Blockchain technology will revolutionise property management.

Below is something I have written for other social media platforms. Using blockchain for property management systems.

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Block Chain Technology will revolutionise the Real Estate Industry



At the moment in the real estate world there is a real and definite need for real estate property management to be run through blockchain technology. Why? For many reasons but one of them that will be discussed here is that being run through blockchain technology will remove a lot of ambiguity and trust from contracts and making decisions in real estate.

First of all, let’s explore what a blockchain is:

Wikepedia describes a blockchain as “a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a cryptographic hash of the previous block, a timestamp and transaction data.

By design, a blockchain is inherently resistant to modification of the data. It is "an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way".

What does that mean for real estate? It means that “trust” is removed from decision making.

The word “trust” itself implies relying on another person to behave in a way that we perceive as being acceptable to our standards.

Off course this can never happen and that is why we have contract law outlining expectations and in any good relationships we set boundaries and rules to communicate what we perceive as acceptable and what, when the line is crossed, we will not be prepared to put up with.

Off course in business and personal relationships, our emotions often take the better of us and we find ourselves judging those who have overstepped our boundaries because they should have somehow had exactly the same values and should know better. These expectations without effective communication cause problems in business and personal relationships (just look at the failure rate of business and the extremely high divorce rates in our society) and they equally cause problems in real estate too.

Because I run the property management division of a real estate company I am going to use some property management examples to demonstrate my point and specifically the current tenant selection criteria used by property managers to “bet” on whether a tenant is going to be a good risk for a property.

Currently the property management industry relies on the opinion of another person when choosing a tenant for a property and this can cause problems in a few different ways.

The most obvious way is that if a current property manager or landlord of a tenant wants to move a problematic tenant onto another property they would recommend the tenant to the enquiring property manager so that tenant then just becomes someone else's problem.

Currently there are several ways to minimise the risk of relying on such false references. One of these ways is to get a reference from a previous landlord based on the assumption that they have nothing to gain by providing a false reference because the tenant is no longer with them.

A more accurate way however would be to have access to the tenants rent ledger from the agent’s trust account. A trust account behaves like a block chain in that it is resistant to modification, contains time stamped data so is a reliable resource when screening tenants. However although a trust account ledger is (mostly) modification resistant, it is not open source or decentralised so it relies on a previous managing agents providing that information to enquiring managing agents.

Some agents have policies of not renting to tenants unless they are able to obtain trust account ledgers from previous managing agents. This policy off course causes the problem of rejecting applications from potentially good tenants due to a lack of response from a previous agent at absolutely no fault of the tenant. Private landlords with no records or at best completely unreliable excel spreadsheets also are not a reliable source of information.

Another problem with relying on trust account ledgers for information is that it is not always up to date and agencies that are not up to date with entering information into the ledger or indeed, recording it wrong, can impact the records of a tenant. The more accurate record would be the agent’s own trust account, however these records are never made publicly available, have stringent regulations and rules and because rents are coded, they only make sense to that agency for internal purposes, hence relying again on the input of accurate data by the agency.

A block chain will eliminate or at least reduce most of the above problems. A distributed ledger for real estate rental payments from tenants will mean that the managing agency, any other agencies screening for tenant records for a potential applicant or other organisations such as courts and tribunals can have access to up to date information on the payment records of that tenant without relying on the managing agency.

Block chains for property inspections

Having inspection reports on block chain technology would similarly remove a lot of error, delays opinions and relying on a managing agency to send them. Like rent records, these reports can be used to assess the “risk” on a given tenant.
Having inspection reports on a block chain would make them available to new agencies screening tenant applications or tribunals, courts that have interest in tenants ie for damaging properties and it is important that these records, like rent ledgers, are resistant to alterations.

In my office, all inspections are done through an application on an ipad that is linked with our inhouse CRM system. All office ipads, phones and office computers are synced so that photos and information recorded on one devise is simultaneously received on all devices in real time. Photos are dated and the dates or photos cannot be altered. At the time of writing this report, 2018, this technology is cutting edge, however not every office has this and further, it is restricted only to our own internal devices and not a public distributed ledger available to other interested parties that may require that information.

It also takes a lot of time to find archived records from past tenants when required by another agency or interested party. Publically distributed rent and inspection records on a block chain will allow interested parties to gain the information without needing to wait for previous managing agencies to search their archived files and forward that information.

It is important to mention here that having tenant records on a publically distributed ledger such as a block chain does not make it public information available to anyone through a search engine. Information on a block chain is only available through public keys, that means that a tenant, when applying for a new home, has given an agent permission to screen an application by gaining access to information required to process that application such as rent records and inspection reports.

At the moment the same information is obtained but by speaking with other agencies and then relying on them to forward that information and trust in the fact that records have not been altered. A distributed ledger will fast track the processing of application forms and not compromise privacy.

