest frustration.

With the model change with property management and obviously with a lot of experienced people leaving the industry sort of post-COVID, when you've got a third of experienced property managers going, you've got regulation and compliance issues. It's very onerous on property managers every time there's new legislation.

And I really do not think that our governments take enough thought to who implements this stuff.

But anyway, we do have our rental commissioner from New South Wales coming on the podcast shortly.

We're going to talk about that. Because this is the thing that they're imposing a lot of this implementation on an industry that's depleted of staff. And it's already had the reputation of being a very thankless job anyway. It's a tough job.

You're in demand and it's always problems, just constant problems that you have to solve day in, day out. And people aren't always nice to you. And it was interesting, too, because through COVID, people loved property managers because they were handing out discounts, right?

But vacancies dropped, prices started rising, and, of course, they're assholes again. Everyone thinks they're an asshole. So it's a very difficult industry to be in, to be quite frank.

And I see a lot of the big players looking at ways to automate and, I guess, scale some of what they see as low-dollar productive tasks. One of them, for example, which I don't actually agree with, is a low dollar productive task, is inspections.

There's outsourcing of inspections, which I think is actually terrible personally, but we can have a whole other conversation on that. But that's just one example of one of the...

functions, if you like, or one of the tasks that a property manager has to do that hasn't gone to tech, can't go to tech, that fragmentation or that sort of specialized, it's a bit like the Henry Ford model, the way of building a car, isn't it?

It's basically an assembly line of property management. So I'm starting to see a bit of that. I'm concerned about that because I'm actually not sure that's a great solution. But is that sort of part of what you're seeing is the future, that type of deconstruction, if you like, or industrialization of it?

Kind of. The way I would frame it is this. So let's start with your two options. You've got an investment property. Option one is you manage it yourself. Option two is use a property manager. I would argue there are self-managing landlords who do a very good job, no doubt. The majority do not.

The majority that do it because they want to do things that the property manager would say you cannot do that. And we used to see this a lot. That's why people self-manage.

There are, across property management, a select group of property managers who are genuinely bad at their job, should not do it, cause all sorts of issues. Overwhelming majority do a good job. There's a handful that do an extraordinary job. And when you get that select view, as a tenant, it's a great experience.

As an owner, it's a great experience. Our problem, though, is that as an industry, on average, these people have a career of 11 months. So they come in, loan the job, burn out, and don't just leave that employer, they leave the industry within 11 months.

At the moment, there's 4,000 vacant roles on SEEK. If you look at average size of a portfolio to look after, this is somewhere between 25% and 30% of all properties do not have a full-time property manager assigned to respond.

And we cannot get them, train them, keep them in any way that meets the existing demand, let alone property number growth. So part of what we're saying is two things. First of all, how do we take what the very best do and make that pretty consistent across the rest of the group?

How do we normalize that? It is through really structured processes where the system guides you through what to do. Then separately, how do we start to deploy some of what we're seeing across things like agentic AI?

where we know the AI can do the heavy lifting, get more of the repetitive tasks and so on, so that we create capacity and you don't need those 4,000 extra property managers that as an industry we're crying out for.

So I think there's no singular thing that is the issue or the thing to be solved. It's this kind of cacophony of issues that we've made worse through very well-intentioned legislative changes that have just, in many cases, backfired spectacularly.

Is it Scott hard really to build tech though? Because like any tech, it's just costly, right?

You know, and I think there's been like different, there was Cubby, there was all these DIY platforms, Yabonza, there was all these digital, either you do a DIY or I'll build tech and I'll sell it to agents or property managers.

And either way, it's a lot of capital to invest and you've got to get the payback, right? And how are you sort of managing that? And I think, is it getting cheaper to build it? Where are we at?

There's a couple of issues here. One is that if you look at the DIY, the self-managed landlord products, in large part the dilemma is that your competition is Microsoft Excel and it's free.

The person who's decided to self-manage for whatever reason has worked out that of the 30 grand they'll earn in rent, they cannot believe they're going to part with $1,500 for a professional to do it. So they say, you know what, I'm going to use Excel. I'll do it myself.

And you're trying to convince them to pay you $20, $30 a month, which is not that much. A friend of mine built one of these and I said, how's it going?

