Kalzumeus — The What, The Why, and a bit of The When

Picture this: you’re a young doctor, 32, recently married to your med school sweetheart.  Life is pretty hectic, what with being constantly tied to a beeper, carrying a cellphone so you and your wife can murmur sweet nothings in each others ears when not on call, and you having all the distractions of normal every day life.  Also, earlier this year you purchased a nice little house in the city to rent out to folks for some passive income, with eventual designs of using it to build up a little equity and maybe give something to the child you expect to be having one of these years, and then it hits you:

Being a landlord sucks.

Every first of the month you get to have even more thrown at your plate, and it is by and large busywork.  You have to check your mail to see if your renter sent you the check.  If they didn’t send you the check, you have to contact them fairly quickly to request that they send you the check, assess a late fee, field the phone call whining about the late fee, explain to the renter that just because their back door is a wee bit off its hinges that doesn’t mean they get to live rent-free, try to remember to call the handyman to fix that blasted door this week, get the check a few days late, drive to the bank, and wonder why on earth you took out a $200,000 mortgage to buy yourself a minimum wage job. 

There has to be a better way, you think.  Why can’t this be as easy as your wife’s hobby selling those Beanie Babies on eBay?  Deal with any questions or disputes by email, get an email from Paypal when the money arrives, no checks in the mail, no runs to the bank, no forgetting to mail the Beanie because there is a big announcement on your eBay dashboard on your computer saying “Hey, you haven’t mailed the Beanie yet”.

Kalzumeus makes being a landlord as easy as selling Beanies on eBay.

(Note: Kalzumeus is a codename and will eventually be the name of my LLC.  The actual product name is quite boring, was chosen mostly for SEO, and will be announced later when that website has some content on it and, ideally, a functioning demo.)

One of the nice things about Kalzumeus being a web app is that features can be added to it fairly easily.  At release Kalzumeus will support:

  • Landlords and renters logging into their accounts.
  • Landlords adding properties, residences, and renters to the system.
  • Landlords billing renters, with automatic repetition, in a very flexible fashion.
  • Billings for rent, parking fees, what have you.
  • Renters paying their bills online through Paypal.  All the landlord needs is a Paypal account, the computer handles the rest.  No messing with buttons.
  • Email notifications of rent due.
  • Automatic bill payment for most renters.  (My systems are more flexible for automatic rebillings than Paypal’s are.  I can, for example, bill someone on the 1st Monday and 3rd Thursday of every month.  I don’t know why you’d want to do that, but “1st and 3rd Friday”, for example, is a typical paycheck schedule and landlords like being able to bill people immediately after they get their paychecks.)
  • Roommates.  (This was a low priority feature, but it was free with an architectural decision, so it made it into the first release.)

What I eventually want to add:

  • More payment options for landlords to choose from.
  • Automatic paper dunning letters.
  • Expense/work order tracking.
  • Reports.
  • “Click this button to print out the stuff your accountant wants from you.”  (Depreciation calculation and all that jazz.)
  • Export to Quickbooks, CSV, etc.

Is this a big market?

There are fifteen million landlords in the United States, according to Intuit.  The most common number of properties owned is one.  (Cue the “If I could get 1% of that market…” song.  Now all I need is a venture capitalist and I’ll have all the ingridients for a funding round.)

Who are the competitors?

On the one hand, we have property management companies, which charge a figure anywhere between 6 and 10% to stand in for you in all or most interactions with tenants.  There are also services which will do ACH (Automated Clearing House) deductions for landlords, which are a way to automatically withdraw set amounts of money from someone’s bank account, for approximately $10-15 a month plus $2 per renter.  Some of these services also provide online reports, although the functionality is fairly limited.  Finally, there are many, many companies which offer “property management software”, which is basically integrated accounting packages set up for landlords.  One I have a lot of respect for is LandlordMax, run by a fellow uISV.  (Before anyone asks, I don’t see him and I as really being in the same niche.)

Why go into a market that crowded?

Because the vast majority of my competitors sell chainsaws and there are a lot of landlords who really need butter knives.  Much of the property management software is geared at professional property managers, including folks who have strong accounting backgrounds and are managing hundreds or thousands of units simultaneously.  I think there is a whole lot of overkill going on for folks who are at the “I’m not so much a landlord as I am a teacher who happens to own a house which I rent to people”  side of the market.  Additionally, the pricing models for many of the existing solutions totally ignore the needs of small landlords, probably because they are not nearly as lucrative as large landlords. 

