Blog / Property Management
Improving the profitability of your rent roll, Bob Walters
The vast majority of Real Estate Agency Principals I have met want to grow the number of properties on their Rent Rolls. What I find surprising with this quest that so many Agency Principals have to be “the biggest rent roll in town”, is so little focus on improving the profitability of the Rent Roll rather than just growing the number of properties.
Numbers of properties don’t dictate a rent roll’s value. It is more profitable to manage 200 properties at an average rent of $400 per week than 400 at $200 per week. The same income, but the smaller one would take less staff to manage and would therefore be more profitable.
In my view, to go only on a quest to build numbers is foolish in the extreme!
In my view, the goals should be to:
- maximise the income from existing properties under management
- constantly look for new ways to improve productivity through systemisation and technology
- achieve economies of scale
- expand the number of quality properties and clients under management.
Sadly, there are a many Agency Principals who have a “mine is bigger than yours” attitude and will do anything to increase the number of properties they manage by:
- buying a rent roll without doing any serious ‘due diligence’
- taking on all properties for management, regardless of their condition or the demands of the clients
- doing anything to retain the properties they manage – reduce fees, accede to client’s unreasonable demands and often they are held to ransom by their staff.
No agency is involved in property management for the sheer fun of it. The property management business must have a profit motive and its financial results should be calculated accurately.
However, many Agency Principals either:
- do not have a separate Profit and Loss Account for their Property Management business and as such, have no idea whether that part of their estate agency practice is profitable
- have created a separate Profit and Loss Account for Property Management, but have fudged the indirect expenses to give a false profitability reading.
In my view, to go only on a quest to build numbers is foolish in the extreme!
When you look at the asset value of the rent roll and the high labour cost in property management, it is reasonable to expect a minimum 20% profit return on income generated.
In my view, in today’s economic climate if you are not achieving at least 20% profit on gross annual revenue, you would really need to question why you are in the property management business at all.
Many Agency Principals regard property management as a “baby sitting service” for their real estate sales businesses or regard their Rent Rolls purely as a balance sheet asset that they can retire on, without any real focus on its ongoing financial performance.
In focusing on improving the profitability of your Rent Roll, I would like to make the following statements:
- Poor quality properties are more expensive to manage
- Target market your services towards better quality properties or properties in better quality neighbourhoods in your service area
- Kiss your unprofitable clients goodbye. Yes, you know who they are!
You can easily spend 80% of your time with 20% of your clients and they’re probably the least profitable ones.
The trouble is, most Agency Principals are sales people. They think like sales people, don’t they? They say things like “every client is a good one”, or “they might sell one day”. It’s like every listing is a good listing, isn’t it.
No! Replace them with full fee paying clients.
Fee Packages
Today’s clients are looking for services and fees that are customised to their needs, rather than the outdated “one size fits all” approach that many agencies still persist with.
What are the benefits of property management fee “packages”?
- Profitability - input the percentage into your software system and you only have to ensure rents are kept maximised. No need to keep reviewing other fees!
- Fee Charging - no fees missed, not charged ‘accidentally’ and no free services given out by the property manager without your knowledge
- Rent Roll Value - your rent roll is largely based on management fee income, and ‘other fees’ affect the value of the multiplier to a lesser extent.
Maximising Income
Go for the top end of the market. As stated before, it’s better to have 250 properties at $500 per week than 500 properties at $250 per week.
New properties you bring on for management should generate more than your current Average Income per Property under Management, and continually strive to increase averages.
Why Increasing Income is often Better than Rent Roll Growth!
- Your Workload Increasing a rent roll size increases income, however bringing on new properties increases our workload. Increasing income with current clients adds no new workload.
- Your Overheads With growth comes new overheads as staff and resources are added to cope with new growth. Increasing income creates no new overheads.
- Your Rent Roll Value Rent Roll Value is not based on property numbers, but on your income. Increasing income increases your Rent Roll Value without adding numbers.
If you would like to utilise my consultancy services to assist you in improving your property management income and profitability, contact at bob@bwt.com.au.
← Go back
