2024 Emerson Owner-Client Letter

Below is the annual Emerson Owner-Client recap I sent to all our owners at the end of 2024. Note: Non-applicable content has been removed for clarity and focus.

Please see below for a list of what’s covered in this letter:

• Houston Market Review 2024

• Emerson’s Performance 2024

• Emerson’s Improvements for 2025

My goal is to provide you with this information for two key purposes: (1) to help you make more informed decisions about future investments, and (2) to offer a transparent look at how we’re safeguarding and enhancing the profitability of your rental property. Please note that much of the data originates from the local Houston MLS or our own portfolio insights, including data from your properties!

Houston Market Review 2024

• Single Family Rents:

• Oct 2023 vs Oct 2024 – $2,230 vs $2,250 (0.89% increase)

• Jan 2024 vs Oct 2024 - $2,272 vs $2,250 (0.96% decrease)

• Cumulative Days on Market (CDOM):

• Oct 2023 vs Oct 2024 – 32 vs 36 (12.5% increase)

• Jan 2024 vs Oct 2024 – 47 vs 36 (23.4% decrease)

• Note: CDOM is a better representation of time to lease than DOM because CDOM includes all the DOM if the property was listed multiple times i.e., listed, delisted, and listed again.

For another consecutive year, rents were flat in the Greater Houston area. The increased inventory (your competition) is being caused by similar factors we saw in 2023:

• New Multifamily Supply – Normally, I’d say multifamily properties don’t directly compete with single-family rentals. However, with the dramatic increase in rents since 2020, and the appealing amenities offered by multifamily properties, renters now have a wider range of options.

• Owners Wanting to Keep Cheap Mortgages – A recent Redfin study found that 56% of all mortgages are below 4%. Rather than selling when they move, downsize, or make life changes, many property owners are opting to rent out their homes to preserve their low-interest rates — a phenomenon commonly referred to in the industry as the 'lock-in effect.'

• Owners Not Able to Sell - The rapid surge in mortgage rates, coupled with sellers' high price expectations, has pushed affordability to historic lows for many buyers. With fewer buyers, there are fewer sales. As a result, some sellers are turning to renting their properties to avoid the burden of carrying two mortgages.

If rental inventory continues to increase next year, we will see further downward pressure on rental prices - which, contrary to popular belief, I’m actually looking forward to. Let me explain why.

Warren Buffett famously said, "when the tide goes out, you see who’s been swimming naked".

For more than the past decade, the market has been in short supply of rental housing - leading to waves of "investors" entering the market who thought this business was easy. "Investors" who have reaped the benefits of the rising tide. The tide has changed. Tenants have options. You can’t put lipstick on a pig, throw a tenant in the property, fee the tenant to death, and expect the tenant to stick around.

Tenants will flock to quality properties, owners and managers that treat them right.

The unprecedented 5-10% annual rental appreciation seen during COVID has ended. The tight cash flow and lack of "cheap money" in real estate is going to naturally eliminate the bad owners and managers, allowing your properties to stand out.

If you can weather unexpected repairs, and the rising taxes and insurance, I believe you’ll be in a fantastic place 3-5 years from now - with more equity, more cash flow, and more knowledge.

But the road is not going to be easy, and it may take another 12-24 months before things get back to historical averages.

My hope is our team can serve as your trusted partner as we navigate these uncertain times, working together to achieve your real estate goal(s).

Emerson’s Performance 2024

Maintenance:

• Median Work Order Cost: $211 vs $172 (2024 vs 2023)

• Work Orders Resolved Via Trouble-Shooting: 498 out of 2345

• That's over 21% of work orders resolved without dispatching a vendor - an estimated $105,078 in savings!

• Median Speed of Repair: 6.1 days vs 3.9 days (2024 vs 2023)

• Tenant Satisfaction: 4.4/5.0

I'm incredibly proud of our maintenance team and all they've achieved this year. It's rare to find a company that strikes a balance between cost efficiency, repair speed, and tenant satisfaction.

Unlike other companies that outsource maintenance - dispatching to individuals around the globe, Emerson employs a dedicated, experienced maintenance team located right here in Houston. Our team understands the unique challenges of the Houston market, including those related to humid coastal climates and hurricanes. Every incoming maintenance request is thoroughly reviewed and undergoes advanced troubleshooting before a vendor is dispatched — all at no additional cost to you.