Removing personal opinion

So far we have discussed distributed ledgers and block chains being used to minimise the risk to a landlord or property owner associated with accepting a bad tenant by relying on factual information such as tenant ledgers and inspection reports rather than personal opinion.

However the biggest risk to landlords and also tenants is relying on personal opinion to judge a potentially good tenant and this has very high financial risk for landlords in terms of increased vacancy costs as well as lost opportunity to good tenants rejected from properties because of personal opinions.

Vacancy costs are one of the biggest costs in property investment and losses caused due to an unwarranted judgement of a tenant will add to expenses caused naturally by market factors or the condition of the property.
Human nature tends to lean towards accepting negative comments and gossip and verifying positive comments and this causes huge losses of rental income every year to property investors, not to mention lost opportunities for tenants that would have been a good fit for that home.

Here are some examples from my own real estate office. Our property managers have training in emotional resilience and less at the effect of accepting gossip and personal opinion but most other property managers and humans are not.

Examples of Handling Negative Opinions of Tenants

A few years ago, we had an application from a middle aged couple to rent one of our properties in Modbury South Australia.
One of the first things our leasing consultants do is ring the current leasing agent for a rental reference and one of the questions they ask is “would you rent to this tenant again”. When prompted with this question the current leasing agent made the following statement.

“We did not renew their lease because our client (the owner of the property) was just so sick and tired of seeing cat hair everywhere in routine inspections, we asked them many times to clean up the cat hair before the next inspection and they did not, it was in every inspection, they have no respect and we would never rent to them again”

This above statement from a current managing agent can be detrimental to an application. The conclusions that can be drawn from this statement can be endless. Here are some conclusions that can be perceived by the human mind.

The tenants are difficult to work with – an application can be rejected on that basis.
They allowed a pet to damage the property - an application can be rejected on that basis.
They did not look after the property - an application can be rejected on that basis.
They may have had an unapproved pet in the property - an application can be rejected on that basis.

The current leasing agent did not approve of these tenants and would not lease to them again - an application can be rejected on that basis.

And off course many other conclusions leading to the rejection of this tenants application for the Modbury property.
Off course none of the above were actually true and emotional resilience means that you can find the truth of the matter without being at the effect of someone’s drama or jumping to conclusions that are not true.

Our leasing consultants thanked the current leasing agent for her comments and asked her to send through to us all routine inspection reports for this tenant as well as a rent ledger – this is a normal part of our application screening process.

They then proceeded with the rest of the tenant screening process. The weekly rent amount paid by the tenant needs to be no more than 30% of the combined weekly income of the couple and their income quite comfortably covered that. Affordability was a big tick.

Work references were excellent, their jobs were not in a probationary period, they were both professionals and their employers highly described them as being reliable well spoken.

The rent ledger showed zero arrears for the tenancy and both rent and water invoices were paid on time.
The routine inspection report showed a clean and tidy house and the only pet hair evident was on the tenant’s personal couch. Further we concluded that the bond was paid back in full to these tenants which means that the current leasing agents did not claim for any additional cleaning charges to remove pet hair or pay for pet damage to the property. The big Persian cat the tenants had would sleep on the couch at night and the couch was made of suede leather so hair got stuck on the couch.

Given the above investigation by our agency, the landlord was given more real information to make an informed decision on whether to accept this application or not.

The information presented to our landlord was:
Professional middle aged couple, affordability criteria is met, excellent work references, water invoices and rent paid on time on their last tenancy, routine inspections showed a neat and tidy house, it looked clean from photos.
They have a big Persian cat that sleeps on the couch at night, routine inspection photos show close up photos of hair on the couch, the current landlord took offence to the pet hair and asked the tenants to clean it before further inspections.
The cat hair appeared on all subsequent inspections so the landlord made a decision not to renew their lease.
The current leasing agent said she would not rent to this couple again because her client did not want to renew their lease. However she also confirmed that the agency did not incur any subsequent cleaning charges or pet damage and the bond was released to the tenant in full.



Our landlord accepted this middle aged couple and their Persian cat “Smokey” and the 3 of them have been living in the property for the last 4 years.

It is my speculation that the current leasing agent made the comment that she would never rent to these tenants again because she was at the effect of the landlord and it’s possible that the landlord may have been a dominant personality, evidenced by their demands to “clean the couch or else”.
This is where training in emotional resilience can become very effective in “seeing” what is real amongst what is drama and control.

It’s important to mention here that many agencies would have presented the leasing agent’s original opinion of the tenants directly to their landlord client. That means that the landlord and agent would jump to any of the abovementioned conclusions – the tenants are difficult to work with, the tenants do not look after the property etc… and rejected the application of an exceptional tenant based on the opinion of another person.
The tenants and their cat moved into the tenancy 3 days after the last tenant vacated so not only did our landlord experience only minimal (3 days) loss of rent but he had been enjoying zero rent arrears for the last 4 years that the tenants had occupied his investment property.