And he said, what surprised us is that both the tenant and the owner could not get their head around the fact we are not their property manager. They need to interact with each other. We're just their software. Huge admin overhead. B2C marketing, as you'd know, is expensive.

And then trying to convince someone to go for nothing, $240 is a big leap. The other side is the agency side. I mean, I can only tell you we're $120 million in.

It is not a cheap product to build. It is not a, this is not a thing you come into and just place a small bet. You are either really committed to it or don't do it because these are huge, expensive and complex platforms to build and build wealth.

So you'll spend 120 million on your tech. Wow. Correct.

And the payback is it, how much market share do you have to start to pay this back? Depends on how you monetize. I mean, our kind of strategy is not that. So part of what we do is the subscription.

Part of it is this services ecosystem where we help agencies actually monetize the rent rolls that they've got through adjacent services and products of which we will share some of that income. So for us, we don't need to be the biggest. Our intention is not to be a mass market product.

We tend to focus on the ultra large property management teams rather than every franchise that exists.

And we find we are very well suited to those groups where, you know, for the rest of the market, if you've got 200 properties and you're mostly about sales, our advice normally is stay with what you're on. It's just not worth changing. Why even change?

Is that one of the major challenges though, is that like, you know, life's busy. I've got Netflix to watch tonight. I'm tired. I've got kids to get to school. And typically, I mean, that's what the property manager's preyed on, right? If I don't service you, I'm just going to play on your apathy.

A little bit in the banking system works that way as well. And it's a pain in the ass. I've got to get the keys somewhere else. I've got to get another inspection. It's a lot of complexity. Do you think that's just also holding the property manager industry back?

Because instead of having to, I guess, increase, they just try to let the rent roll sort of run off.

There's a mix. So there's a range of factors. One of them is like when I was running a rent roll, we had 23,000 properties when I left that business. And every year we would lose 13%. A portion of the landlord sells, a portion is self-managed. That is best in class.

If you look at the data on publicly listed businesses, it's about twice that. If you're starting every year, having to grow by 13% to 25% plus to tread water at zero, growth is very expensive. Parity is very expensive.

So then if you think about these businesses that are growing and start to add in what that costs, like it's disproportionate. So you've got to wrestle with this idea that your business, like a restaurant, your food deteriorates every day from the day you buy it. The rent roll is very similar.

Unless you are constantly growing it, it's going to shrink down just of its own volition.

That's such an interesting insight, actually, into the property management business. And fundamentally, they're a bunch of small businesses. So what you're dealing with is, particularly when you've got tech, the sort of investment that you've made, even just choosing solutions.

You've got to get somebody who's running a small business to wrap their head around the future and the future of their business, but also investing in a different way that you would invest. Like you said, that we're all sort of hardwired to go short term anyway.

And if we think, okay, if we invest in the sales business and we can see an immediate return on that investment, that's what we're doing, as opposed to the second marshmallow, if you remember the two marshmallow exercises of kids. Do you think that is why the industry sort of resists deep change?

Because it really is a cottage industry, even when the pain points are really so obvious to everybody involved.

My observation, if I compare property to my experience in financial services, property as an industry is terrible at change leadership. And I mean, genuinely, frighteningly bad. In large part, because we don't have the large corporates that have had to develop that capability.

When I first came in, I used to say to people, imagine in property, if instead of having thousands of mom and dad franchises, we had a Big Four and those Big Four like the Big Four banks.

Look at the innovation you've seen over the last decade from Big Four banks in fraud detection and mobile apps and self-serve technologies and so on. We have seen nothing like that in property because you don't have $4 billion organizations that can place big bets.

So the structure of the industry holds it back from innovation. And it also means they haven't had to develop a lot of these change practices that we see elsewhere. We see it at the moment where we'll have agencies that see a demo of Commio, get very excited, sign up,

And then literally every week for six months, it can be a conversation that says, guys, my key people are on leave. I can't do it this week. We've just had this new bit of legislation. I can't do it this week. We're about to buy this new rent roll.

I can't do it this week. And in some cases, these were customers that were convinced, which is the most important change for their business for the next 10 years, be 12 months of just life getting in the way. And because they're very small, they're very sensitive to it. So

The cottage thing doesn't help. The complex nature of what they wrestle with also makes it really challenging.

