How Good Property Management Can Increase Your Bottom Line – Without Costing The Earth
It’s tempting, particularly for agents new to the lettings business, to see property management as little more than a convenient cash cow. Collecting the rent and arranging for the occasional plumber to call – in return for a nice regular monthly fee - looks like a no-brainer.
So, all too often, this means that the management side of the business is accorded little priority, relegated to those few spare moments in the otherwise busy working days of ordinary negotiators or support personnel.
Bad mistake! The fact is, good property management is vital to the long-term health and profitability of your lettings operation. Get it right, and it helps build solid and fruitful long-term client relationships. Get it wrong…and it can sap the strength of even the best lettings agency, destroy your firm’s hard-won reputation – and kill future business opportunities stone dead.
Far from being money for old rope, property management is actually extremely complex and time-consuming. Individually, the tasks involved may appear relatively insignificant – but clients very quickly notice if they don’t get done properly or on time. Effective management therefore demands a highly methodical approach and great attention to detail – neither of which are characteristics typical of even the most successful lettings negotiator, who is more likely to be motivated by the thrill of a deal in the bag (not to mention, of course, that little thing called commission).
Management also impacts on your client relationships in very different ways. The property manager has to continually walk the tightrope between landlord and tenant, keeping all parties satisfied throughout the life of the tenancy. The problems never seem to go away - and the only time you seem to contact the landlord is with bad news. So, while the lettings negotiator is the bringer of glad tidings, helping the client to make money, the property manager is quite the opposite - seemingly hell-bent on spending every penny of that and more!
Nevertheless, the fact remains that a good, well run management department will ensure the continuation and enhancement of the professional reputation you have worked so hard to achieve, and build strong bonds of trust and loyalty between you and your clients.
Such relationships, built up over time, can only benefit your business in the future. So, for example, when a landlord comes to re-let or even sell his property, he will turn to you without thinking. Similarly, a satisfied tenant will trust you when they are looking to rent again or maybe buy. Both landlords and tenants can also be an invaluable source of third-party recommendations.
At the same time, providing an efficient management service ensures that you are aware of every move the landlord makes. When he or the tenant serves notice, or if either of their circumstances change, you are right there, ready to provide solutions to their current dilemmas – before anyone else can!
So – given the importance and long-term commercial value of good property management - how do you set about providing it?
The most important thing to recognise is that you need a dedicated management team. Whether you have 1 or 100 properties under management, you need staff capable of dealing with any or all of the following: lettings administration (i.e. tenancy agreements, notices, renewals, etc), compliance, deposits, repairs and maintenance, dilapidations, accounts, property visits, inventories, check-ins and check-outs.
What is this likely to cost? Let’s look at some figures – the real-life case of a fairly typical estate agent in the Home Counties, with a portfolio of 100 properties generating total rental income of £1,756,980.00 a year. With a management fee of 5%, that represents annual income for the agent of £87,849.00.
Against that, the cost of providing effective property management for 100 properties (including office costs, plus salaries etc for 1.5 - 2 people) amounts to £78,000 - £98,000. Factor in 40% gross profit, and you’re looking at a total cost of between £109,200 and £137,200.
Obviously, a higher average rental income produces a different picture. Nevertheless, as a general rule, it can never be cost effective to have a dedicated management department for less than 70 properties.
Obviously, corners can be cut – for example, by mobilising the lettings negotiators themselves to do their own tenancy agreements and property visits. But this means that they won’t be out earning fees, which will also impact directly on their commissions – with the result that they are unlikely to give property management the attention it requires.
So, what’s to be done? How can you offer the quality of “after-sales service” your clients deserve and expect, and which will generate real long-term benefits for your agency - without the potentially prohibitive level of investment that this demands?
In practice, there is only one real answer: outsourcing. A concept that has long been accepted in other spheres of business, this basically means that you hand over the entire property management function to outside specialists – people with the knowledge, the skills, the systems and the resources to deliver first-class service, round the clock.
In effect, outsourcing provides you with a high-quality virtual ‘back office’ where all the paperwork, formal procedures, legalities, rent collection - in fact everything that supports the agreed offer - is taken care of on your behalf, by experts. It leaves you and your staff free to focus on attracting new clients and finding tenants, while at the same time hugely enhancing your firm’s reputation in the marketplace - and adding enormous value to your business proposition.
Now, THAT’s what I call a no-brainer!