Every property your agency manages should help your business to run at a profit. Have a look at some benchmark figures and tips for improving income.
Property management is often referred to as the ‘bread and butter’ income of a real estate agency but is your PM department making enough to get you through tough times?
If the numbers don’t add up in the right way, some of your properties will be running at a loss. If you ever hope to sell your rent roll, you need to make sure every PUM is making, not losing money.
Take a look at some figures to help you determine if you need to make changes, plus some tips to improve rent roll profits.
Average return on investment
A ‘best practice’ benchmark return on investment of a well run property management business in Victoria is 26 per cent.
Generally, the biggest cost of your rent roll is the wages you pay your team. This will take up around 50 per cent of the income. To achieve the right ROI, it is recommended to charge a commission rate of 6-7 per cent and/or achieve a figure of between $1,400-$1,700 per property, per annum.
Even if you’re not thinking of selling your rent roll in the near future, and as we approach the end of the financial year, it’s a good idea to do a quick review of your numbers. Tally your revenue, wages and expenses to see if you’re nearing the 26 per cent profit mark. If you are exceeding it; great work. If you’re falling quite far under, you will struggle to sell when the time comes… plus you deserve to be making more money.
How to stay competitive
There are always property owners who want to negotiate. They may threaten to switch to another agency unless you drop your commission rate. You do have the choice of doing so to keep the client on your books but do some sums beforehand to make sure it’s actually worthwhile to retain the property.
If you are in a market where there is price pressure on commission, there are ways to collect additional fees.
For example, you may charge a 5 per cent commission but have separate charges for rental inspections, fire alarm inspections, contract reviews etc. Another option is to have a slightly higher rate than other agencies but be very clear about all costs being covered and hang your hat on offering a fixed rate with no extra fees.
Another idea is to form partnerships which generate revenue for your agency. You could potentially form an alliance with a cleaning provider and recommend them to your renters as the company of choice in return for a finder’s fee. The same could apply to mortgage broking and solicitor partners who you can generate business for when renters and existing property owners are ready to buy or expand their portfolio.
Look for ways to streamline costs
When you’re looking at the profit margins your properties generate, it’s also worth doing a deep-dive into your expenses and team productivity.
Check your team members are all productive during working hours. Sometimes you’ll find some people are overworked while others aren’t busy. You can even out workloads or consider reducing a headcount to part-time.
Could you potentially distribute repetitive or administrative tasks to an offshore team member as a way to save money? It’s possible to add an individual to your team for under $2,000 per month and there are plenty of talented workers in The Philippines who would be excited to become part of your outsourced team.
There may also be technology and apps you can implement to minimise operating costs. Some initial investment may be required but the eventual time saved can nudge profit margins in the right direction.
Standard expenses can probably be reviewed as well. Check your stationery and other supplier contracts to see if you can negotiate a better deal. Another option may be to downsize your office and have people working from home more regularly to save on the cost of rent.
When you keep a close eye on your profits, you’ll have the regular income your agency needs to stay afloat during the rising and falling tides of the sales market. You’ll also create a rent roll which has a strong history and is more appealing to buyers when the time comes to sell.