Scott, can I? Yeah, you might not have the data on this, so I'm putting you on the spot. I've got a bit of a belief that we're going to start to see some pain down the line, particularly in our rental markets, just because

The last five years has been a restructuring, I think, of where investors have been buying versus where they typically bought in the past. Investors have been selling just due to interest rates, life, all the reasons. And where they've been selling is not where the new investors are buying. So investors have been buying.

We have had a boom of investors. Yeah. But often they're going to regional locations, obviously going to lower price points for many reasons. Not to say that I agree with it. And then you can see investment booms in there and price booms.

But that means that the investors that are selling aren't getting replaced. Like those property management, you said they're losing 13%. You were best in class, but some are 25%. If those investors aren't getting replaced, we're going to get an undersupply of... rental stock. It's getting tougher and tougher to rent.

Can you see any type of data like that where your regional offices are doing really well, your city offices and potentially are really struggling, losing a lot of properties?

Very much. So we do a bit of work with some of the tenant advisory groups trying to work through, like how do we make the experience better and so on. And one of the comments that you'll hear from time to time that we kind of jump on the correct.

And if an investor leaves the market, an owner-occupier gets a home and it nets out, The evidence is that is simply not true and it's not true by quite a lot because household composition is different. Yeah.

The people that can afford to take that leap are not necessarily the at risk or vulnerable tenant groups and so on. So yeah, short answer is yes.

A lot of our customers for the last couple of years have been wrestling with all sorts of challenge with landlord runoff just because they're exiting the market. Originally, particularly in Victoria, it was a reaction to legislative changes and land tax and so on.

The other states, they've either followed or they're going to follow. So people are coming back to Vic a little bit, but they're not necessarily coming back to where they were.

No, they're buying different properties.

They're buying houses in the suburbs versus apartments near the city, right?

Also, they're buying at different price points. Some of the properties that have been sold are sort of more established areas, some bigger properties, and the new investors coming in aren't buying at the same price point.

We agree. Yeah, there's only pockets you've really seen some real issues there where you've, because it was quite easy to rent in Melbourne, right? And I think that's, you know, like it was always easy to rent a house, easy to rent an apartment, rents didn't, prices didn't do much, rents didn't do much.

But I think things have changed. I don't think we can go back to that world very easily because you need to replenish the investors and you've got first home buyers often buying and the investors aren't buying. So what are you seeing? So there's nothing I can give you that's geographically relevant.

The data point that I think is interesting though, is that particularly through this kind of sharp increase in rental that we saw over the last couple of years, tenants are now so gun shy and so nervous about changing properties. We're seeing the availability of stock diminish as a consequence.

So we see 33% of properties turn over every year. It's now 22. So nearly a third less properties coming through because tenants are staying put. We're seeing household composition increase as people room share and so on to deal with these higher rents.

So they just aren't the volume coming through for getting supply as a total pool. So this interesting behavioral shift has happened that until tenants can get confidence again, that if I vacate a property, I'm reasonably likely to find another one. They're just going to stay where they are.

So it's like the ones that are there aren't coming onto the market available.

And that impacts profitability of a property management business as well, because there's letting fees every time a new tenant turns over. Not that it's really that great for landlords. I mean, we also, at the same time, we like to have consistency with that. It's quite disruptive to have to find a new tenant.

But I guess if they're re-signed leases, there's a letting fee. But yeah, even that churn, I guess, changes things in terms of managing a rent roll too, right? Or the lack of churn doesn't make it easier, right?

Yeah, it's a completely different problem to wrestle with. The economics of it is going to start to change. If you were earning, call it a week or two weeks as a letting fee or whatever it may be.

So good for the landlord because obviously yields are stronger when you're losing properties vacant and so on, but certainly very different for the agency. So you've got fewer staff. They're costing you 30% to 40% more. You've got this turnover that used to happen in properties that's now longer happening.

Your staff are more prone to abuse and so on that you're trying to deal with. It really is a perfect storm.

