This got us thinking. What are the most “tenant friendly” cities in the United States? In other words, besides just rental and home prices, what other measurable factors make a city amenable to renters?

Our rental property software experts looked at the 50 most populous U.S. cities and ranked them based on the following criteria:

• Cost per square foot of a 2-bedroom apartment;
• Change in rent prices from 2009 to 2010;
• Residential vacancy rate;
• Rental cost as a percentage of median income;
• Tenant councils;
• Tenant-friendly foreclosure laws; and,
• Rent control laws.

Cities were awarded points based on our methodology below. Based on our analysis, here are the United States’ most tenant friendly cities (See all 50 rankings here):

Our Methodology
Here is more about the metrics we used to determine “tenant friendliness.”

Cost per square foot. This number reflects how much a 2-bedroom, 1,000 square foot apartment costs per square foot, per month in a particular area. In order to keep it simple, we used 1,000 square feet across all of our cities to describe a 2-bedroom apartment. Rents are based on Rent-O-Meter’s pricing of 2-bedroom units. A point was awarded if the monthly rent was less than $1.10 per sq. ft., which was the median of all 50 cities’ rental prices.

Recent trends of rental prices. This number reflects the percent change in the average rent of a two-bedroom apartment from 2009 to 2010. The numbers come from ApartmentRating.com’s What’s My Neighbor Pay tool. Any decrease in rental prices earned a city a point.

Residential vacancy rate. This number reflects the percentage of rental properties that are vacant (as of March 2010) in a particular metro area, as determined by the United States Census Bureau. Approximately 10% vacancy is the national average. A point was awarded if the vacancy rate was higher than the national average, which would benefit tenants.

Rental cost as a percentage of median income. This number reflects what percentage of a person’s annual income is used on rent. Rents are based on Rent-O-Meter’s pricing of 2-bedroom units and median income is based on U.S Census data. Cities whose residents spent 30% or less on rent earned a point.

Tenant councils. This notes whether or not the city has an established, private tenant’s council or association to help settle disputes between landlord and tenants, as well as provide advice for tenants on a range of issues. If a city has a private tenant council, they earned a point.

Tenant-friendly foreclosure laws. The Protecting Tenants at Foreclosure Act (PTFA) of 2009 is a federal law designed to protect the lease of tenants who are living in buildings that are being foreclosed. The legislation left many specifics up to the states. If a state has passed laws that enhance this tenant-foreclosure protection, they earned a point.

Rent control laws. This metric reflects whether or not a city, town or state has enacted rent control laws. These types of laws are fewer and fewer nowadays, with only a handful of states having them. Those cities that have them earned one point.

Feedback and The Full List of All 50 Cities
If you have any comments or questions about our analysis, please feel free to leave a comment below. We’ll be sure to respond quickly.

We’ve also put our full analysis online, detailing the tenant friendliness numbers for the 50 most populous cities in the United States. If you’re moving to an apartment in a new city, you should take a look. If your city is isn’t in the top ten, make sure you take a look at our full list to see where it ranks.

You can view the full list of cities here.

On a scale of 1-100, this chart shows the tightness of the multi family housing industry from 2006 to 2010. The higher the number, the tighter the market is at that time (NHMC).

Tight markets mean it’s time for tenants to hone their skills when it comes to negotiating their lease. That means coming to the negotiating table armed with the right information and asking the right questions. To help tenants negotiate a better rate in this tight market, our landlord software experts have put together this handy guide. This guide will help tenants:

• Determine a fair rental price;
• Figure out the local demand for rental housing; and,
• Ask the right questions during negotiations.

Once a tenant determines what amount they’re willing to pay, and how desperate the landlord is to keep them, the negotiation can begin.

Have You Successfully Negotiated With A Landlord?
We’re curious to hear from those of you who have successfully negotiated with your landlord. How did you do it? What tips and tricks did you learn? Whether you were able to keep your same rent or negotiate an even lower rate, let’s hear what you have to say.

Vote in our poll and leave your tips in the comments.

What’s A Fair Rental Rate?
One phrase common to nearly every lease negotiation is “market rate.” The landlord or property manager will cite the market rate for a particular rental property as cause for an increase in rent.

This market rate may be culled together from the prices of nearby properties or it may simply be a rate that the landlord needs to charge to make a profit. It may also be related to the cost difference in renting v. buying a house in a particular area.

No matter where the rate came from, a tenant needs to treat the “market rate” cited by the landlord as the first step in the negotiation process. It will likely be high but that won’t help tenants looking for the fair price.

