The 10 Pillars of Property Management Profitability

Wednesday, December 06, 2023

Everyone wants to grow their rent roll!

As property management consultants, we hear from principals many times two main comments. ‘I want to know how to grow my rent roll” and “I want to look at buying a rent roll”.

Their motivation is clear- they want to make more income! Most principals, however, fail to realise that gaining better profitability with what they have right now is easier than adding more to their rent roll.

Almost nobody knows how to increase their profitability!

However, most principals do not have a clue on how to implement strategies for increasing profitability, or simply think that it means ‘jacking up the fees across the board’ resulting in all their clients walking out the door!

So before we look at the Ten Pillars of Profitability I would like to ensure that the concept of increasing profitability is easy to understand.

Let’s go to a hypothetical example. If the average property under management earns the rental department $1000 per year in revenue, and if the profit margin is 20%, this means that the profit margin on each property is $200. Therefore to increase profitability by finding an extra $100 per property will result in an increase in profit by 50%.

Therefore, increasing profitability is a great strategy if done properly!

The Ten Pillars

We have listed what we believe are Ten Pillars, and if they are implemented properly and effectively, will bring you an increased profit margin.

1. Rent Maximised –
Ensure that all rents are reviewed and maximised to market rents when the property becomes vacant and when leases are renewed. Also, ensure all non-fixed leases are reviewed every six months to market rent levels and increase accordingly. However, ensure this is done with your client’s permission. This assists to maximise your management, letting, and lease renewal fees that are dependent on rent levels.

2. Fee Maximisation –
In most of the departments we have conducted department performance health checks, we have commonly found that what they say they charge landlords, and actually what is charged on the management agreement are two totally different things! Therefore, identifying those clients that received discounts and increasing them to your current fee structure can be done successfully, if implemented properly. However, this should not be done if there has been a high staff turnover in your department or service levels are not consistent (i.e. you have a fair number of complaints!)

3. Fee Adding –
When consulting with various departments, we also find that there are fees commonly charged in the marketplace, however, the agency is not charging them. Fees like tribunal hearing attendance, monthly statement fees, lease renewal fees, internet fees, and periodic inspection fees to name a few. In some cases, the issue is not that fees are not being charged, just that the fee is not high enough!. For example, letting fees of 1.1 weeks rent when they could easily be asking for 2.2 weeks rent! We usually find it is the mindset of principals and property managers that disallow these charges to occur, however, when changed, they find that the clients do not have a problem with it.

4. Location –
Identifying and reviewing properties that are long distances away from the office. Anything over 20-30 minutes drive in metropolitan areas should be reviewed. You may choose to increase rates because of the extra distance travelled, or in fact drop management if this is warranted. A pool of properties a distance away could be sold to another agent. Just remember, the further away from the office the more costly they are to manage and maintain. If something goes wrong, you must travel to that property despite what the distance is!

5. C-Class Landlord Review –
the old saying that 20% of your clients give you 80% of the work I have found to be true. To do this, have your property managers look through their landlord list. Identify landlords with 3 or more of the following characteristics. 1. They are demanding and unreasonable. 2. They always seem to be on the phone with you or regularly coming into the office. 3. Have discounted fees or always seem to want discounts. 4. Always want more in rent than what the market allows. 5. Puts little to no money into the property to keep it in a reasonable state of repair. This only attracts a poor quality of tenant.

Once identified, either review and increase their fees or in fact, just end their management (should your management agreement allow). Your property managers will really thank you here for removing difficult landlords.

6. Property Review –
Poor standard or low rent properties should be identified and reviewed. Properties that attract only bad tenants or are in ‘hard-core’ low socioeconomic areas should be reviewed. Properties that are clearly troublesome or bring nothing but problems should be considered for removal from the rent roll. They only burn out your staff, so why hang on to them.

7. Value Adding –
Adding value to your services is another profitability strategy. Services like a 24/7 internet access service for landlords to access information on their property, or start taking photos at periodic inspections and supplying them in a professional ‘wow-factor’ inspection report. Give the clients the service for free for the first couple of times and then send them a letter saying that should they wish to continue to receive the service, some new fees will apply.

8. Promotional Tools –
Ensuring that your listing tools have a great ‘wow-factor’ look. Your pre-listing proposal/booklet, a professional listing kit, and even a property owner’s handbook all impress the client if they are ‘dressed up’ with photos of the team doing their job, generic photos, and other visually impactful dynamics. If your clients perceive that you are of better quality, they will also have an expectation that they may ‘have to pay a little more’ for your services. This also reduces requests for discounts as you are perceived to be worth the fee!

9. Training –
Property Managers are generally good at managing a property. But put them in an arena like listing presentations and quickly we find that they lack sales skills with scripts and dialogues, establishing the client’s needs and effective closing techniques. Providing them training increases their listing to management agreement conversion rates effectively dealing with objections.

10. Effective Time Management –
Better profitability does not just come from better fees, but also in training your team to conduct their duties in a more efficient way. Implementing an ‘ideal week’ for your team will bring amazing results. Though you will experience resistance at first, seeing this through will lower stress levels, bring a sense of control to your team and dramatically decrease the time it takes to conduct their duties. This will allow more properties to be managed per property manager, thus increasing profitability.

Implementing these strategies means expanding your profit margin without adding to your overheads and staffing levels. Anyone can see therefore that profitability is a great way to grow.

At the end of the day, your rental department asset worth is not based on how many properties you have, but on the income, the department generates. Concentrating on better income levels per property is a smarter way to run a rent roll and better for you when it comes to selling time.

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