So what role should and could technology plan rebuilding this broken system? I mean, you've already said, Colmio, is something I know from my discussions with you that you guys help those with, say, $1,000 in the rent role as opposed to $200, $300, $400.

I would imagine there's lots and lots of agencies with sub $500. How can technology make a difference? Can it? Yeah.

It can. It definitely can. So one of the interesting shifts, so if you look at how we solve these problems in all industries, we follow these three steps.

We do all things ourselves and then we try and work out, hang on a minute, there are people we can use who are cheaper and what can we give to those people who are cheaper? It's called outsourcing or offshoring.

And then eventually technology is created and it can do what the people do and it's even cheaper, so we use the tech. We are somewhere between offshoring and technology right now.

What are the interesting shifts, though, is that when a lot of the offshoring thing first started to take off, what you would see is that businesses would stand back and say, we manage 10 processes. Let's rank them in terms of what it costs us.

And then the ones that cost us the most, let's get that done offshore because we'll get the biggest bang for our buck. Our argument is that needs to shift.

And instead, what you've got to stand back and say is of those 10 processes, let's rank them in terms of how impactful they are to our customer. Yeah, yeah. The ones that are most impactful you keep onshore and the ones that don't matter so much send offshore.

It's a little bit like those businesses that are outsourcing their inspections. They're impactful. They're really impactful, but they would see those as being expensive and so therefore great to outsource to a cheaper company. But I would say at the expense of their client experience. So that's interesting that, yeah.

Sorry, I keep going, I interrupted.

So I think we're seeing the same thing with technology now. We're effectively, the comment we make to people is when we look at the next two years, what we are forecasting with AI is wild shifts. in agency efficiency. I don't mean little bit, I mean orders of magnitude.

The thing that I keep advising people though is think about technology as how things get done and think about people as how you make people feel. So use the technology to get things done and then stand back and say, what is the connection we need to have with our customer?

What is the feeling that we want them to have? Are they feeling confident and inspired and valued and all of that? That is where you focus people. So stop trying to get people to do what the machine can do better and cheaper. free up to be more impactful and more meaningful.

And I'd argue that those people will have a more rewarding career and experience and so on if they do that too. So we help solve some of that attrition issue.

Scott, from your around the grounds with, you know, you said you do these work groups, I guess, with some of your property managers, et cetera. I mean, on one of our properties, when I was away, actually, one of our toilets has only got a single flush, right?

And it's going to be a double flush. Otherwise I can't charge the tenant for, they can't pay for the water. And I'm like, they gave me a quote. It was like some $800 or $900 or some stupid price to change this. And I'm like, how much water is that going to save?

And I like threw it into chat GPT and this is going to take a long time to get my $900 back. But I said, can I get the tenant just to say they're not bothered? And then they asked the tenant and said, no, we want to do it compliantly.

So that was extremely frustrating. It just felt like I was just... You know, there's no saving in water. There's a little bit of water saving, but the cost versus the saving. And that's a lot of work for that property manager because for what? And, you know, then they've got to organize the plumber.

The plumber's got to go around and they've got to organize the tenant. It's just inefficient, really. So what's some of the big ones that the property managers are getting really frustrated on that it's maybe just a step too far that's creating a lot more work versus the benefit for anyone, really?

The one that we hear the most sort of frustration about is the changes around property compliance. And I think most property managers, because again, most property managers are renters. So they're not some group of monsters that don't care about tenants. Most of them really do.

They argue that the compliance changes are well-intentioned and important, but there is so much nuance in what makes something compliant or not and how that gets achieved.

I've forgotten the exact story, but I was sitting with an industry panel and one of the property managers from a very large agency here was explaining the story where you just watched the penny drop and a lot of people from government and so on just went,

Oh, God, yeah, there's no world in which this scenario works or makes sense. And they're saying, yeah, but the property's not compliant because of it. So because you haven't really done the work to understand what it means to implement these things, you've just gone with the rule, we end up worse off.

The other one that I was sharing with was around the tenancy applications and the data that these applications capture. And a lot of the rights groups, very appropriately, are saying we're capturing way too much personal identifiable data, which I agree with.

And they're saying we should give tenants all these options to not use these systems. And I said, that's fine. But I want you to stand back and actually see the world as it is.