So how does a tenant know what the actual market rate is? There are a number of resources available, both online and in person, that a tenant can consult to determine the fair market rate of their rental.

Median rent in the United States’ ten largest cities (Rent-O-Meter)

#1. Find out what others are paying. Rent-O-Meter is one of many online resources that will tell tenants if their rent is reasonable based on comparable properties in their city. Web sites such as Craigslist.org and newspaper classifieds are two places that tenants can find specific information about properties in their area. By searching these sites by zip code, a tenant can get a good idea of what the rent is of nearby properties. Neighbors are also a great source of information. They’ll know the insider deals, as well as any concessions the landlord typically gives.

#2. Consult the local tenants’ council. Many cities have a local tenants’ association or council that lobbies for tenant rights. They’ll have resources specific to their area, including information about rent increases and even mediation services should a tenant need them. Tenants will also be able to get first hand rental information about certain areas from experts.

#3. Know the trends. One of the oldest sources of online information about apartment living, ApartmentRatings.com, has a database of average rental rates for dozens of cities and towns in the United States. It’s called “What The Neighbors Pay.” Tenants can use this online resource to see if rents are falling or rising in their area. If the rent has been falling over the last few years in an area, that may be a good point to bring up during negotiations.

What’s The Demand Like?
After figuring out a fair rental rate, a tenant will need to figure out what the demand is like for their particular rental property, as well as the demand for surrounding properties. Occupancy rate will influence a landlord greatly in the negotiation process. If they can fill a unit quickly, they may be less inclined to negotiate with tenants.

#4. Take note of vacancies. As the end of a tenant’s lease nears, they should take note of the number of vacancies in their complex, as well as how long those units have been vacant. If a landlord has trouble filling their current empty units, it’s likely they will have trouble filling a newly empty unit too. A landlord may not care about a $50 a month increase in rent if it risks the possibility of leaving a unit vacant for a month or two.

#5. Check local advertising. If a landlord isn’t advertising heavily, or at all, it may mean that they feel confident they can fill their units quickly. On the other hand, if a tenant notices the same Craigslist ad appearing every couple of days, they can assume that the units aren’t being filled fast enough.

#6. Choose the right time to renew. Depending on when a tenant’s lease is up, they can take advantage of the natural ebb and flow of the rental market. Most property management companies are busiest in the summer months, while demand for rental properties drops off significantly in the winter. Take early advantage of the summer rush by negotiating a new lease in March or April, if possible.

In The Negotiation Room
Once a tenant has figured out what others are paying, the demand for the unit and how desperate the landlord is to rent, it’s time to begin the negotiating process. Here are a few handy tips to remember during the negotiating process.

#7. Point out the positives. If a person has been a model tenant, now is the time to mention that. Paying rent on time; having a good credit score; and being a loyal community member are all things a tenant wants to mention during the negotiation process. Landlords know that model tenants can save them money over the long term, even if they aren’t able to increase their rent.

#8. Bring the homework. If a landlord’s offer is more than the market rate, a tenant can counter with the information they gathered before the negotiation. Having up to date information about what the market actually looks like, as well information about other rental options nearby, puts a tenant in a strong negotiating position. Also, if a tenant is able to cite rates or concessions other tenants received, there is a possibility a landlord will give them the same deal.

#9. Ask for a longer lease. If a landlord won’t meet a tenant’s offer on a 12-month lease, it’s possible the landlord will budge if the tenant is willing to sign a longer lease. A landlord will be motivated by not having to pay for advertising and cleaning up the unit for one more year.

#10. Ask for a trade-off. If a landlord absolutely will not back down from their offer, and the tenant wants to remain in that complex, a trade-off may be a good idea. If the landlord can’t meet a tenant’s offer, perhaps the landlord can offer another concession, such as free parking. The important thing in the negotiation is to get something out of the deal, even if it’s not a lower rate.

Be Prepared To Walk Away
It regularly happens that a tenant and landlord won’t be able to arrive at a compromise. In that case, a tenant needs to make sure that they are prepared to leave their residence in a timely fashion. This means having a move out plan, as well as a new place to live. If a landlord realizes you have no alternatives except to remain in your current place, you’ve lost all negotiating power.

The response you get probably will range from a quizzical look to a mumbled sentence about switching to new light bulbs. The reality is, sustainable practices haven’t caught on as quickly in property management as in other industries.

