A strata roll can help cash flow and business stability when the real estate market slows. Here’s why this strategy can make sense for your agency.
Most real estate agents were looking forward to 2020 after difficult times in 2019 and 2018. The forecasts were finally positive for the property market after setbacks caused by the Royal Commission into banking, auctions were providing great results and prices were starting to trend in a positive direction.
Then COVID-19 came out of nowhere. Selling agents and property managers were all impacted thanks to shutdowns and massive job losses.
While property management is seen as the more stable side of the real estate industry, those in this area found themselves busier than ever, dealing with panicked landlords and tenants who had lost income. Workloads and stress levels increased and there was a great deal of problem-solving required, not to mention the challenge of keeping up with legislation.
The situation made the need for agencies to have a diverse income flow clearer than ever. One thing many agencies are now considering is adding a strata roll to their business in addition to property selling and property management.
Why take on a strata roll?
One of the problems of property management is dealing with individuals. You have property managers and tenants breathing down your neck, each with their own agendas. What’s more, each property and problem needs to be dealt with individually. A broken dishwasher here, a leaking tap there, it all adds up to a lot of phone calls and time spent.
With a strata roll, you are only dealing with the Owners Corporation and Executive Committee, not the individual property owners. A fire inspection can be ordered for 50 or more properties at once. You’re also only taking care of common property issues, not the ins and outs of every lot. This gives the management of a strata roll the potential to be more cost-effective.
Property management requires tenants to pay their rent so you can claim a commission. When someone fails to pay, it’s up to you to chase them up.
When you manage a strata roll, the payment of your fees is not dependent on the levies paid by tenants. Your payments come from the strata fund, which is managed by the Executive Committee. This means far less chasing of individuals. Because you’re handling a higher volume of lots, you’ll also receive a larger payment per contract.
What’s more, the contract you sign covers every property in the building. So instead of having 200 individual contracts with landlords and the potential for them to all drop out (resulting in a lot of paperwork), you only have one contract for 200 or more lots.
Stabilise your business with a strata roll
As 2019 and 2018 demonstrated, the property market pendulum regularly swings back and forth. Boom times mean boom profits but the pushback is inevitable.
The added surprise in 2020 was the sudden change in the rental market. Thousands of tenants lost their jobs overnight, with the flow-on being the need to exit rental apartments in droves. This left landlords out of pocket and unable to pay their mortgages, let alone their property manager.
With larger strata lots, you have a lot of tenants in different situations. If the building has been managed correctly, the strata should have money to pay your agency despite the loss of some tenants and the levy payments they generate.
The real estate agencies with strata rolls on their books were able to experience better cash flow and business stability during the 2020 COVID-19 outbreak. With multiple sources of revenue, they were less impacted than agencies which niched into buying/selling or property management.
The purchase of a strata roll can make long term financial sense for your agency. While there is always work required and a period of adjustment, it can be a good strategy to help you survive the hard times.
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