Here’s how you can be prepared and ensure a smoother transition as well as a positive outcome.
If you own a real estate agency and you are considering a sale or merger, one thing you need to review is the state of your rent roll.
Note the word ‘state’ and not necessarily ‘size’. Quality has the potential to trump quantity when it comes to the properties under management, your systems and your team. Take a look at why.
Bigger vs better
Let’s compare two different rent rolls.
Rent Roll A is ‘boutique-sized’. The agency has a highly efficient property management department and a good PUM to PM ratio as a result. There are clear systems in place. The existing staff are happy and this has led to excellent rates for referrals and retention. Profit margins are healthy because the department is run like a business within a business and has clear KPIs as well as properly managed expenses.
Rent Roll B is massive, with hundreds of properties across a large footprint. The team struggles due to the 80/20 rule, with 20 percent of clients taking up 80 percent of the property managers’ time. There are a number of property managers but they are all stretched to the limit because they are managing so many homes with so few systems in place. This causes high turnover for staff and property owners who don’t appreciate being transferred from PM to PM regularly. This rent roll generates income but margins are low and there are peaks and troughs. Unfortunately, due to the high volume of properties the team is trying to manage, online reviews aren’t favourable and nobody has had time to respond to them.
On paper, Roll B generates a higher income. However, in terms of value and effort, Roll A stands out. If another business is looking to merge with the agency or make a purchase, due diligence will reveal what’s going on behind the scenes. Roll B may actually end up being overlooked.
How to be Roll A
The ‘gold’ of a rent roll during a merger comes down to profit margins, how easily it can transition to a new owner, and the existing goodwill towards it. In terms of size, of course bigger is better but only if this means better profit margins and only if the brand has a good reputation.
Here are some tips to build a rent roll with merger appeal:
Focus on quality over quantity
As the saying goes, ‘Go deep, then go wide’. Aim to ‘nail’ your service and experience for your existing property owners and renters before you expand your footprint.
Build systems and processes
If there is a clear process to follow, new PMs will be able to hit the ground running. There will be less confusion as well as more consistency on every level.
Move to the cloud
Transitioning to a digital-first business will streamline operations and make life easier for everyone. The solutions you implement should deliver return on investment in terms of saving time and reducing stress.
Look after your staff
A great team is worth its weight in gold, particularly in the current competitive recruitment environment. Invest in training and perks so your staff feel valued.
Watch your reviews
When there is a surplus of property managers in the area, people tend to look at online reviews. You can set up a system where you send out surveys to rental property owners and renters. Ask the ones who give you a high score to post a review for you online. This will increase positive feedback.
Delight your property owners and renters
These people are your lifeblood after all. Go above and beyond so they rave about you to their extended networks (this will reduce marketing costs for your business). Consider referral programs and incentives for them to stay on board with you such as a concierge-style service.
Track profits, not revenue
Rental yield and rent roll profits are so important, especially if you’re looking to merge or sell. It may even be worth downsizing to get rid of the ‘dead wood’ clients who suck up too much time.
Right now, property values and yields are increasing but the number of rental properties which need management is dropping — this means a streamlined, efficient and high-performing rent roll is more important than ever. Before you start the process to merge or sell, spend some time refining this area of your business so it's real, long-term value can clearly be demonstrated.