Fortunately, there is a growing trend towards certifying “green” property managers and it’s being led by organizations such as the National Association of Realtors (NAR), the National Affordable Housing Management Association (NAHMA) and National Apartment Association Education Institute (NAAEI). NAR offers a property management track within its Green Designation and NAHMA and NAAEI jointly offer the Credential for Green Property Management. Both programs are designed to increase knowledge of sustainable practices among property managers.

Let’s delve deeper into what these credentials entail; why green property management is important; and what the future of green property management looks like.

Green Designation and Credentials
Because green certifications are widely available and relatively easy to earn, there is no reason why a property manager shouldn’t pursue one of these programs.

Launched in 2008, NAR’s Green Designation is designed to provide property managers with the “knowledge and awareness of green building principles applied in residences, commercial properties, developments, and communities so that they can help consumers in purchasing, retrofitting, and operating green properties.” The designation is geared towards community education. Because of this, the green principles taught are more likely to survive beyond a manager’s tenure at the property. Tenants may also be more inclined to take these green principles with them when they move and encourage other property managers to do the same.

Through a two-day course, NAR’s Green Designation teaches property managers to:

• Form partnerships with local groups to foster sustainable communities and lifestyles;
• Recognize and respond to obstacles—regulatory, zoning, building codes, costs, perceptions, and lack of knowledge — that can impede green development;
• Recognize, validate, and respond to concerns and priorities of the green-generation tenants; and,
• Recognize the features that make a property green and resource-efficient in remodeling, use, and operation.

Of the over 4,300 people who have earned the Green Designation, approximately 60 of them are property managers. Even though NAR’s Green Designation is only a 18-hour course, it can lay an important foundation in sustainability for property managers.

Harvesting rain water for drinking and gardening is a simple way to reduce energy use.

Another green program for property managers, the Credential for Green Property Management offered by NAHMA and NAAEI, educates property managers on the “latest techniques and technologies for making cost-saving green improvements at properties.” It’s similar to NAR’s Green Designation in that its main goal is educating property managers about green practices.

Core topics covered by the Credential for Green Property Management include water efficiency, pest management, and regulating indoor air quality. Additional, optional courses cover xeriscaping, tenant green education, and recycling.

Green Real Estate Education’s Green Certification Courses as well as the certification offered by Ecobroker are other green program options for property managers. These programs are offered weekly by dozens of education partners around the nation. No matter where a property manager is located, there probably is an opportunity nearby to become green certified.

Why Green Property Management Is Important
One of the main reasons why green property management is becoming increasingly important is the fact that buildings account for 50-80% of greenhouse gas emissions in the United States. Many experts are pointing to reducing building greenhouse gas emissions as the most effective and least cost-prohibitive way to fight global warming.

In addition, there are approximately 300,000 property managers in the United States, managing over 90 million tenants. That’s nearly one-third of the U.S. population depending on another person to manage their building’s sustainability.

Instead of just one home owner responsible for greening one home, a property manager has the opportunity to engage many residents in the practices of sustainable living and reduce their carbon footprint through community-wide changes to properties.

By installing energy-efficient lighting, updating the community’s HVAC systems, and switching to energy-efficient washers and dryers for example, a manager’s influence can be far-reaching. Instead of one household increasing their sustainability, now there are 50, 100 or more in the community simultaneously reducing their carbon footprint. Tenants in these households may also implement these green ideas at new properties or encourage new property managers to do the same.

Green property management practices also are important for cost-reduction. A property management company that purchases energy-efficient dishwashers, for example, will have a higher upfront cost but will save more money in the long run. Managers can also reduce costs – and paper waste – by using property management software. Using software, documents can be stored electronically; monthly statements can be e-mailed; and advertising can easily be moved online.

Overall, property managers who engage their communities in green education and implement green practices can have a significant impact on their community’s carbon footprint.

Future of Green Property Management
An innovation that may be in the future of property management future is a comprehensive system for managing a property’s carbon footprint. We’ve talked about this before on the Software Advice blog.

This entails collecting and aggregating a variety of metrics related to energy use to create a real-time snapshot of a property’s energy use. Property managers would be able to monitor a property’s carbon footprint at any given time and adjust energy use as needed. For example, the system could note a significant use of energy at night by parking lot lights. Once alerted, a property manager could respond by installing motion sensors that reduce energy use.