Pricing Model

I am thinking of doing one month of free trial and then billing folks $X per month.  I have not decided on a final X yet, but am thinking $10 or $15 puts it in line with many of the successful small business web applications.  If folks want to prepay for a year I’ll give them two months free.  The wild card is Paypal costs, which for many of my customers are going to run at essentially 2.9% of their monthly rents.  That is a lot of money for just processing payments (comparable with running credit cards yourself, a heck of a lot more than using an ACH service).  At a $650 average rent in the US, that works out to about $19 in Paypal charges on top of whatever I charge.  I am cautiously optimistic that if I make it easy to use I can justify a price premium from some landlords over ACH payments, which are not exactly easy to set up (contracts need to be signed, faxed, etc), and am extraordinarily confident that for folks who are looking to accept credit cards I can do a bang-up job.

I am also thinking, eventually, of offering a separate $99 a month account type targetted at professionals (management companies and the like).  They’ll be able to create logins for the property owners, who can check the website at any time and see “Ooh, yay, I’m making money”.  That will require a bit of rearchitecturing so it is slightly down the road.

The Shoestring Factor

I have already booked most or all of the prelaunch costs.  While I don’t have my tab in front of me at the moment, they came to a little less than $250 last time I checked.  That includes a year worth of hosting with Textdrive prepayed.  (Just over $10 a month, even counting the setup fee.)  If my hosting plan is inadequate for keeping a Rails application running, which I have been hearing conflicting reports about, I’ll get one of their medium accelerators (basically, a slice of a server) for about $65 a month.  Currently, my break even number of customers is one.  If I end up buying the accelerator, that will put the break even number at between 5 and 7.  (Bingo Card Creator, by comparison, is profitable from the first customer every month to the last.)

Where is the end-game for this?  I don’t know.  My goal for the intermediate term is 300 (paying) customers, and I’m hoping to have say 80 to 100 by the end of the year.   (I generally like to set small and achievable goals and scale up from there.  My first goal for Bingo Card Creator was $200 a month in sales.  Hit that and kept going…  working on $1,000 a month now.)  As scary as this is to say, 300 paying customers would be enough for me to quit my dayjob.  (I love being a uISV.  If you’re doing some sort of advertising funded social networking site, you can have hundreds of thousands of users and still be losing money every month to your massive hosting and infrastructure costs.)

Marketing

Blog, SEO, and AdWords to start out, more as time permits.  I’ve been looking at the market for a couple of months and while “property management software” is an absolute bloodbath I am fairly confident that I can SEO very well for other queries, like “pay rent with credit cards”, “online rent collection”, and the like.  I don’t need or want to compete with the largest players on their own turf — for the moment I’ll be quite happily picking and choosing crumbs dropped from the table.

Demo / Ease of Use

I’m working at having a mostly full featured online demo for the software, part of my usual quest to get folks to the shiny bits as quickly as possible.  I also have no-hassle, no download, no credit card, “Give your email address and get started” account creation.  There are plenty of examples you can find of Web 2.0 companies who do Actual Business Processes without requiring 30 minutes of forms to get started.  I am practicing the most sincere form of flattery with regards to the design of my own signup process. 

In my timer tests (something I often did with Bingo Card Creator — time how long it takes from hitting the download free trial button to when the cards come off the printer), I can sign up and have automatic billing working for a renter in 90 seconds.  We’ll see if I can’t shave some more off of that when the interface is more complete and AJAXified.  For example, I want you to be able to do the most common types of rent (monthly on the 1st, monthly on the 1st and 15th, etc) with about two to three clicks while adding a renter.

Legal

I am not decided on whether I will have a lawyer draft the terms of use or not.  I’m leaning towards “not” — the application can’t kill anybody, and a quick glance around the world at my various competitors shows that companies with Serious Money On The Line are quite happy to just have generic “If you bill your renter for a gazillion dollars and get taken to court, that is Your Problem” disclaimers.  The privacy policy is already drawn up, and looks very similar to the Bingo Card Creator one: we use cookies to track X Y and Z, we don’t sell your information, we won’t spam you, any questions feel happy to ask.

So when will this be publicly released?

I will happily show this as soon as I can without embarassing myself.  Since it is currently black text on a white background with the default Rails stylesheets for errors and much navigation is still accomplished by manually keying in the proper URLs, the app is not quite ready yet.

At the moment, the business logic for the first shipping version is about 80% complete.  The billing system still has yet to be implemented, and I have yet to write the systems for sending reminder emails, etc.  The interface, on the other hand, is only about 15% complete — things link to the right pages most of the time, but I will have to redo most of the views so that they look nice and pretty in Multiflex-3.  I also want to hand-edit the Multiflex-3 WordPress theme so that clicking from the product blog to the product site is a totally seemless experience, which by necessity involves a bit of headache since WordPress is PHP, the product site is flat HTML, and the application is Ruby on Rails.  Yay for getting to tweak the same template three times.  (I might eventually make the static pages served by Rails, but for the time being I know that new Rails apps can be a bit tempermental and if I should cause the app to die I would like people to be able to access the front page and send me a letter about it.)