How blockchains can help minimise opinions.

Our property managers undergo emotional resilience training as part of their ongoing training at ALEXA Real Estate, this helps landlords as they are less likely to be at the effect of an opinion or make decisions based on opinions without facts and further research and investigation to draw more realistic and balanced information to present to landlords. Landlords can make better decision when presented with a full story rather than drama from another agent.

A blockchain would have more balanced information. It may still have an opinion on the tenant written by another agent but it will also have the “hair on the couch” photos and not everywhere as first stated by the last leasing agent.
Note here that property management run on a blockchain will not eliminate an intermediary such as a professional property management service. It will streamline and fast track processes such as screening for tenants. Because tenancy legislation is so transient and sometimes negotiated, there will always be a need for a professional service, however the service may become cheaper as agents are able to manage more properties more efficiently spreading the cost amongst a greater number of investment properties than what is done right now.

Another Example

Here is one more example of using discretion and investigation to screen applications rather than personal opinion.
We received an application for one of our executive Eastern suburbs townhouses from a professional couple that had a placement in Adelaide for 2 years. The company they worked for were going to pay all the rent with 6 months upfront and the move in day was exactly the day following the vacate date of the outgoing tenants which means zero vacancies on this property. Like the first example, work references were excellent and so was affordability.

The current agency they rented from interstate similarly provided excellent references with no arrears and great inspection photos. A private landlord they rented from over 12 months prior however gave us a different story. She told us that she remembered these tenants because they damaged her $23,000 kitchen and again stated that she would never rent to them again.



This landlord did not have routine inspection photos or even outgoing inspection photos to show us nor did she have a reliable rental history like a rent ledger. Because she was a private landlord she did not have the tools that professional agencies have. This is another great reason to have property management performed through a blockchain.
When we asked the private landlord if the tenants received their bond back she reluctantly told us that they did. We asked why she did not claim the tenant damages against the bond if they damaged a $23,000 kitchen as she claimed and she told us that it is “because landlords have no right”- this statement off course is not true and a red flag that there is more to this story.

We then asked her if she fixed the damages and she said yes she fixed them and paid out of her own pocket. We asked for proof of receipts. After a lot of calls and emails and awkwardness – this private landlord was uncomfortable in backing up her claim, she finally produced a $300 plumber’s invoice for the replacement of a kitchen mixer tap that had come lose at the base.

That is what she had labelled as “damage to her $23,000 kitchen”. A mixer tap lose at the base would be likely considered maintenance by a tribunal and not tenant damage which would explain why she was not able to claim from the bond.

Needless to say that based on the above evidence that a landlord 12 months ago had to pay $300 to replace a kitchen mixer tap and was disgruntled because she was not able to claim from the tenants bond and that everything else on this tenancy was great, our landlord client accepted this property and had enjoyed an income of $900 a week for the next 2 years without a single day of vacancies. Had we taken the private landlords opinion that they “damaged her $23,000 kitchen and she would not ever rent to them again” our landlord would have missed out on those benefits.
The above scenarios demonstrate the importance of having property management information available on a distributed ledger. It would streamline a lot of property management procedures and take ambiguity and opinion and trust out of decision making.

In this article I have talked about one single aspect of property management – the tenant screening process but there are other day to day procedures that can benefit from being available on a distributed ledger system such as a block chain.

The transfer of investment properties from one agency to another is a huge area that can benefit from information being on a distributed ledger system. It is extremely common for properties to be transferred between agencies, not only in the sale of rent rolls but also due to landlords initiating the transfer of management to other agencies by choice. The number of important information that gets messed up in the transfer between agencies is phenomenal and causes havoc in tribunal and court hearings on future dates. All this can be eliminated or at least reduced by distributed ledger systems such as running property management onto a block chain.

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Nice article, but I have a bit of a gripe with "block chain will solve for x" articles, everything seems like a nail.

The real question block chain solves is consensus without a central authority. None of the problems you outline inherently require that and can be solved just as easily (or more easily) with an open database.

The biggest problem I see is people agreeing to have their data on an open database, so this would likely require legislation, be expensive to design (in a legislative sense) and most likely not garner the political will to make it happen.

 

What you are suggesting in this example is in the future a tenants full history could be accessibly by any property manager for legitimate reasons. Who governs who can and can't assess this information? Is the tenant the only owner of this information and they choose who can access it and to everyone else it is 100% private?
If some-one else can control the access then it is open to being a break of privacy and the information getting in the wrong hands for the wrong reasons.

 

I had the same issue with that. There are some serious privacy implications involved in the examples given.

 

What about the block heads that manage my properties now?