One particular carbon monitoring system, offered by Knowledge Global, is directly in line with the community education aspect of the green certifications mentioned above. Knowledge Global’s carbon monitoring system works in conjunction with “wireless eggs” strategically placed throughout a building or property. These eggs glow red when energy use becomes inefficient in an area to remind tenants to curb their energy use.

Feed-in-tariffs also are gaining traction in many states in the U.S. and around the world. This government policy essentially rewards property owners who create more energy than they consume. For example, in Gainesville, FL, owners who produce energy through solar paneling on their buildings receive 32 cents per kilowatt-hour created from the city. In contrast, Gainesville residents pay approximately 12 cents per kilowatt-hour for electricity.

In the future, programs like the Green Designation and the Credential for Green Property Management may include tracks for carbon monitoring and feed-in-tariff education – worthwhile topics for any property manager to understand.

Feedback
We’re gathering feedback from property managers around the country about specific things they’re doing to create sustainable living among their communities. We’d also like to hear from tenants and others about what they’re doing around their rental communities to increase sustainability.

Leave your green ideas in the comment section and we’ll update this post with the best ones.

Additional resources:

• Green Renter’s Checklist (EPA.gov)
• NAR’s Green Designation (GreenREsourceCouncil.org)
• Credential for Green Property Management (NAAHQ.com)
• Certified Ecobroker (Ecobroker.com)
• Green Certification Courses (GreenRealEstateEducation.com)

The rise in number of vendors offering web-based, Software as a Service (SaaS) systems for property management is driving the adoption of new technology by property managers. In addition to major web-based players such as Buildium, AppFolio, PropertyWare, and DIY Real Estate Solutions, an increasing number of other SaaS property management software vendors have recently started to emerge. Property managers are finding that the advantages of the SaaS model help them accomplish their most important goals – retaining tenants and attracting new ones.

Besides a relatively low entry cost, there are five major reasons why web-based software for managing rental properties is gaining traction in the industry. The advantages of the model offered by SaaS property management vendors include:

• Moving tenant services online;
• Offering web site creation and integration;
• Eliminating the need for extensive software training and maintenance;
• Enhancing communication between owners and managers; and,
• Improving record keeping and security.

Let’s examine these reasons in more depth to see why property managers are spending more time than ever online.

Online Tenant Services
A business maxim that is becoming more true every day is that if a company can offer a service online, they should do so. SaaS based property management software fits this maxim well by taking many traditional functions of a property management company and making them available online.

DIY Real Estate Solutions offers an online tenant portal.

Think about common interactions between tenants and property managers. Chances are a SaaS based software vendor has come up with a web-based solution:

Paying rent? Head to the company’s web site with your checking account information.

Need to review your lease? Access it online behind a registration page.

Want to view available units? Peruse a online gallery of photos or videos.

Need to communicate en masse to tenants? Send out an e-mail blast.

It’s true that these tenant services can be created without specific property management software. But what a SaaS model does is deliver these services in an integrated suite. A piece-meal approach would involve managing those with different services and it’s possible the information wouldn’t integrate with other programs without some doubling up of data entry.

Few would disagree that the more services a company can offer online, the better. SaaS based property management software gives management companies more online options.

Website Creation and Integration
In the spirit of moving services online, many SaaS property management vendors give companies the option to create online portals where tenants and owners can manage accounts.

Appfolio Property Manager can create Craigslist ads directly.

Smaller management companies often lack the resources to build a web site that is also a business tool. By using a SaaS software vendor that offers a tenant/owner portal option, these companies are able to bypass the cost of hiring a web developer. This levels the playing field by lowering the barrier of entry to the online market.

These integrated solutions can also help market vacant properties and units more easily than traditional on-premise software.

Some SaaS software vendors offer integration with listing sites such as Craigslist, where a property manager is only a few clicks away from posting professional looking ads online.

These integrated web site and software suites increase the professionalism and efficiency of a management company, in addition to attracting new tenants and helping smaller companies easily get online.

Fewer Technology Headaches
In the software industry as a whole, one of the most attractive features of SaaS systems is that they’re browser-based, multi-tenant architecture systems. All software updates are pushed out automatically by the software vendor, requiring little to no action by the customer.

This auto-updating, web-based approach is ideal for property managers. Many property management firms have at best a contracted IT worker to solve technical issues and at worst nobody. SaaS vendors are able to remotely fix issues, when they do occur.

Finally, one of the primary characteristics of SaaS property management vendors is that they’ve designed their systems specifically to be easy-to-use and to appeal to those who aren’t especially tech savvy. This results in a faster learning curve for property managers who are not technically proficient.

