Do you want to start your own Property Management Company?
Just as in gardening, it’s sometimes wise for property management firms to trim and prune their array of services to keep their business healthy.
And as well, managers should improve efficiency, develop new services and sources of revenue, to evolve and become more profitable. Your business and clientele are unique, of course, so the point is to prioritize profitability and evolve your business.
It’s hard to argue that in any business, more profitability, new business leads, and more market presence is a bad thing. And it’s these and more we should investigate now. Once you’re into the process, you’ll find many new opportunities to grow revenue based on your local market, technology, and the needs of owners.
Property management companies range from gargantuan firms that manage thousands of apartments, shopping malls and commercial complexes to small firms that specialize in vacation rentals with only ten or so houses—whether small or large, increasing profits is a goal. If you’re considering starting a property management company or improving your own property management business, there are several ways you can do so and turn a profit.
Successful property managers manage multiple properties.
Successful property managers and landlords have multiple income sources that enable them to earn more money.
Most managers and landlords have three to five sources of income from their rental properties. But if you’re able to scale, you can do even better than that.
Using the latest property management techniques, landlords using a professional team have more than ten properties under management. They can accumulate different income sources by continuing to expand their property management empire.
The important thing to remember when managing rental properties is not to get in over your head. As your rental properties expand, you’re going to need help managing them.
Many property managers are hesitant to hire outside help because they want to oversee everything themselves. But as long as you hire slowly, your management team can gradually expand to help administer your properties and stay profitable.
Property managers typically make about 10% of the rents as their fee for managing properties.
If you’re managing a high rent complex, you’ll enjoy a larger income while doing the same amount of work as managing a lower rent unit.
So, it pays to have some high rent properties mixed into your portfolio as well.
Technology helps property managers manage their properties profitably.
Technology has made being a property manager, landlord or real estate investor even more lucrative than ever before.
Property managers can automate most of the process and eliminate most of the horror stories that used to come with managing rental properties and tenants.
Dealing with tenants, payments, evictions, repairs and communication issues like a professional is much easier with the digital tools now available. Rental property owners and managers are now able to handle more properties with less effort.
Using software apps, you can safely manage rental properties anywhere in Australia from the comfort of your home. All you need to take advantage of these new apps is a computer and a smartphone.
Own your properties for even more income
Rental properties are a tangible investment you can control.
Unlike other investments where you hand over your money and hope it’s managed properly, rental properties are a physical asset with real returns.
When you manage your properties, you have the ability to increase your returns and protect your investment.
Owning property free and clear is easier when someone else is paying for it. Rental property owners and managers are able to own multiple properties free and clear while enjoying a nice residual income stream. As the owner of the rental property, you only have to deal with your tenants and not those of other owners.
Professional managers have systems in place to protect rental properties from bad tenants and deferred maintenance issues that could wipe out their returns.
You can reduce the risks and increase income when managing your properties like a professional.
Tips for Running a Profitable Property Management Business
Successful Property Management Companies Hire Well
The most important duty you have as a business owner is hiring employees. Those of us that have ever made a bad hire understand this all too well. Whether you have one employee or twenty employees, how much better would your business be if they were all A+ players? In sports, the team with the best players usually wins – the same is true in business. So the next time you are ready to make a new hire, slow down your interviewing process. Think of it as a marriage. You would never commit to marrying someone on a first date, so why would you consider hiring someone after one interview? Here are my biggest tips for hiring:
- Schedule multiple interviews. You need to stop talking and make them sell themselves on why they would be the best person for the position. Don’t be afraid to ask difficult interview questions.
- You are not looking for a reason to say “yes” to the candidate; rather you are looking for a reason to say “no.” Once you have found the candidate to whom you can’t say no, you have your new hire.
- Don’t over-focus on technical skills. Too often, we overemphasis experience and skill for the task at hand. Look first for “soft skills;” things like the ability to communicate effectively, likeability, energy. “Hire for personality, train for skill.”
Put your candidate through four filters:
- Character: Can you trust them with your clients?
- Chemistry: Do you like them?
- Culture: Do they buy into the unique way your company does business?
- Competency: Can they do the job for which they are hired?
Yes, this process will take more time on the front end, but it will save you frustration, lots of money, and headaches, by taking your time and getting that top performer.
The other side of the hiring coin is that successful companies also fire quickly. If you have an employee who is performing poorly or is just a bad fit, you need to get up the courage to do what is necessary – that is what leaders do. It will not be easy, and you will have a terrible night of sleep the day before, but your life and business will be better every day after that. You are hurting yourself, your business, your other team members, and even that bad employee by keeping them around.
If you still can’t decide if you should fire that person or not, ask yourself this: “Knowing now what I know about this person, if I could go back in time, would I hire them again?” If the answer is no, then you know what you should do.
Successful Property Management Companies Rely on Systems
What makes so many cheap fast-food restaurants successful even with sub-par food? People keep coming back because of consistency (even if it is consistently crummy food). There are more reasons to use systems manuals than I have room to write, but the four most important to note are that they:
- Stop the revolving door to your office. Do your team members keep coming to you with questions you think they should know? When your team members have those re-occurring questions, they should first reference their systems manual before they interrupt you. The time saved from interruptions will surprise you.
- Reduce liability. If the unimaginable happened and you were hit with a fair housing (or similar) lawsuit, you can show that you have a training process in place, and even though your team member may have violated it, it was there, and they were trained on it. While that will not completely release you from liability, it will give you some amount of added legal protection.