The number one reason tenants leave is due to lack of attention to maintenance, which is why we take maintenance very seriously and have high tenant retention – leading to less turnovers and higher owner profits.

Kim, one of our top Executive Property Manager’s, led the charge as she resolved more maintenance issues without dispatching a vendor while maintaining a 3.0 days median speed of repair for the entire year!

Work Order costs increased on average $39 and speed of repair increased 2.2 days this year. While that would normally be alarming, the majority of those higher costs and longer repair times were during and after hurricane Beryl, as well as due to training new vendors.

Big shout out to our Director of Ops, Margo! She screened, onboarded and trained 35 new vendors to our vendor network team this year. Her dedication and time spent with ongoing vendor training to effectively learn our internal systems/process through the aftermath of Hurricane Beryl is nothing short of extraordinary.

We believe these new vendors will help us become more resilient during natural disasters, increase competition to drive down costs, and decrease the time to resolve tenant maintenance.

At the time of this writing in November 2024, for the past 30 days, our median speed of repair is 3.1 days and median work order cost is $135.

We will continue to monitor these metrics vigilantly.

Leasing:

• Median Lease Days on Market (DOM): 23.7 days

• Median Lease Price: $1,805

Our leasing team’s top priority is to secure leases quickly, at the highest rent, to the most qualified tenant(s).

Our Realtor, Liz, was the main driving force behind the strong performance this year. Her team leased properties 43.8% faster than the Greater Houston market average of 42.2 days (CDOM from January 1 to October 31).

While our year’s performance was outstanding, we saw a slowdown towards the second half of the year – mostly due to seasonality and the aforementioned increase in rental inventory.

While it may not be ideal to spend extra money during the turn to make your listing stand out, our high rent ready standards have proven to make your property lease faster than the competition.

General: (2024 vs 2023)

• Median Turnover Time: 13 days vs 11 days

• Average Turnover Cost: $4,212 vs $1,690

• Percentage of Tenants Renewed: 84.7% vs 84.8%

• Average Length of Tenancy: 1.85 years vs 2.71 years

Another year with an almost 85% renewal rate well above industry average of 50-60%, and while the rising interest rates reduced affordability for many of our tenants, our team’s attentiveness to the residents created a first-class rental experience – leading to only a small number of residents leaving – mostly for reasons out of our control like job relocation, family size increasing, etc.

Our average length of tenancy has historically been between 3-4 years, this year however we saw that average drop just below 2 years. The root cause of the drop is due to us acquiring another property management company - nearly doubling our door count. This created a major increase in residents who have been with us for less than one year. Next year and beyond, I suspect we’ll see that figure go back to our average 3–4-year range.

My biggest concern in all the data we reviewed this year is turnover costs more than doubling from last year.  

As mentioned earlier, we’ve added more reputable vendors to allow us to create healthy price competition and continue to spread the risk across several vendors - ensuring no one vendor gains too much control or pricing power.

When digging into the driving force behind the higher costs, there were two things that stood out:

• More large, expensive capital expenditures (fancy wording for expensive items in a home, think roof, foundation, AC, etc.)

• Evictions with substantial damage - out of the 31 evictions we completed in 2024 only two were Emerson placed tenants. Said differently, 93.5% of the evictions completed this year are from non-Emerson placed tenants.  

What does that mean for you? If you have an old roof, AC system or kitchen that is getting to the end of its useful life, please start setting aside the reserves. One of the most unfortunate parts of this business is the variability of expenses - especially large ones. The best investors can quickly contribute the funds for a roof replacement, and not miss a day of rent. The unprepared investor can’t fix the roof, loses the tenant (subsequently losing all their monthly income) and is forced to sell to a wholesaler at a 20-30% discount.

The other insight is the importance of tenant screening. Even when a property is sitting on the market for longer than anticipated, please try to keep in mind it’s much better to let the property be vacant another week or two, rather than lose 10-15k from a costly eviction.

By upholding our robust tenant screening criteria, we have another year with our eviction rate below 1% - 0.8% to be exact.  

Another trend continued this year that has been apparent since founding Emerson in 2019 – owners who completed their own make-readies resulted in significantly longer turnovers and vacancy.

In 2024, if the owner completed their own make-ready, it almost tripled the length of the turnover (38 days vs 13 days), adding almost a month of vacancy and, if your property rents at $1,800, that’s the equivalent of losing ~$150/mo over a 12 month lease.