Enhanced Communication
At the end of the day, a property management company not only has to satisfy their tenants to stay in business but also the property owner. SaaS can help improve communication between owner and manager.

Buildium offers dozens of online reports.

Because SaaS property management software is web-based, owners and property managers are given access or e-mailed reports detailing rent rolls, financial standing and virtually any other data they’d like to be able to see. Owners can log in from their home or office and property managers can log in from any property with a web browser.

By quickly addressing problems between ownership and management, an owner is less likely to hear, “You didn’t know we were only half-occupied?” at the end of the month.

Finally, web-based property management software is also accessible through a smartphone’s web browser, adding another layer of mobility to SaaS.

Property managers and owners a like enjoy having this level of access and owners reward management companies who offer it.

Better Record Keeping
Any property owner or manager will tell you that you only need to experience one lawsuit to know that your record keeping must be impeccable. By moving to a SaaS model, companies are able to easily digitize and store complaints, warnings, payment records, maintenance logs and lease agreements through their property management software. This information is important when dealing with evictions or lawsuits.

Data security is also an important consideration with record keeping and SaaS is able to deliver on that. Most web-based property management vendors offer security on par with online banking institutions.

Finally, a SaaS based vendor will likely back up records for a company. This is done automatically because the information isn’t stored locally – it’s in the cloud. Even in the event of a total loss of hardware, a company’s data will be available as if nothing happened.

The Trend Will Continue
The advantages offered by SaaS systems closely mirror the issues that property managers have to solve. Moving services online, integrating data, reducing technical issues, improving record keeping and enhancing communication are all advantages that will continue to motivate companies to adopt SaaS based property management software.

What is remarkable is how closely the SaaS market’s evolution matches the definition of a disruptive technology that was described by Harvard Business School professor Clayton Christensen in The Innovator’s Dilemma (he later replaced the term with “disruptive innovation” in his subsequent book, The Innovator’s Solution). In fact, the SaaS dilemma that incumbent software vendors currently face is playing out almost page-for-page from Christensen’s books. As a result, we can use the disruptive innovation framework to gain insight into what’s to come in enterprise software.

After a decade of deriding SaaS technology as too simple, functionally incomplete and insecure, vendors such as Microsoft, Oracle, SAP and thousands of incumbent “on-premise” software vendors are now embracing SaaS. It’s an awkward embrace – one that threatens to cannibalize existing revenue steams, divert resources and eat up profits.

Of course, the innovator’s dilemma doesn’t destroy every incumbent. These incumbent market leaders are powerful, resilient innovators themselves. But for armchair quarterbacks like us, this the next five years will present a fascinating game to watch.

What is a Disruptive Innovation?
Disruptive innovation refers to new solutions – often technologies – that through a new delivery model, alternate pricing model or target market segment are able to disrupt existing competitive dynamics dramatically. For example, SaaS offers a new delivery model (i.e. hosted “in the cloud”), a new pricing model (i.e. subscription) and initially targeted smaller customers.

Initially, these disruptors target the least profitable customer segments – typically smaller or unsophisticated buyers. These are the only customers whose requirements are limited enough to accept the bare bones feature-set of the new system. Meanwhile, they appreciate the new model (i.e. it’s cheap and easy to get started). We certainly saw this in SaaS as small businesses or autonomous departments adopted customer relationship management (CRM) systems like Salesforce.com as early as 1999. For them, SaaS CRM was “good enough.”

The disruptive innovation cycle applied to SaaS.

Over time, however, disruptive innovators improve their performance and feature-set and can meet the needs of more sophisticated customers. Combine that with a little buzz around their new model (e.g. everybody’s talking about cloud computing these days), and the incumbent vendors start to take note. Of course, the incumbent still has plenty of ammunition to dismiss the new technology, since it remains functionally deficient relative to incumbent products and the most demanding customer segments (e.g. SaaS penetration into the ERP market remains limited).

I’ll posit that SaaS is now entering the penultimate – and most contentious – stage of disruption. At this point, the innovators start to gain serious momentum. Their products approach functional parity and they begin to steal substantial market share. The incumbents finally get serious about defending their traditional markets by releasing their own version of the innovation (in the case of SaaS, that means true web-based, on-demand, cloud computing, not just hosted client/server software). Unfortunately, it is often too late. Incumbents remain apprehensive about cannibalizing existing revenue and they face challenges replicating the innovation. Typically, most incumbents stagnate, decline and fade into obscurity. Only a few nimbly transition to the new model.

