How do you run a profitable property management business, and what is a reasonable level of profit to target ?
First up here are some facts to ponder;
- The market rate of an 8% management fee is under pressure.
- Technology is providing landlords with much cheaper options than you.
- Your competitors are actively data mining and prospecting your managements.
- Your rental portfolio is your only buffer against a down sales market (remember the GFC?).
- Your property management feeds your sales department and starves your competitors.
So first of all it’s imperative that your property management department is large, and growing. If it’s not then you’re at risk. Secondly it has to be profitable, and with current wages growth and client service demands, how do you achieve that ?
The answer to the dilemma of increasing service while decreasing costs is in automated and efficient processes. You simply can’t afford to be having highly paid staff doing routine tasking, and you can’t afford the negative customer sentiment from having jobs missed or poor communication.
So here are my 5 tips to getting it right
Step 1: Get Automated
If you rely on an old server based Property Management software solution then you need to immediately find a cloud hosted product that will give you the automated processes you need. The server based software you use is designed as an accounting package to help manage your trust Account, it does nothing for lifting the productivity of your staff or the satisfaction of your customers. Our advice is that if you run one of the old server based products NOT to change to a Cloud based Trust Management product until 2019 – there are some major changes almost upon us and it will all change again in the next 6 months. You can easily upgrade your server product now with a plug in Cloud product, and get the best of both worlds till you make the more radical changes in 2019.
Step 2: Measure your Efficiencies
You can’t manage what you don’t measure. You need to know what the cost of each management is against the income you receive. In a typical office in Australia this would be an income of around $1,872 per annum against a cost of up to $1,500, leaving a GP of 20%. I guess this sounds reasonable, till you consider the possibility of Management Fees dropping to say 5% – if that happens you’re now running at a loss of $330 on every property ! If you’re going to be able to compete against new self managed products, work from home managers, and your more automated large competitors then you have to be able to drive your cost base down to $800 a month (or less).
Start looking at all your costs and getting an accurate idea on what each area of service provision is costing you on a per property basis.
Step 3: Drive Your Costs Down
Now that you know what your costs are you need to do something about it. If you run a traditional business you’re going to find large (read huge) amounts of labour are being swallowed by arrears, maintenance and inspections tasks. Automation can fix this. Break down the tasks and ask yourself what can be automated and what can’t, write down the results and check out the products you’re looking at to see if each of them do what you need – score them and rank them.
If you can’t drive your cost base down to $800 per property it’s unlikely that you’ll still be in business in 5 years.
Step 4: Be Prepared to Change
Nothing will change till you do. There are some great articles on having AI ready staff and it all starts with you, you have to take a leap of faith.
Here’s the catch 22 with automation – if you try and ‘manage’ it then it’s not really automated and you’re back where you started. You have to get your ducks in order, then commit to the process, then let the process work.
If your staff refuse to get on board then you need to find people who will. The fact is that if you currently have 6 staff to manage 1,000 managements then you have at least 3 people that you need to redeploy. The best solution is to redeploy them into business development, if you want compounding growth at 10% then you need to be on boarding 250 new managements a year in the above scenario – your 10% (100 properties) plus another 15% to cover natural attrition through sales and owner move ins etc (so another 150).
Step 5: Understand That Organic Growth is King
There are 2 ways to grow your rent roll, through an M&A strategy by buying properties, or organically through internal growth.
If you buy a rent roll the buyer will be after 3 to 4 times gross annual management fees. At the 20% margin quoted above that means you will take a minimum of a dozen years just to get your capital back. If you go down the path of funding through someone like mac Bank then you might never get in front of the curve.
Alternatively you can use your internal team to prospect and sign new managements. If you’re willing to pay 3 time annual management fees then you need less than 20 properties per year to cover a BDM with a CTC (Cost to Company) of $100,000. And the good news is that a top flight BDM with the right support can do this for you each month !
It’s a no brainer, you need systems and process (and the people) who can organically grow your portfolio.
So there you have it, 5 steps to getting your business on the right footing to take on the future.
Now it’s up to you. Get on line and get educated about what’s out there and what it can do for you. You may be pleasantly surprised, not only can these products save you a huge amount of labour, they can dramatically increase your client satisfaction, and often do all this at little or no cost to you !
My last tip is to look for providers who have a small sales team and a big development team (not the reverse), if a company had a dozen slick sales staff at the last conference you were at, then they possibly have a product that needs a great sales team – look for a great product that has just enough sales staff to get you on boarded when you’re ready.