Of course, since I’m currently winding down my employment contract with the day job and actively searching for a new one, the schedule could get changed at any time.  That is another reason why I don’t want to have a site in front of potential customers until I can have reasonable assurances that I have time to act on things that potential customers tell me.

My Capsule Impressions of Ruby on Rails

How am I finding Rails?  Elegant, but not easy.  I will need to do a refactor or three over the codebase to standardize the way I do some things before I release.  The amount of existing code which can be leveraged for my project is pretty low but when it does exist its amazing.  (You should see the graph libraries.  Wow.)  On the other hand, the community is growing rapidly and as a result the average level of skill in the community (and hence on forums, etc) is not quite so high yet. 

Test driven development has proven to be a lot like going to the gym — I didn’t enjoy starting it but the results are easily visible at the annual physical.

Since my interface is not in anywhere close to its final form yet I haven’t been AJAXing everything in sight, but I have identified a few places where there are major, major wins for user experience using it.  I was also able to replace graphs generated on the server with graphs generated on the client (using a clever bit of Javascript whose name eludes me at the moment), which moves the performance of the application from “fast relative to my projected needs” to “stupidly fast relative to my projected needs”.

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20 Comments on “Kalzumeus — The What, The Why, and a bit of The When”

  1. Karl Winkelmann Says:

    Hey Patrick, looks like a great idea, good luck!

    I’d love to take a look at the charting library you’re using, since I’m i need of something good.

  2. Steve Moyer Says:

    I’d also like to know about the charting library … I’m a big fan of Walter Zorn’s JavaScript libraries and am (currently) planning on using his graphing library for my upcoming project (see http://www.walterzorn.com/grapher/grapher_app.htm).

  3. ColinM Says:

    What’s the advantage over standing orders?

  4. Phil Says:

    Patrick, best of luck! This is truly an extremely crowded marketplace, it will be interesting to see how you do. I’d be happy to be part of a beta test, I was unhappy with many of the property management software packages out there and wrote a simple one myself.

    One big issue I’ve found is that many other landlords I know are not high tech, and renters are often less so, so 100 customers this year may be ambitious (landlords are also notoriously cheap). I’m looking forward to seeing the final product!

  5. Andy Brice Says:

    >There are fifteen million landlords in the United States, according to Inuit

    But what do the Eskimos know about real estate? ;0)


  6. Advice for Patrick

    Patrick has finally given us the details on his new web app and it sounds very promising. I really like the idea and I think it's a good market for a small ISV. My one piece of advice for Patrick is don't skimp on the lawyer. What you're…

  7. Oliver Says:

    Patrick, I like the idea. Nice job looking for the pain.

    One thing that I would be worried about is the 2.9% paypal fee. Yikes. If someone has a 4-unit building or a house the total rent might be $2000. So paypal would take 58. Add to that your fees and they’re paying ~$75 for your service. The sad part is you are going to have to do all the work to convince that customer that they need to part with $75 per month, yet you will only pocket a small amount of that.

    If you could do ACH then I think you will have something great.

    Good luck,

    Oliver

  8. Adam Says:

    Not sure i’d want to be in a subscription business as a UISV. Have you done the analysis of cost-to-acquire subscription and churn vs. a pure purchase model.


  9. Sounds like a really promising product Patrick, I wish you all the best!

  10. Pascal Says:

    Patrick,

    this sounds like a very interesting idea! Even if I’m concerned about that Paypal fee. This may greatly reduce your market.

    I agree with Ian, though, (his recent blog post), don’t skimp on lawyers (even if that will set you back on your shoestring budget).

    As for rails and static pages, it is very easy to get your static pages cached, and if you use nginx (recommended), or apache, even if your rails app has died, your static pages will still work, assuming you have the proper rewriting rules. (shout me an email if you need more info).

    Also, if I may, I would recommend you use something like comatose for your static pages. It will be very easy to tweak them later on without having to redeploy your rails app. Me personally, I like to use Mephisto, but it is a bit more difficult to integrate cheaply with your app.

  11. Scott Meade Says:

    Patrick,

    “Kalzumeus makes being a landlord as easy as selling Beanies on eBay” – I love it. Sounds like a worthwhile idea and I wish you all the best on it. ”

    I agree with your strategies: make it easy to get started, make it easy to keep using. This is the biggest advantage of a hosted app in the competitive landscape. While landlords may not take the time to install popular management programs, they might take a few minutes to create an account at yours. Then, you have their email address and opportunities to excel at ease of use and customer service. And, as you mentioned, landlords that do take the time/effort to install and evaluate desktop apps are already well served by Stephane Grenier.