The innovator now becomes the incumbent and new innovators emerge. The cycle repeats.

SaaS Disruption Battles are Well Underway
Christensen mentions Salesforce.com in his second book, The Innovator’s Solution:

This company, with its inexpensive, simple, Internet-based system, is disrupting the leading providers of customer relationship management software, such as Siebel Systems.

I worked at another leading CRM vendor back when Salesforce.com was just a start-up. I remember meetings where executives derided the system as a toy. Most Salesforce.com implementations were just a half dozen users and most customers paid their subscription fees with a credit card (Gasp!). Since then, Salesforce.com has exceeded $1 billion in revenue and incumbent market-leader Siebel Systems sold out to Oracle after hitting tough times.

While Salesforce.com in the CRM market is the best example, the SaaS dilemma is playing out in numerous software markets. Gmail and Google Apps are nascent yet serious threats to Microsoft’s Outlook/Exchange and Office cash cows. We use both of the Google services extensively. NetSuite is a contender in enterprise resource planning (ERP), but hasn’t dented SAP or Oracle too badly as of yet.

Most interesting, however, is how this same battle is being waged by innovators in so many lesser followed market segments: SaaS construction project management, SaaS electronic medical records, SaaS property management, SaaS retail point of sale. The list goes on…

Most SaaS Shortcomings are Addressed
As I mentioned earlier, I believe we are entering the final stages of SaaS disruption. The SaaS model and its proponents have not defeated the incumbents, but SaaS solutions have reached functional parity to the point where incumbent derisions are starting to fall on deaf ears.

Let’s examine each of the top five objections to SaaS:

1. Web browsers are not interactive enough. This was true when web applications required a full page refresh to complete a transaction, but the maturation of JavaScript, AJAX, Adobe Flex and other web user interface technologies addressed this. HTML 5 will put this one to rest for good. I find my SaaS apps faster and more dependable than any on-premise app.
2. Hosted data is not secure enough. This one always perplexed me, since so many of us were comfortable with web banking as early as ten years ago. Few systems could be more valuable than financial transactions. Moreover, very few software buyers can afford to implement the same security infrastructure as a professional SaaS data center.
3. It’s not possible to integrate SaaS. This was true when few SaaS vendors had built APIs and there was no middleware for SaaS. Nowadays, API integration to SaaS applications is non-trivial, but not any more difficult than on-premise integration. I should know; we just finished a successful integration to Marketo, a SaaS marketing vendor.
4. You can’t customize SaaS systems. Again, this is changing. Many SaaS applications remain fairly “packaged,” but many vendors have successfully positioned this as a benefit (i.e. “adopt our best practices”). At the same time, SaaS customization tools are maturing. Salesforce.com has built an entire development environment, force.com.
5. Big companies want to own the software, not rent. This may be still be true in some cases, but in this economy the recurring nature of subscription payments is attractive. It also puts more of an onus on the vendor to earn their future subscription payments. I’m not convinced that this presents a concrete competitive advantage for incumbents.

Incumbents are Now Challenged to Counter SaaS
Now that SaaS vendors and incumbents are locked in a real battle – the gloves are off and incumbents are releasing their own SaaS systems – our analysis turns to the big challenges that incumbents will face. Let’s examine the five most significant characteristics of SaaS systems, and then explore why they are great for SaaS purists and a real challenge for incumbent on-premise vendors.

	Great for SaaS companies	Tough for incumbents
Browser-based	They can promote the benefits of not installing and maintaining client-side software. Plus anyone can use a web browser!	Moving to a web-based architecture is a near-complete rewrite. "Web-enabled" options are temporary, at best.
Subscription pricing	Not needing to justify a big purchase up front means fewer approvals and fewer risk-averse buyers to assuage. Also, great recurring revenue.	This is the core cannibalization issue: moving to subscription pricing will stall growth and maybe lead to revenue declines for some time.
Multi-tenant architecture	With all users on one codebase and database, changes are made in one location, but roll out globally. Also, computing resources are shared.	With thousands of installs, it's impossible to consolidate. There are incremental benefits to multi-tenancy, but the legacy customers remain.
Rapid release cycles	With changes being made to one codebase/database, releases can be rolled out weekly, even nightly. More releases = better products.	The quarterly, bi-yearly or annual release cycle is deeply ingrained in the DNA of an on-premise development organization.
Bought by business, not IT	It's far easier to sell to business units with their own budget, without the need for IT approval or budget. Faster sales cycles = growth.	IT relationships are a core advantage of incumbents. With SaaS, those relationships are less relevant - a competitive barrier is lifted.