If there are 50 tenants applying for a property on a Saturday, which is happening, and all 50 need to work out whether they are the one person who got it or the 49 who didn't, they want to know within a day or two so they can go to the next property.

If you don't use these algorithms to assist with some of that selection and so on, it could be two weeks before it gets through all of the reference checking and so on to do it. And they'll say, yeah, but it's the issue of bias. And again, I agree, there's bias in the algorithm.

But the world in which the person isn't free of bias. So you've either got the bias of a mid-20s property manager, or you've got an algorithm that we can actually control and dictate. I said, so like your intentions, I agree with wholeheartedly.

You've got to understand how much worse this would make things for people if you try and see it through. And sadly, that's just what happens is people with great intentions produce terrible outcomes.

Yeah, it's a little bit like the pet thing, for example. I mean, if you've got 10 applications, five applications, whatever, and somebody has got four dogs and somebody else has got one dog, well, you're going to go with the person with the one dog.

Now, you're not going to say you don't get it because you've got four dogs. There'll be other reasons, but at the end of the day, this is, again, the unintended consequences of making things, taking all choice away from owners is that they're still biased. It's a bit crazy.

I mean, years and years and years ago in New South Wales, they made the pet bond illegal. And so the pet bond actually made property managers more likely to present a tenant who has pets financially

Because they're saying, look, this person is so confident that their dog or the cat or whatever is not going to do damage that they're prepared to pay an additional bond. Then they went, that's not fair. They outlawed it.

And then it's like that immediately put anybody with a pet at a complete disadvantage against somebody without a pet.

It's exactly the same with background checks. So we've now banned any paid for background checks in some states. It'll end up being the same everywhere. And again, well-intentioned. What you don't realize is that, again, 50 people are at a property wanting to apply.

A person who knows they are desperate for a home and they're struggling will come up and say, you need to know how much I want this property.

Is there anything I can do to help the landlord understand I'm a good person, I'm going to be a good tenant because I'm really wanting to stand out or show something different. Now, if you're forcing people to pay for these products, I agree, terrible, shouldn't be a thing.

But in some cases, that is the thing that helps that person who wants to present their case stand out from the group. If you're an immigrant into Australia and you have no real industry, you are most disadvantaged by the inability to now use these products. So very well-intentioned, horrific outcomes.

I'm on a personal mission to help more people make better property decisions. You know, most people don't realise that they can cost themselves hundreds of thousands of dollars over the medium to long term when they make property decisions without all of the information that they need.

And what I do is help people with tricky real estate problems, which often masquerade as simple questions like, should I sell my investment property because the interest repayments are hurting? Or should I buy before I sell? Or the other way around.

You can connect with me and access all of the tools that I've created to help you make better property decisions at VeronicaMorgan.com.au. And there you will find resources for first home buyers, details about my buyer's agent mentoring program.

You can connect with my Sydney-based property management and buyer's agency teams, Australia-wide vendor advocacy, or ask me for introduction to the small group of buyer's agents that I would personally recommend across the country. That's VeronicaMorgan.com.au.

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Another one on immigrants is I think it's Queensland. They've outlawed paying more than a month in advance or something. Quite often someone from overseas will come and say, look, as a show of good faith, I'll give you three or six months rent in advance to demonstrate that I'm good for the money.

They can't do that anymore. So that type of potential tenant is really on the back foot. And I know that they're trying to say, well, they're taking, I guess they're trying to level up the playing field for the person who can't afford to put their nose in front like that.

As a property manager, you don't really want six months in advance rent. You just rather than pay it regularly, right? Because then there's a whole new set of challenges.

All right, we've got to give a chunk of this to the landlord, but we still do need to withhold some because what if there's maintenance and bills and things that we're paying? It actually mucks the system up. So it's actually something you don't really want.

So as an industry, you go, yeah, great, sure. outlaw it. But as a tenant, prospective tenant, where that would be their opportunity to put their best front forward because they're disadvantaged in other ways, that's been removed.

So exactly, it's that lack of the industry or just a little bit of a commercial lacking perhaps in our legislators who don't fully understand the implications of what they're putting forward. But looking ahead though, do you see a future where property managers are strategic advisors rather than administrators?

