With the boom cycle expected to end eventually, a CEO is urging agents to strengthen their businesses now — while “the sun is still shining”.
While Australia is reaping the benefits of a booming property market right now, One Agency founder and CEO Paul Davies has offered up the reminder that it’s unlikely to last forever.
“Today, property markets around Australia are booming. But 12 months ago, it felt like the world was coming to an end,” he commented.
“Real estate moves in cycles… Neither the good times nor the bad times last forever.”
Despite the gloomy reminder, Mr Davies is of the belief that the current boom-time conditions could be the perfect time for agents and principals to improve their business model.
After all, “the best time to fix a leaky roof is when it’s sunny”, the CEO said, before urging agents against waiting “until the next storm before you start plugging those holes”.
Key ingredients to a stronger business
According to Mr Davies, businesses that can weather downturns are built on two main foundations: sustainable revenue and reduced costs.
1. Build a sustainable revenue stream
One way to keep a business profitable in any market — whether up or down — is by building a rent roll, according to Mr Davies, who argues that “it’s hard to beat the steady, reliable income you get from property management”.
“People will always need somewhere to live — regardless of what’s happening in the market or the economy — so those rents will keep coming in,” he said.
He has also encouraged agents and principals alike to take advantage of today’s property technology to expand their reach and ensure quality customer service amid the “new normal” in the post-pandemic market.
2. Reduce costs
Along with keeping the profits up, Mr Davies also advised property professionals to learn how to “drastically” reduce costs in order to sustain a business through the toughest of times.
“Back when I was a principal, I used to lose a fortune through overheads, which I would then try to recoup through trying like mad to increase sales activity. It took a while before it occurred to me that I could grow my profits by cutting costs instead,” the CEO said.
From his perspective, two of the biggest business killers are office rent and franchise fees.
With more buyers and tenants looking for properties online, Mr Davies said real estate businesses would do well to trade expensive main-street offices to a more economical secondary-street office, co-working space or even a work-from-home setup.
He also advised property professionals to be careful about commission splits.
“If you’re an agent, there are flexible groups that can show you how to run a profitable business [independently]... so you no longer have to give half of everything you earn to your employer,” Mr Davies said.
“If you’re a franchise principal, you can switch to a group that charges a modest monthly fee, rather than revenue-based fees. That way, your costs will be drastically reduced, and you’ll be rewarded, rather than punished, as you grow your sales and revenues.”