It’s Not Over Yet – Not Even Close
Microsoft, Oracle and SAP still own the large enterprise market and the SME market. In hundreds of niche software markets, on-premise incumbents dominate. Even ten to fifteen years into the evolution of SaaS, SaaS vendors still possess minimal market share relative to incumbent vendors. While still powerful and often growing, all of these incumbents face the daunting challenge of SaaS disruption. Moreover, each of the major incumbents has started in earnest on credible SaaS offerings.

Microsoft has released Microsoft Dynamics CRM Online – the first Dynamics family application to be offered in a SaaS model. Microsoft has also released Microsoft Office Online as a counter to Google Docs.

Oracle, meanwhile, continues to grow its Oracle OnDemand solution set. While much of Oracle OnDemand consists of managed services for traditional on-premise solutions, their SaaS CRM offering (acquired through the Siebel deal) is true SaaS. So too are other solutions they acquired in recent years.

Finally, SAP’s Business ByDesign appears to be a pure SaaS, on-demand offering that is operating independently from the SAP mothership. Our own conversations with SAP employees have shown that the company is maintaining an arms-length relationship with the Business ByDesign team so that this in-house “start-up” can truly function as a nimble SaaS entity, unconstrained by SAP’s on-premise legacy.

If the disruption examples and case studies in Christensen’s book are a guide, we can expect to see a massive number of incumbent vendors stall, fade and become irrelevant over the next decade. Others will deftly navigate the transition.

In our comments section below, I’d like to start a conversation about which incumbent vendors will fade and which will transition. Please share your opinion.

Deciding when to outsource and which company to hire is one of the most important business decisions a property owner can make. Choose wisely, and an owner will be rewarded with the peace of mind that comes with responsible property management. Choose incorrectly, and an owner will be working harder after hiring a property management company.

Whether an owner has one or one hundred properties, it’s important to consider whether or not they’re prepared to hire a property management company. Handing over the management of property is a major decision. Before making that choice, owners will want to make sure they understand the following:

• The implications of self-owned management;
• The pros of outsourcing management to a third party;
• The corresponding cons; and,
• The alternatives to outsourcing.

Let’s take a look at each consideration in detail.

What’s Involved in Effective Owner Management?
Owning and managing property require two different skill sets. Unfortunately, many property owners purchase property not knowing the full responsibility that management entails. Before a person jumps into purchasing rental properties, they’ll need to understand what is going to be required of them.

• Knowledge of landlord/tenant law. Familiarity with the state laws that govern the landlord/tenant relationship is a must for any property owner. If owners aren’t comfortable with their level of knowledge or experience in this area, they could be leaving themselves open to lawsuits and fines. For example, the federal Lead-Based Paint Hazard Reduction Act requires the disclosure of lead-based paint and hazards before the lease of most units built before 1978. Owners can face a $10,000 fine if they fail to do so. Airtight contracts and leases are also extremely important for protecting owners from lawsuits and recouping lost costs.
• Time and expense spent visiting properties. Rental properties are going to require regular visits to check on the condition of the property, perform emergency maintenance or show vacant units. If owners’ properties are far away from home or each other, they will spend a lot of time in transit. If owners attempt to self-manage too many properties, they run the risk of spending all their time performing routine visits instead of managing the company.
• Responsibility for repairs and maintenance. A landlord needs to have a diverse range of skills to perform maintenance themselves. At the very least, a landlord needs to have basic plumbing, electrical, carpentry and landscaping skills to properly maintain a property. If they’re not well-versed in these areas, they’ll be spending revenue on repair services. While family members and friends can be labor outlets, relying on such help comes with inherent risks.
• Effective tenant screening. An owner will quickly need to become good at weeding out problem tenants during the screening process. If an owner only has a few units and has to replace a problem tenant a few times a year, their profit is likely going to drop dramatically. Credit checks, employment verification and collecting references are key in this process.
• Ability to deal with difficult tenants. Even if landlords screen tenants thoroughly, they will inevitably interact with unhappy or unruly tenants. Whether the tenant is simply unhappy or in violation of rules and facing eviction, a landlord needs to stand firm in the face of adversity and enforce the rules of the lease. If they’re not able to confront people, a property owner risks being taken advantage of by tenants. In the most extreme cases, landlords may even need to rely on lawyers or courts to settle issues and pay hefty fees.
• Good property management software. If an owner is managing a decent number of units, they’ll want to invest in software to manage their properties. Investing in a robust property management system has the ability to increase efficiency by:

o Accepting rental payments online;

o Performing credit and criminal background checks;

o Decreasing advertising costs by automatically posting units to popular listing sites;

o Automatically reminding tenants to pay their rent;

o Eliminating poor record keeping by automating certain processes; and

o Creating letters and tax forms automatically from pre-existing data.