If that's the case, you know, it's that small handful that you were saying are excellent because most would not be up to that challenge. So I guess, do you see the profession might disappear altogether instead? I mean, do you see a real shift in terms of what the role will become?

Definitely, yes. And if I look at even just what we're building, the type of people that we are building a product for is shifting. So it's about, like right now, you've got a property manager who does 10 things and you build software so they can do the 10 things.

We're increasingly saying, we don't think you need to be doing most of those things, but we need you thinking about how you can add value and have some impact on your customers through the more personable things.

The separate thing is that you've got to be capable of overseeing some of these technologies as they do their work. We use the analogy of like the autopilot on a plane, right?

Like 98% of the time that the plane kind of leaves the hangar and arrives back, it's not the pilots in control, but at the key moment at the start, at the key moment at the end they are, and at any point in between they can intervene because they're constantly aware of everything that's going on.

We see a similar kind of shift transactionally, like how they do the work.

But then importantly, it's more about what is that value add so that the investor is thinking about maximizing yield through some bit of renovation or how do we introduce you to people that might be able to give you some good advice on property number two or three or whatever it might be.

So I think there's some of that stuff that is certainly going to help differentiate people. But you're right, very different job to what we've been doing historically.

You know, you mentioned at the start, which I hadn't actually really thought about, the sales and the property managers joined together. They're just doing that because everyone lived in the properties not that long. And really they would just use it as a lead tool to do a sale, et cetera.

And so it didn't get any, it was just an asset, but they want to make money on the sales and I've sort of got that bit, but the shift in terms of living in properties longer and more of a sustainable actual business you can get through building a rent role.

Do you see like independent brands or do you think it's still, because the real estate market is just a few big brands often, the Bergamot Garage, the Ray Whites, the Bells, that have got such a foothold that it's going to be really hard for these independent property brands to really get any serious scale?

What are you seeing?

You'd be surprised. We actually see the opposite. So The big franchises have the brand presence and the brand awareness.

Generally speaking though, and this is a general statement, most of those franchisees are so disconnected from one another that there's no real economies of scale or competitive advantage because you are part of that group. What we see is, particularly in property management, the best businesses are either purely property management

Or they would tell you they are at first property managers, second sales. Victoria, one of our terrific customers is a group called Nelson Alexander. They're the biggest property management company in the country. They're also an excellent sales business.

But when you sit with their CEO, who will very seriously tell you, we are building a property management business that is also very good at sales. And I think that shift is an important one because the capability is different, the culture is different, economics are different and so on.

But if you get that right, you can build an incredibly high-performing and lucrative sales business at the same time.

Yeah, it's an interesting flip there because, yeah, most do come at it from the sales side. Years ago, I was in the motor industry and it was a bit the same.

You know, there's the shiny selling the cars is a lot more glamorous than servicing them, yet the service business is really what was the asset in the business. And actually, in that instance, I mean, I was at Toyota.

I think there was some rumor going around that most dealerships were making $200 every time they sold a Corolla. So really, the profit was in the service as well. So it's slightly different in that regard.

But I do, in my own personal experience in my buyer's agency, when I have dealt with property management businesses, those that have come either were property management only, which is actually the reason that Kate and I decided to join forces and set up Preferential.

was because the property management focused business that we had partnered with for a long time sold. And they sold to a franchise business which wanted to extend their sales reach. So even their purpose for buying property management was still about sales.

And you could tell, you know, we had clients immediately coming to us saying, oh, we need a new property manager. Who would you recommend? So it was instantaneous, the shift. And same staff. It just shows what leadership does.

You know, I've known other businesses that had started as a property management business and went into sales as a result of that. And their whole approach to property management is much better in my experience as well. So it's interesting that you would say that.

What are you most looking forward to in terms of your business?

I mean, we started this with this fundamental view that renting a property is broken. I came into real estate because I was full of arrogance and thought that I could singularly fix it and everyone must be so stupid and I'm so smart. Got there and found I was completely wrong.

They're brilliant people and they really do try hard. What we found is that this, Congo means triangle, landlord, tenant, and property manager. Three sides have got to be in balance and when they're not, the whole thing falls apart.