While it’s always your choice as the owner to decide who completes the make-ready, I strongly recommend you allow Emerson to get the property ready for the next tenant – not only saving you time, frustration, and liability, but completing the make-ready in a more timely manner.

Emerson’s Improvements for 2025

As a client, you’ve likely experienced firsthand how deeply our team cares about you, your property, and your residents—arguably more than any other property management company. This dedication drives us to continually find ways to add value. While I won’t dive into the operational improvements for next year, here are just a few highlights of how we’re raising the bar:

• Adding an Executive Property Manager and an Executive Leasing Agent to the Team. Customer service is (and always will be) at the top of our priority list. Now that we’ve grown to manage between 250-300 doors, we need to add more team members to maintain the high level of service while providing employees a proper work-life balance.

• We’re adding two new guarantees for 2025 to back up our service claims! You can find all of our guarantees on our website here but see below for a short summary:

• 90 Day Risk-Free - If, for any reason, you are not fully satisfied with our services, you may cancel your Agreement within 90 days of the onboarding call, or management start date - whichever is earlier. Emerson will refund all Emerson charges, including management fees, Emerson leasing fees, and any other Emerson service fees.

• Vendor Labor - Emerson will warranty all vendor labor for maintenance and repair work orders for up to one-year (365 days) from the date of service.

• New Service Packages: all the details here!

Thank YOU!

In closing, I want to express our sincere gratitude for your business and the trust you place in us to manage one of your most valuable investments. Rest assured, we deeply value your confidence in our team and remain committed to enhancing our services and maximizing your profitability.

We look forward to another year of caring for your investment(s),

2023 Emerson Owner-Client Recap

Below is the annual Emerson Owner-Client recap I sent to all our owners at the end of 2023. Note: Non-applicable content has been removed for clarity and focus.

Summary of the information covered in this review:

• Houston Market Review 2023

• Emerson’s Performance 2023

• Emerson’s Improvements for 2024

My hope is you’ll use the information below for two main reasons: (1) to be better informed when making future investment decisions and (2) to pull the proverbial curtain back on how we’re protecting and increasing the profits of your rental property. Note: most of the data is either from the local Houston MLS or our own portfolio data (including our client’s properties!).

Houston Market Review 2023

• Single Family Rents:

• YOY: Oct 2022 vs Oct 2023 – $2,257 vs $2,201 (2.48% decrease)

• YTD: Jan 2023 vs Oct 2023 - $2,287 vs $2,201 (3.76% decrease)

• Cumulative Days on Market (CDOM):

• YOY: Oct 2022 vs Oct 2023 – 30.7 vs 36.7 (19.5% increase)

• YTD: Jan 2023 vs Oct 2023 – 47.9 vs 36.7 (23.4% decrease)

• Note: CDOM is a better representation of time to lease than DOM because CDOM includes all the DOM if the property was listed multiple times i.e., listed, delisted, and listed again.

Rents were slightly down to relatively flat year-over-year in the Greater Houston area. The leading causes adding to the rent supply are:

• Owners Wanting to Keep Cheap Mortgages – Per a recent Redfin study, 62% of all mortgages are below 4%. Instead of selling when property owners relocate, downsize, etc., owners are turning to renting the house to keep their low interest rate.

• New Multifamily Supply – Normally I would say multifamily does not compete for single-family renters, but with the continued rent increases over the past few years, and the amenities of the multifamily properties, renters now have more options.

• Short Term Rentals (STRs) Converting to Long Term – We all heard the crazy cash flow figures Airbnb hosts were making in 2020-2022. All that seems to be changing as more companies abandon the work-from-home model, increases in the number of Airbnb hosts, and tightening regulation from cities across the US. Airbnb host revenue declined in 2023, causing some investors to convert the STRs back into long-term rentals. It is unknown how this will affect Houston, but according to AirDNA Houston has approximately 70,000 Airbnb’s. If just 10% of STRs are converted back to long-term rentals that would add 7,000 rentals to the supply…

If more rental inventory continues to come online next year, this could continue to put downward pressure on rental prices.

Please be prepared that you may not see the record setting 5-10% annual rental appreciation that we had over the past 3-5 years. Normal rental appreciation is between 2-5% per year so it may be prudent to use that range when underwriting future purchases.