A solid property management system can be a good tool to have, especially for a novice property owner.

Benefits of Hiring a Property Management Company
If a property owner decides that they’re not able to properly manage their property, it’s important to understand what side effects they should expect. In general, a well-run property management company will yield these results for owners:

• Increased revenue. A property management company is more experienced at advertising and usually has access to larger pool of potential renters, meaning units typically stay vacant for shorter periods of time. A property management company also has a better understanding of the local rental rates, putting them in a position to maximize the amount you can charge per property.
• More free time. Naturally, once an owner hands over the responsibility of managing its properties to a company, they’re going to have extra time on their hands. This is perhaps the most obvious – and enjoyable – benefit of hiring outside help. The property management company becomes the owner’s one point of contact for all things related to their property, eliminating the need to juggle a number of different vendors and services. A property owner can also use this extra time to expand their portfolio and focus on growing the business.
• Reduced direct costs. A property management company is be able to perform preventative maintenance, reducing the direct costs to the property owner. Furthermore, a management company will likely have extensive knowledge of local landlord/tenant laws, helping shield the owner from costly lawsuits. One lawsuit avoided may pay for years of property management fees. Finally, the management company likely has more experience screening tenants. This reduces vacancy cycles and damages from poorly screened tenants.

Drawbacks of Hiring a Property Management Company
Of course, outsourcing management involves risks that need to be considered. A property management company that is negligent in responsibilities could cause more headaches for their owners. The most common downsides include the following:

• Cost. A property management company will charge an owner between 3%-12% of the property’s gross monthly rent to manage it, depending on the level of service. For a property with a large number of units, this can be a significant cost.

To illustrate these costs, the table below shows monthly management fees for various amounts of units, assuming a 10% management fee on units rented at $1,000 per month.

Keep in mind that management fees aren’t the only fees that may be assessed by a property management company. Many companies charge additionally for creating or renewing leases, performing maintenance, and advertising vacant properties.

• Possibility of developing a bad reputation. The most vocal tenants in any community are those who are unhappy with management. Unfortunately, as more and more tenants flock to web sites to voice their disapproval with property managers, a property owner can can earn a bad reputation that will be displayed online indefinitely. Many rental property rating web sites have been around for nearly a decade now, which means bad reviews exist long after management has been changed or improved.
• Potential for inadequate record keeping. In most cases, a property management company is solely responsible for all record keeping, including accounts payable and receivable, service records and tenant complaint records. If the management company does a poor job keeping records, the owner may be completely lost once they part ways. Inadequate record keeping can also leave an owner with no ground to stand on if a tenant files a legal complaint.
• Vulnerability to lawsuits. It was mentioned before that a good property management company can help an owner avoid lawsuits. The opposite is true with a poorly run management company. A company that doesn’t keep up to date on changes in landlord/tenant law, or worse, doesn’t have a good understanding of the law in the first place, is leaving the owner open to a lawsuit. A single lawsuit could cripple a owner.

Ultimately, a property owner must determine if the benefits of hiring a property management company justify the expense. Owners who are able to outsource to effective companies and focus on growing the business would likely agree that the pros of outsourcing outweigh the costs.

Not Ready To Hire a Property Management Company?
An in-between option that exists between outsourcing and owner-management is hiring a residential manager. A residential manager is a person who lives on-site in one of the units and takes care of basic tasks related to the management of the property.

These basic tasks may include:

• Showing vacant units to prospective renters;
• Performing light maintenance and clean up; and,
• Coordinating with repair persons to fix maintenance issues.

If owners find themselves stretched thin but still not ready to hire a property management company, hiring a resident manager can be a good bridge between those two options.

Choose Wisely
Whichever route a property owner decides to take, a firm understanding of what property management entails will be essential for success. For the owners who choose self-management, they’ll need to become property management experts. For the owners who outsource their management, not knowing the industry will only lead to trouble down the road.

The lesson here is know the ins and outs of an business, no matter who manages it.