- Increase the net worth of the company. Utilizing systems manuals is the easiest way for you to increase the value of your business. Otherwise, the worth of your business lies only in your property management accounts, and those will come and go. However, a systematized business has much more market value and can be sold for a higher price. A buyer will pay a premium for a business that can replicate itself and run on autopilot due to utilizing system manuals.
- Create accountability for your team members. Your team members want and need, to know exactly what is expected of them and how to do it. A properly structured system manual will have key result areas, which will define what success looks like for your team. They provide a way for you to get a quick overview of how your team members are performing.
Successful Companies Have Multiple Profit Centers
I realize some people get uptight anytime “profit” is mentioned. However, it is not about being greedy or trying to squeeze the last penny from your clients. You have a duty to ensure your business is profitable.
Profits allow you to hire the best employees, pay them well, pay for your mistakes, improve your customer service to your owners and tenants, save some money so you can take advantage of buying opportunities when they arise, and probably most importantly healthy profits will help you sleep better at night.
The property management industry is full of ways to offer multiple services to your tenants and owners and to charge accordingly.
- Define the scope of your services with owners. If you don’t tell your property owners where your services stop, they will keep asking until you find yourself doing things like making special trips to the property to pick up their mail and take their trash cans into the garage. Next time they ask for a “favour,” respond with, “Sure, I am happy to have someone do that for you, but they will bill for their time.” See if that helps to stop the requests.
- Consider the apartment industry. The apartment industry runs its properties like businesses – because they are. Most apartment complexes charge for things like application fees, lease administration fees, non-refundable pet fees, roommate addition fees, and inspection fees. Why don’t you? Take a field trip to the local apartment community in town and see how they do things – it will probably give you some new ideas.
- Stop Overlooking Opportunities. What opportunities have you always thought about doing, but have never had the time or courage to start. Are you actively buying real estate (at a discount) from those owners who want to sell? Are you profiting from the maintenance and repair service you are administering? Are you considering managing that small commercial property you were asked to do? Before you “no,” pause and ask yourself “why not?” Missed opportunities are a hallmark of a failing business so start looking out for new opportunities for your business.
These are just three behaviours necessary to succeed in the property management business, but even engaging in just these three behaviours will have a dramatic impact on the success of your business.
What are the keys to profitability in your business?
Manage people costs by investing in technology.
The highest cost to your profitability is the number of people you need to manage your portfolio. Originally when we thought about the growth, we thought we would have to grow the corporate staff. But now with our technology investments, we can grow our portfolio without adding people and costs!
Track important metrics closely.
Now, it is so much easier for us to see and measure performance by property. We can watch our metrics in detail and keep close tabs on expenses and income. I can access these reports from wherever I am, and this keeps me very connected to our performance.
Specialize and maximize roles.
Now that we’re as efficient as we are, our support staff in the corporate office can do even more. I believe our on-site managers #1 job is to deliver a great experience for our residents. I’m not worried about giving them access to too much information – we hire great people and trust them.
What profitability mistakes do Property Managers often make?
Not measuring often enough.
I like to take a weekly (and sometimes daily) look at our important metrics so I can see early if something is not on track.
Not valuing people investments.
Our team of people (payroll burden) is the number one operating expense. We can honestly say that through the changes with Dynamic Residential, we will be able to build out our next three properties and not add anyone to our corporate staff. When companies ignore the opportunity cost of becoming more productive, they miss out on huge benefits.
How Can Property Management Companies Increase Profit?
Number of Properties
Increase the number of properties, and your revenues will increase. If the operating margins are maintained, each additional property results in an additional percentage falling to profits. For example, if each property generates $10,000 in revenues and has a 35 percent gross margin — the percentage of expenses related to that property — then $6,500 of additional profit is generated.
Property management services include such efforts as marketing, maintenance, and renting out or selling the use of the property. Providing additional services results in additional profits as long as your expenses for providing the service are lower than the revenues generated. An apartment complex property management company could offer concierge services to the renters. A vacation home rental company might decide to have personalized meet-and-greet upon check-in.
Types of Properties
Broadening the types of properties is an alternative way to increase profits. If your business handles short-term sub-leases for apartments, you could offer that same service for townhouses and condos.
Property management companies generate revenues from the owners of the properties they manage and from the guests, renters or lessees who occupy the properties. Increasing rates to the owners when management contracts are up for renewal increases revenues and therefore, profits. Keep in mind that current owners may decide to contract with someone else if the rate increase is too high. The rates generated from the guests or those who pay to occupy the properties also can be increased.
The rate or fee generates revenues for occupying the spacetimes the number of spaces occupied. In the case of an apartment building where each apartment leases for $500 per month and 200 of the 250 apartments are rented, revenues generated are $100,000. If occupancy increases to 225 apartments, revenues are $112,500; that occupancy rate would increase profits by $12,500. However, if you incurred any expenses in getting those units rented, those expenses would be netted from the $12,500.
Decreasing expenses increase profits as long as the cost-cutting doesn’t affect revenues. In the short term, it probably won’t; in the long term, it may be a different story. Decreasing advertising could result in fewer properties being leased. Decreasing maintenance efforts might result in tenants leaving for other accommodations.
One last consideration: “Don’t let perfection be the enemy of action.” If you are waiting to implement that new idea until you can perfect it, STOP! Successful companies implement a new idea as fast as possible, then go back and make adjustments as needed. Every new idea we have implemented has come with bumps in the road, but moving forward with those opportunities, even when we have been scared to do so, has helped us become who we are today.