Note: To follow is Part Two of an excerpt of an interview with Doug Miller, founder and president of SatisFacts Research, and author of the industry benchmark, The SatisFacts Index. To listen to the show archive or download an MP3, go to www.IncomePropertyInvestmentTalk.com/030409.

Mosca: Is there a particular aspect of communication that's important to helping to maintain retention and to reduce turnover?

Miller: Our residents are no different than the rest of us. Most of us pay our bills online, we communicate with everybody by e-mail, cell phones etc. and when you look at our SatisFacts Index, something pretty dramatic happened which we knew was coming. From 2007 to 2008 one of the questions we asked on the survey was if the community staff needs to contact you, how do you prefer them to reach out to you? E-mail was number one but more importantly it went from 30% citing e-mail and doubled in a year to 60% of residents say that's how they want the staff to communicate with them. Number two is cell phones at about 38% and that doubled from 2007. At the bottom of the list would be mail, in person, work phone, and certainly I think the time has come that we can get rid of the flyers taped to the residents' doors.

Mosca: Communications is a two-way process, so it is not about just sending out that e-mail but also following up on it and hearing back from the person that you're reaching out to. That must be critical in the relationship business, right?

Miller: Absolutely. First of all, when we talk about having your residents current contact information, not the information that was on the application but their current contact information, it's no surprise our clients that have the highest coverage of phone and e-mail addresses always get the highest satisfaction scores and always have the highest likeliness to renew. It's simple. You can't provide service if you can't communicate. That said, we jump up and down about the critical need to making following up on work orders more important than prospect calls. As a matter of fact, we tell our clients to start the following policy, “no prospects can be called back or e-mailed back any day of the week until the following four things have happened:” 1)Respond to every resident phone call. 2) Respond to every resident e-mail. 3) Let residents know of any delays handling their requests. 4) Follow up on every completed work order. I've been having this ongoing discussion with a friend in the business who is president of a very large fee management company and he doesn't believe you can do anything about turnover. I shared with him that policy idea and he thought it was crazy and I asked him the following question,” you have two voicemail messages, one is from one of your fee clients and one is from a prospective client. Who's call do you return first?” He said of course I'm going to call back my client. I said why should your residents be any different. That said, he started following up on work orders. One community went from 0% follow-up to almost 70% follow-up, and that led to the percentage of residents with outstanding maintenance issues dropping in half and the percent of residents who said they were very likely to renew increased by over 20 points. The property has the potential to reduce turnover 20 points in one year and if move out costs $4,500 for that one property, a 300 unit property -- 20% of that is 60 units times $4,500 – they just grew NOI by $270,000 and asset value just grew by $3.4 million, all just by following up on work orders.

Mosca: It seems that the little things do equate to 'rocket science' because when you do it well the impact on your business can be tremendous...

Miller: The customer absolutely is not number one, absolutely not. The owner, or the asset is number one. When you take care of the owner you good care of the customer. We have to understand why we are there. We are not there to throw pizza parties. We are there to grow NOI and asset values.

Mosca: What impact are current economic conditions having on the decision making process of residents? Miller: Everybody is looking at every expense. Certainly people are looking at their biggest monthly expense, their rent, and some are saying residents are going to hunker down. They are not going to hunker down if they are not happy especially when they know there are deals galore out there. When recessions hit, the first thing that happens is people in one bedrooms move out and look for two bedrooms, get roommates, move in to a house, etc. to lower their costs. Number two, you have residents in A properties looking at their rent, considering moving down to a B, and B property residents looking to move down to a C. You'll then have the A properties getting more aggressive with rent specials and concessions and it will snowball from there. You have people evaluating value more than ever.

Mosca: That segways into the SatisFacts Index, right?

Miller: One of the questions every resident is asked is how likely are you to renew your lease. They are given the choice very likely, somewhat likely, not likely, and don't know. Anybody who doesn't answer very likely whether it's a phone survey or our online surveys are then asked how come you didn't say very likely? The top of the list is usually dominated by rent and value. Number one, people cited the rent and increases that actually went from about 14% up to about 21% bringing it up.

Mosca: That makes sense because everybody is concerned with the dollar right now.

Miller: Right. I don't believe people move because of a rent increase. If they are satisfied with their home, they are not going to move for $32 a month. Number three was value. That doubled from about 9% to 17% and found better deal went from 3 to 9%. By the way, found better deal isn't a reason they moved, they looked for a better deal because they didn't think they were getting a good deal where they were. Forget about the spring rental season, let's start calling it the spring lease expiration season. Change our focus. Focus first on keeping our customers, make them see and feel the value and it will pay off. In these challenging times the percent of residents who said they are very likely to renew remained steady and strong from 2007 versus 2008. What is significant is the percent of residents who answered not likely. That percent with our clients dropped four points last year. So, they moved people from not likely up into its under consideration. That's pretty significant. Those are the residents who you are at greatest risk with and our clients, that percent again dropped to four points. If you have 2500 units, that's 100 fewer move outs. At $4500, pull out your calculator.

Mosca: As you discussed, the biggest part of that value can be found in that communications process.

Miller: That's what drives it all and it starts with… your maintenance techs understand service. They are the service people. The managers typically are etc., etc. The great challenge are the leasing consultants who have hearts of gold, energy galore, passionate, compassionate, and all of these wonderful traits but what the typical leasing consultant has never been told about is the big picture. Job 1 of a property management company is not to rent apartments, it is to go analyze an asset value and for them to understand the big picture.

However, I totally object to leasing commissions for one reason: if you have somebody in sales, the incentive program you set up will drive performance. If one thing gets a commission and the other doesn't or its lower, the smart salesperson is going to do the thing that's going to make them the most money and what is that if you're leasing consultant? In my warped view of the world a leasing incentive creates an incentive again in this warped worlds for that leasing consultant to want turnover, exactly what the owner doesn't want. They make more commissions. I object wholeheartedly to leasing commissions. Hire good, smart people who care, create an incentive program that everyone is rewarded for the overall performance.

Mosca: Is there anything else to shine a light on that stood out in your index? Miller: Absolutely: the top 10 to 12 reasons why residents are not very likely to renew. When you look at the top 10 to 12 items, seven relate to the office staff. What that says is you will be rewarded for everybody in that office being committed to residents first. We can't make our customers have to work to be our customers because they will soon be ex-customers. It comes back to whom you hire but that commitment to being responsive is what it is all about. Again, I'm not saying some people don't know, it's the distractions in any given day. We wear this hat of being a lumberjack, reminding our clients of what matters most.

Mosca: What is your golden nugget?

Miller: Love thy residents and focus on what matters most. Don't try to guess what they want, ask them what they want. Ask them what their issues are. Communication is the backbone of it all. We know from our research over 60% of turnovers is controllable.