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Small rent rolls can break even in some cases

Small rent rolls can break even in some cases

by Reporter 0 comments

Simon Parker

Agents with small rent rolls can turn a modest profit if they keep a tight rein on costs, particularly those incurred by staff, property management specialists have told Real Estate Business.

A number of agents contacted Real Estate Business in response to comments by Stockdale & Leggo CEO Peter Thomas that agents with rent rolls of 100 or less were likely to be losing money.

“What a lot of crap,” said one agent based in Sydney’s northern suburbs. The agent, who had a rent roll with 120 properties under management delivering between $11000 and $12000 per month, intimated that it delivered great returns.

“Obviously whoever wrote that article has never [owned a] real estate business,” he added.

Mr Thomas told Real Estate Business this week that while agents may make modest profits from small rent rolls, he questioned whether these were high enough to justify the effort they were putting in. Moreover, he didn’t believe some agents treated property management as a separate business unit, with the property sales side of the business possibly masking a rent roll’s true performance.

“Most agents don’t run their property management business as a separate profit and loss statement,” he said.

The amount of time being invested into the property management also needed to be accounted for.

His rent roll profit estimate was based on an agency recouping rents of $250 per week for up to 100 properties, with one person managing the entire property management process.

Mr Thomas added though that agents managing rent rolls with higher rents and properties located in a tight geographic area, could see higher returns.

Gerri Keays, property management executive at Ray White Victoria, said, for the most part, that she agreed with Mr Thomas’ comments.
“It is possible for a rent roll of about 100 properties to make a reasonable income if the properties are from the prestige end of the rental market where rents might be in the $1000-plus range and management fees are rarely negotiated,” she said.

“It’s when an agency is working in the cheaper end of the rental market and where they are forced to compete with other agencies for fees…It is very hard to make a living and a smaller rent roll will probably run at a loss.”

“It is vital if you want to run a profitable property management department that you operate a separate profit and loss for this department,” Ms Keays continued. “In its simplest turns you must have more income from the property than it is costing you to manage it, or it doesn’t matter how big your rent roll is, you are still losing money.”

Sam Nokes, senior property manager at Buxton Ashburton, in Victoria, said other factors to consider were how the department was staffed, and whether the rent roll was stagnant 100 or still growing.

He said with an average rent of $400 per week, and an average fee of 6.6 per cent, 100 properties would deliver $137,600 per annum.

“Now, that is just management fees,” he continued. “You then add in other revenue such as letting fees, advertising, statement fees, and [revenue] will grow substantially. 100 properties are easily managed by [one person], so there should be no need for additional support staff.

“So you should only be looking at a property manager ($50,000 per annum), and a part-time trust accountant ($20,000 per annum). Take into account the portion of rent, reception, and other office expenses, and you will still be turning a marginal profit without even taking into consideration those additional fees.

“If you were to employ a dedicated property management receptionist, an assistant property manager, and have a huge half-empty office, then yes, the profit will be negligible, if any.”

He said it’s based on how you structure the portfolio. “Only have the staff you need, have an appropriate office size, and watch your additional costs. If you need a quick boost to your profit, make sure you are charging for all allowables like advertising, postage…and so on.”

Ms Keays said in a “well-run” property management department, it would usually cost approximately $80 to $90 per property, per month, to manage a rental property.

“By a well-run office, I mean one that employs enough staff to meet the clients’ needs and to deliver on service agreements.”

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Small rent rolls can break even in some cases
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