Our kind of vision for the future is a world in which people actually enjoy renting and have a bias towards renting for life because it's a great experience and you don't feel that sense of being a second-class citizen because you can't afford a home. Saying others will do great work in fixing homeownership.

What we want to focus on is making the experience of renting a property a terrific one. And we know to do that, you've got to have happy, engaged and high-performing property managers. And you've got to have a happy, engaged landlord who's generating a good and consistent return.

So in large part, what we do is just focus on how do we bring those three things together concurrently.

And a lot of that has to do with both the way we automate the stuff that kind of varies normally in terms of the service you get, and then bring to life some really surprising kind of moments of delight through what we can do with data and prediction.

And there's a range of services that we're increasingly looking at bringing to life to the tenancy so that it feels like this thing you rent is actually a really high value experience.

Scott, are you seeing issues like where I get that sort of the tenant experience, et cetera, but I feel like the owner of properties is not going to be as long as it potentially was.

You think about a lot of the investors in the last five years and they're not really buy and hold investors. They're speculating on pockets.

And as soon as they can get their money, often there are a lot of first-time investors, they'll probably take their money and run, particularly if there's any chance the price is going down. It's great. I can rent something today and there's lots of them.

And all of a sudden now, all these investors are selling. Rather than the buy and hold, I had a house near the city and it was my old house. And now I'm just going to hold it because it's a good investment.

It's a different mentality towards, and there's not build to rent and institutional investing and You know, that stuff doesn't really move the needle, really. I mean, there's 3 million plus rental properties and what, they could build 100,000 of those. It's such a minor element to it all.

How do you think that's going to play? If the next version of investor is more a speculator, a market timer versus a long-term buy and hold, how are you going to manage that, I guess?

We can't control it. And this is the thing we've got to accept is that there are parts of this that we can influence very directly. There are parts of it that we can influence less directly, i.e.

the things that we do with and through property managers rather than direct the tenant or the owner through the agency's software. What we can't change is the decisions investors are making about whether they hold or buy or sell or where they do and so on.

We've just got to make sure that for those who do buy an investment property, if you are on our platform, it is doing everything conceivably possible to make that a better experience for everybody.

Part of my belief as well is that when we were sort of tracking all of the landlord data, you would see that the landlords who had multiple properties were significantly better landlords for the tenants that rented those homes.

They had capital on hand, they understood what it meant to own and grow an asset, highly responsive, understood what they could and can't do within legislation, worked really close with their property manager.

What we see is the, pardon the term, but the mum and dad that went and got some terrible bit of advice from their accountant that says, why aren't you negatively geared? Rates often buys a property. They've got no understanding of their obligations, don't have the capital on hand.

That's where a lot of those issues that we see start to flow through and show up. And then you've got this property manager being screamed at by a tenant for what the tenant is entitled to, screamed at from the owner because the owner shouldn't have that property but does.

creates this mess on the other end. So I think some of them dropping out will be a very good thing. We've just got to make sure that the asset is sufficiently profitable and incentivized or whatever it might be that enough of the right people continue to buy and hold.

So I agree with you. The institutional thing is a thing, but it's just a drop in the ocean compared to the majority.

It's interesting though, because I do wonder whether today's sort of multiple investment property owner has that same mindset that perhaps the one that you're talking about would have.

Maybe not. It's been a little while since we saw that.

So perhaps- Yeah, yeah. It's interesting out there. Yeah. There's a real shift in how people are buying investment properties and their personal involvement in those decisions. And that's come about because of the proliferation of borderless buyers, agents and great marketing, basically.

It's the new generation of the spruikers that was sort of about 15 years ago. That all died off as it became quite obvious that most people lost money. Now we've got a new generation of it, but it's under the guise of advice.

and data driven and how can you go wrong using data to buy investment properties. And there's going to be some casualties, sadly, and some mass casualties. And it's going to impact, I would say, a lot of regional property management businesses are going to be impacted by that.

But, you know, we'll wait and see all that happen.

Just to double down on that, Veronica, I mean, we make a joke, you and I, sometimes around either scalability or unscalability or vice agency. Hmm. You know, versus what I do, Broking, right? We have clients all over the country. It doesn't really matter. We can use Zoom.

