A leading independent has revealed how it turned its property management arm from a poor performer into a “very profitable” business unit.
Marshall White director James Connell said the Melbourne powerhouse studied its rent roll and found that 50 per cent of its managements were generating only 30 per cent of its profits – a ratio he said is common to most agencies.
“We had a rent roll of about 1,500 properties a number of years ago and we did this very exercise to find out that about 400 of those properties were actually losing money and we were managing about 400 that we didn't really see ourselves selling," he said.
Mr Connell said it became clear that the rent roll wasn't profitable because the amount of work was high yet the rate of return was low.
“I think we had an asset of about $3.3 million and we were making about $310,000, so were making about 9 per cent,” he said.
“In those days, you could make 7 per cent from a long-term deposit, so we were making 2 per cent for all those headaches and heartaches.”
Mr Connell said the company was managing the wrong type of properties without growing the rent roll.
“We were losing about 17 properties a month and we were putting about 17 properties a month on the rent roll, so we were just treading water and going nowhere,” he said.
Mr Connell said his company fine-tuned its rent roll by selling off unprofitable managements.
“The reality was that we were making as much managing 450 properties as we were managing all the other properties,” he said.
“We took about $2 million worth of capital and put that into better use by growing the type of rent roll that we wanted to grow with.”
Mr Connell said the company has since has brought its rent roll back up to 1,500 properties, which have been carefully selected for their rate of return.
“Each of those properties is profitable, each one of them has a landlord that we want to do business with, and each one of those 1,500 are properties that we want to manage – they’re not properties with maintenance nightmares, and so on,” he said.
“Through this strategy, our rent roll is actually a very profitable part of our business. It’s not a significant part of our business, but it’s a very profitable part of our business.”