Emerson’s Performance 2023

Maintenance:

• Median Work Order Cost: $172

• Issues Resolved Without Dispatching a Vendor: 72 (estimated $12,384 in owner savings)

• Median Speed of Repair: 3.9 days

• Tenant Satisfaction: 4.5/5.0

I’m very happy with our maintenance team and what they’ve accomplished this year. I challenge you to find another company that has the combination of cost control, speed of repair and tenant satisfaction.

A notable difference between Emerson and other management companies is we resolved over 70 tenant work orders without dispatching a vendor – saving our owners approximately $12,384. While other companies outsource maintenance to Mexico or the Philippines, we have experienced individuals reviewing all incoming requests and troubleshooting BEFORE dispatching a vendor – at no cost to you.

The #1 reason tenants leave is due to lack of attention to maintenance, which is why we heavily monitor our median speed of repair (3.9 days) – leading to less turnovers and higher owner profits.

We will continue to track these metrics vigilantly as we manage more properties and add more vendors.

Leasing:

• Median Lease Days on Market (DOM): 18 days

• Median Lease Price: $1,799

The primary goal of our leasing team is to lease the properties as quickly as possible, at the highest price possible, to the best tenant possible. The team’s performance was stellar to say the least, as they leased properties 28% faster than the general market (CDOM Jan1-Oct31 for Greater Houston was 25 days).

While our year’s performance was strong, we saw a slowdown towards the second half of the year – mostly due to seasonality and the aforementioned increase in rental inventory.

General:

• Median Turnover Time: 11 days

• Average Turnover Cost: $1,690

• Percentage of Tenants Renewed: 84.8%

• Average Length of Tenancy: 2.71 years

The team delivered strong performance in the other areas of the business as well. An almost 85% renewal rate is well above industry average of 50-60% and while the rising interest rates reduced affordability for many of our tenants, our team’s attentiveness to the residents created a first-class rental experience – leading to only a small number of residents leaving – mostly for reasons out of our control like job relocation, family size increasing, etc.

Our average length of tenancy has historically been between 3-4 years, this year however we saw that average drop just below 3 years. The root cause of the drop is due to the significant number of new doors we added this year, creating a major increase in residents who have been with us for less than one year. Next year and beyond, I suspect we’ll see that figure go back into the 3–4-year range.

Turnover costs surprisingly beat industry's average. Now that the construction labor market has stabilized, and we’ve added other reputable vendors, we’re hoping that turnover costs continue to moderate into 2024.

Another trend continued this year that has been apparent since founding Emerson in 2019 – owners who completed their own make-readies resulted in significantly longer turnovers and vacancy. In 2023, if the owner completed their own make-ready, it more than tripled the length of the turnover (35 days vs 11 days), adding almost a month of vacancy and, if your property rents at $1,800, that’s the equivalent of losing ~$150/mo over a 12 month lease.

While it’s always your choice as the owner to decide who completes the make-ready, I strongly recommend you allow Emerson to get the property ready for the next tenant – not only saving you time, frustration, and liability, but completing the make-ready in a more timely manner.

Emerson’s Improvements for 2024

If you’ve been a client for any length of time, I think you’ll find our team cares deeply about you, your property, and the residents – in my opinion, more so than any other property management company. This is why we continue to find ways to increase the value you receive from our service. I won’t bore you with the operational efficiencies we’ve implemented for next year, but below are just a few ways we’re improving:

• Guarantees: We added several new guarantees for 2024 to back up our service claims! You can find all of them on our website here and highlighted below are the two that you may find most relevant:

• 30-Day Lease Guarantee - If we are unable to lease your home in 30 days or less, we will waive 2 months of management fees!

• Property Management Transfer Guarantee - Don’t let a pesky termination fee keep you or other properties with a bad management company. After becoming a client, we’ll pay your termination fee at the old company!

• Bringing Leasing and Sales Entirely In-House: We have historically used realtor partners to assist with leasing the properties quickly, at the highest price, to the best tenant. Next year we will be hiring an agent to work solely on Emerson properties. What does this mean for you? More consistency amongst your property listings and a higher level of quality control.  

Thank YOU!

In summary, I can confidently speak for the team when I say we greatly appreciate your business and your trust with one (or several) of your most valuable investments. Believe me when I say, we take your faith in us very seriously and continue to find ways to increase our service and your profitability.

We look forward to another year of caring for your investment(s)!