Every agency has multiple-property landlords, and many agencies sign them up at discounted rates – but are they really worth it?
The story is always the same: the multiple-property landlord contacts the agency, says they have X number of properties and expect a discount, and in just about every case, they get what they are after. So my question to you is, have you ever worked out whether you are, in fact, making any money out of this type of deal?
Work out your income per property
Firstly, you need to know what your average income is per property, per year. To do this, look at the total fee income for each of the past six to 12 months. If you also know your portfolio size (number of properties), then divide the total fee income (not including GST) by the property numbers for each month.
This will provide you with a total fee income per property, per month for each month observed.
Then add up these figures and divide by how many months you have calculated, giving you an average income per property per month, for that total period of six to 12 months. Multiply this average income per property per month by 12 months to get an accurate average income per property per year.
Work out your expenses per property
Next, work out your expenses per property, per year.
If you know what your profit margin for your PM department is, then deduct this from the average income per property, per year. For example, if your average income per property per year is $1,500, and you know your average net profit margin is 18 per cent, then deduct this percentage from this figure. Using this example, your average expense per property per year (with your profit margin taken off) is $1,230 per property, per year.
This means you must generate at least $1,230 in fee income per property to justify running your PM department. If you do not know your profit margin, for the sake of the exercise, allow a 20 per cent net profit margin, as this is the average that I see in PM departments across Australia.
Work out whether your multiple-property landlord is earning you any money!
Once you know your average expenses per property per year, you are armed and informed to work out how much you are earning from those properties owned by multiple-property landlords.
The next step is to print off the last financial year statements from each of your multiple-property landlords. Take a look at the total fee income generated over the last financial year, and divide this figure by the number of properties that you manage.
Once you have worked out what each property earned in the last financial year, examine this against your average expenses per property, per year.
Ask some serious questions
Does the fee income per property for that year exceed the income you need per property just to break even and pay the bills?
In a lot of cases, very little profit is being generated. If you are earning less than the cost of management, I ask you, why are you managing these properties?
Property management is a hard enough job at the best of times. You should be earning a solid profit margin from each and every property.
Some reasons why multiple-property landlords can be bad for business:
- The control factor – Clients that have a lot of business with you tend to be more controlling, which wears on the minds and emotions of your property management staff.
- The reduced workload myth – Surprisingly, a lot of agencies rationalise the solid discounts they give multiple-property landlords by arguing that it reduces the overall workload. If the properties are located in the same place, they may rationalise that all inspections can be done at once, forgetting that when it comes to letting properties, they are always going to become vacant one property at a time, resulting in driving to and from this location individually for each property.
- A devalued rent roll – the more multiple-property landlords you have on your rent roll, the less appeal it has to a potential rent roll buyer, therefore your multiplier (value) is reduced. A potential purchaser may believe that in transferring over this business, there is a strong risk of losing this type of multiple property client if they object to the new managing agency.
- The ‘they might sell one day’ myth – another reason an agency might feel the need to keep this type of business (especially when they know they are not making any money) is the belief that the landlord could sell their properties one day. I find this is rarely the case, and if they do, they will also be asking for a large discount on the sales commission, making any sales transaction potentially just as unprofitable.
What’s the alternative?
I believe that this type of landlord does have a place in your agency; however, only if they are paying full (or near to full) fees. Some agencies understand the factors outlined above and not only manage this type of business, but do so at full rates because they have shown the landlord the benefits of having a quality agency manage their portfolio.
What is your attitude now to multiple property landlords?