It doesn't, you don't get a better rate. There's no issue, right? But property managers, I don't know, that's got to be the next level, right? Open homes, inspections, leaving, et cetera. So how do they manage this?

You know, when you create more demand in one market, you can't just all of a sudden just put a property manager on the ground. And then, you know, a lot of investors leave in this pocket and you've got to reallocate them. So it's a really hard business to scale, isn't it?

The property management industry.

Yeah, it is. And it's why you don't see that many with scale. Like when we were at 23,000 at the time, we were the biggest that was and biggest that had ever been. And if you think about it, you're about 0.8% of the market. I think the next one down was about 13,000.

The next one, 10. There'd be maybe 100, 150 in the country that are more than 4,000. And it rapidly trails off until you hit the hundreds. So it's a... It's a frighteningly difficult industry when you look at the ability to scale.

And it's a really important one to get economies of scale because of how sensitive the margins are.

Scott, you said that when you first joined the industry, you had all these naive ideas around how you're going to fix it. And it's funny, I was talking to Evan Thornley, who we're going to get back on soon. And he was saying the same thing. He's now been in the industry 10 years.

He said, at the beginning, I was so sort of arrogant. And he came from tech as well. And he was like, I thought I had it all sorted out. Then I realized it actually worked completely differently.

And often when, and I've said this many times in the podcast, sometimes when I listen to the PropTech podcast and I hear interviews with people with great ideas, but their personal story is to lead them to develop this software or this solution. And I think you do not understand the problem.

You don't understand. You've had an experience. Your mates have had an experience. You've all decided you can fix things, but you do not understand the problem. A lot of it comes down to trust. And they just assume that agents are untrustworthy.

And so they're forgetting that buyers are untrustworthy, tenants are untrustworthy, vendors are untrustworthy, you know, landlords are untrustworthy. They just forget the whole ecosystem. So I'm guessing you've come in and you've had a rapid sort of a shape shift in terms of your attitude towards it as well.

Do you have an example, maybe on that theme, do you have an example of a property Dumbo for us that we can, a lesson that we can all learn from? from one of my mistakes? Well, you are free to share.

Oh God, there's so many. My whole attitude was because I think I had become convinced that in getting a bad outcome as a tenant, I must have been dealing with someone who was either incompetent or didn't care as the manager.

So you form this view that property managers are monsters or don't care or whatever. And it's not until I got to the industry and I'm meeting these people and they're all so lovely and you hear them talk and deeply care about their landlord, property and the tenant.

And I'm sitting there just going, shit, this just doesn't reconcile my perception. What the hell am I missing? And it's not until you go on the road and spend a day with one or two of them and you're watching the horrible way they get spoken to. They're stalked, they're assaulted, they're threatened.

We forget all of this goes on. So I wouldn't say there's a specific instance I'd point to. I'd say there's a whole mindset shift that I had to make to get rid of a lot of those preconceived ideas about why bad outcomes can happen from great people and great intentions.

Yep.

What you've got to work on is, you know, what's the system they're working in as an industry or with tech, whatever it might be, rather than just assuming it's a lack of effort or lack of competence.

Yeah, it's interesting that, isn't it? Because there is a lot of that sort of, oh my God, how hard can it be? It's very hard. And I mean, I'm not even operational. My business partner, she looks after all of that. And I'm astounded with the demands that are placed on them to manage.

They have to have really amazing boundaries as well with people. Forget the tech, just in their interpersonal, their communication skills just have to be rock solid. They have to be so self-aware and empathic.

I mean, you and I were at a conference last week, Scott, and I think empathy was a big theme of that conference as being a really important skill moving to the future. But also it's always been important. But let's face it, I think that the demands on that are becoming more and more.

Yeah, so it's interesting that you've had that shift.

Scott, this has been a really interesting chat. As I said earlier on, it's been a long time coming. You and I have had a couple of interesting chats, usually at dinners of these things, and I really appreciate your time.

Been terrific seeing you both. Thank you for having me on. Thank you, Scott. If you have a question that you'd like us to answer in an upcoming Q&A episode, you can send us a voicemail or written question via the website, theelephantintheroom.com.au, or you can email us directly at questions at theelephantintheroom.com.au.

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