    Sounds like you want to launch soon, but not too soon. If you _did_ want to launch earlier, I would recommend taking out one of the features such as “renters pay their bills through paypall” or another non-critical feature. Launch earlier to get all important feedback earlier to find out what really gets used and what people want to see next.

    Finally, with TDD, you’ll love being able to turn around program changes quickly without worrying if you broke anything in making the changes. It’s an upfront investment well worth its time.

    Just like with Bingo Card, it’s going to be great to see you proceed with this. Thanks for sharing.


  12. Cool stuff to read up on, I hope you do well on this venture.

    “If you’re doing some sort of advertising funded social networking site, you can have hundreds of thousands of users and still be losing money every month to your massive hosting and infrastructure costs.”

    Try telling that to the plentyoffish.com guy! http://plentyoffish.wordpress.com/2006/06/07/small-companies-google-adsense-is-the-future/ … I highly recommend reading his blog.


  13. Hot Diggity Patrick… sounds like you have a good app here!

    Keep us posted on stuff… like you do with Bingo Card Creator.

  14. Rich Says:

    “One I have a lot of respect for is LandlordMax, run by a fellow uISV. (Before anyone asks, I don’t see him and I as really being in the same niche.)”

    Stephanie is probably not a “him”. You’re probably right, besides that.

    You took that mISV suggestion (was it by Bob Walsh?) in the JoS forums and ran with it, I see. I’ll cross that idea off my “good ideas” list. 🙂 Good luck.

  15. Patrick Says:

    Stephane (note the lack of the “i”) is most positively a him. Take a look at the picture on the masthead of his blog. http://www.followsteph.com/

    In my defense I had this idea about two days before it was posted in the forums, although when I saw that Real People (TM) were having the problem it got bumped up the list a little bit. The original inspiration was actually someone on the Motley Fool who posted a three page long explanation on the Real Estate forum of how to collect rent using Paypal. Long, complicated manual process used to generate business profits… that CRIES for automation.


  16. […] Kalzumeus — The What, The Why, and a bit of The When Picture this: you’re a young doctor, 32, recently married to your med school sweetheart.  Life is pretty hectic, […] […]


  17. Firstly, it’s great to see that a lot of people already know about LandlordMax and my blog. And thank you Patrick for the nice compliment in your article!

    Secondly, just a quick tip for you Patrick, definitely get legal advise, especially if you’re going to start taking payments for your landlord’s tenants. We’ve looked at this in the past and decided not to pursue it because of all the issues. For example, a lot of tenants reneg on their payments. Some will use fraudulent means (even through Paypal, etc.) You have to be very clear and precise in how all this will be handled. Otherwise what will happen is that you’ll get a landlord contacting you needing their rent money to make their own mortgage payments from a tenant that hasn’t yet paid.

    On top of that, what happens if the tenant uses a fraudulent method to pay you and Paypal takes back the payment a few months later. Who’s on the hook for that money… Just a few thoughts for you. Not to scare you, but to help you think about this beforehand so that you’re not surprised. Once you’ve established this, you’ll be in a much much better position. Although we don’t do it, other companies do, so it’s definitely possible!

    Also, just to let you know we’ve been planning to offer LandlordMax as a web based application for about a year now, we’re just not there (it’s in the works). I don’t think we’ll directly compete with you, we’re targeting a different market space than you. But it should be interesting. I hope you all the best of success!!!

    Regards,
    Steph


  18. Hi Patrick,

    Actually if you manage to successfully offer a service that collects rents (and other bills) from tenants for landlords (and so on), we probably would be interested in making some kind of deal/partnership with you for this service. This would be a great add-on for us to what we already have. It’s something we’d like to offer but are very unlikely do to ourselves, so we would definitely be interested in talking. If you’re interested, please feel free to send me an email directly.

    Regards,
    Steph

  19. Patrick Says:

    The trick I’m using to avoid that is to structure the payments similar to how e-junkie (or similar services) structures them: the money never touches my account. My website just automatically generates buttons/URLs which, when clicked on, cause money to fall into your account. If your tenant NSFs an e-check or chargebacks a rent payment, Paypal will take the issue up with you directly.

    Then I include license language similar to most of the payment servies — if you and your tenant have a dispute, we’ll provide an authenticated copy of our automatically maintained records but otherwise you’re on your own.


  20. Hi Patrick,

    It’s great to hear that you’ve already worked through this. To me this is by far the most important part of the whole business model (at least when I looked into it).

    And just another quick tip if you don’t mind my saying, if you can without putting it too central, make sure your license language is upfront as much as possible. I can guarantee you from experience that landlords and property managers will call you otherwise when a payment fails. You’re going to be perceived as their main contact for why the payment failed or was chargedback. Although it’s not accurate, perception is king.

    I’m sure you will succeed and again I wish you all the best of luck! It’s great to see others coming into this field.

    Regards,
    Steph


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