THE MATH­E­MAT­ICS OF PROP­ERTY MAN­AGE­MENT

TIME FOR A MATHS RE­FRESHER WITH BOB WAL­TERS to en­sure you fully un­der­stand your busi­ness' per­for­mance.

Elite Property Manager - - Contents - Bob Wal­ters

THE PROB­LEM WITH NUM­BERS AND AV­ER­AGES IN PROP­ERTY MAN­AGE­MENT

There is a lack of re­li­able data about the prop­erty man­age­ment in­dus­try in Aus­tralia. Sure, there are var­i­ous sur­veys done from time to time, but how re­li­able is the in­for­ma­tion in these sur­veys? And, sadly, not ev­ery­one tells the whole truth about their busi­nesses.

I have re­cently car­ried out some re­search into the prop­erty man­age­ment in­dus­try through my client base and through the mem­ber­ship of LPMA (Lead­ing Prop­erty Man­agers of Aus­tralia).

Here is a sum­mary of my ob­ser­va­tions.

AV­ER­AGES

The ques­tions here are ‘who is av­er­age’ and who wants to be ‘av­er­age’? Aus­tralia is a big coun­try ge­o­graph­i­cally; de­mo­graph­ics and busi­ness sizes are very di­verse, so it is hard to de­fine what ‘av­er­age’ looks like.

NUM­BER OF PROP­ER­TIES UN­DER MAN­AGE­MENT

When it comes to the num­ber of prop­er­ties un­der man­age­ment, how many prop­er­ties do you re­ally man­age? Are lost man­age­ments hid­ing?

My ad­vice for busi­ness own­ers is to drill down on the rent roll num­bers show­ing in your prop­erty man­age­ment soft­ware. Check your Man­age­ment Fee Ledger to see what prop­er­ties are not gen­er­at­ing fees each month. Maybe lost man­age­ments that you don’t know about are sit­ting there.

PROP­ERTY MAN­AGE­MENT BUSI­NESS PLAN

Ac­cord­ing to my re­search, more than half of Aus­tralian real es­tate busi­nesses did not have a writ­ten busi­ness plan for their prop­erty man­age­ment depart­ment! That is a cause for con­cern in the in­dus­try.

SEP­A­RATE PROFIT AND LOSS AC­COUNT FOR THE PROP­ERTY MAN­AGE­MENT DEPART­MENT

Seventy-nine per cent of busi­nesses had a sep­a­rate Profit and Loss Ac­count for their prop­erty man­age­ment de­part­ments. A good re­sult!

PROP­ERTY MAN­AGE­MENT PROFIT

Twenty-one per cent of of­fices did not know what their prop­erty man­age­ment profit was. It was good, on the other hand, to see that 79 per cent of busi­ness own­ers knew what profit they were mak­ing from their rent rolls.

The av­er­age per­cent­age profit on gross an­nual rev­enue of re­searched of­fices was 21.81 per cent. My com­ment about this is that if you are not mak­ing at least 20 per cent profit on gross an­nual rev­enue, why would you want to be in the prop­erty man­age­ment busi­ness?

Could it be that the busi­ness is merely a babysit­ting ser­vice for the real es­tate sales busi­ness? Or that the busi­ness own­ers don’t care about profit and are just us­ing the rent roll as a re­tire­ment nest egg?

That’s fine if you are not mo­ti­vated by profit in op­er­at­ing your prop­erty man­age­ment busi­ness, as long as you know why you are in the prop­erty man­age­ment busi­ness. Prop­erty man­age­ment is more fun when the bot­tom line is healthy.

PROP­ERTY MAN­AGE­MENT BUD­GET

Seventy-four per cent of re­searched busi­nesses had a bud­get for their rent roll. How­ever, that still meant that ap­prox­i­mately one in four busi­nesses did not have a bud­get.

BUSI­NESS DE­VEL­OP­MENT

Net growth The av­er­age net growth over the past 12 months across re­searched of­fices was 33.7 prop­er­ties.

Busi­ness de­vel­op­ment strat­egy Half the re­searched of­fices had no busi­ness de­vel­op­ment strat­egy in place. Some of­fices re­ported dif­fi­cul­ties in main­tain­ing mo­men­tum in the growth of their rent rolls and chal­lenges with busi­ness de­vel­op­ment staffing.

Busi­ness de­vel­op­ment man­agers Sixty per cent of of­fices do not em­ploy a busi­ness de­vel­op­ment man­ager. Prop­erty man­agers han­dling new busi­ness Based on my re­search, the prob­lem is that (on av­er­age): • 20 per cent of their time is spent on

re­pairs and main­te­nance is­sues • 20 per cent of their time is spent on

in­spec­tions and re­ports • 25 per cent of their time is spent on

leas­ing prop­er­ties • 20 per cent of their time is spent on rent

ar­rears and as­so­ci­ated is­sues This leaves just 15 per cent of their time to be spent on prospect­ing for new busi­ness. So very lit­tle busi­ness de­vel­op­ment ac­tiv­ity usu­ally oc­curs and rent rolls grow very slowly or not at all.

RE­WARDS FOR RENT ROLL GROWTH

I asked the ques­tion ‘Do you pay your prop­erty man­age­ment staff a com­mis­sion for gain­ing ad­di­tional prop­er­ties to man­age?’ It was dis­ap­point­ing to see 24 per cent of of­fices not pay­ing their staff any com­mis­sion for ad­di­tional prop­er­ties.

The big­gest per­cent­age (36 per cent) paid a new busi­ness com­mis­sion based on the dol­lar value of the man­age­ment gained.

Pop­u­lar re­ward schemes Some of the most com­mon new busi­ness re­ward schemes I have seen in­clude: weeks rent, an amount payable for in­crease in prop­er­ties man­aged, or even a set amount per prop­erty. But these schemes un­for­tu­nately lead to sub-op­ti­mal be­hav­iour, such as do­ing any­thing to get the busi­ness, in­clud­ing dis­count­ing. In the case of a pay­ment on an in­crease in prop­er­ties man­aged, this may in­ad­ver­tently pe­nalise your team mem­ber for non-pre­ventable losses.

There are a lot of busi­ness own­ers around Aus­tralia who will hap­pily pay three times the an­nual man­age­ment fee rev­enue to buy some­one else’s busi­ness re­la­tion­ship – that is, buy­ing a rent roll.

Us­ing Syd­ney rental val­ues as an ex­am­ple, if you are pre­pared to pay $5,000-plus to buy some­one else’s busi­ness re­la­tion­ship, how much would you pay for one es­tab­lished by your own team?

My sug­ges­tions for in­cen­tives • In­cen­tives should be achiev­able • The in­cen­tive scheme should be

com­pletely trans­par­ent • In­cen­tive pay­ments should be made quickly (as soon as the man­age­ment is se­cure) • Awards should be public to de­velop a

com­pet­i­tive en­vi­ron­ment • Achieve­ments should be cel­e­brated by all.

PRE­VENTABLE LOSSES FROM THE RENT ROLL

I asked the ques­tion ‘Do you pro­vide any form of mon­e­tary penalty on prop­erty man­age­ment staff who lose a man­age­ment through poor ser­vice or a mis­take?’

Seventy-one per cent of busi­ness own­ers do not pe­nalise their prop­erty man­age­ment staff for a pre­ventable loss in prop­erty man­age­ment. Busi­ness own­ers, how can you cor­rect bad be­hav­iour with­out some type of con­se­quence?

Land­lord clients rarely change man­ag­ing agents for rea­sons other than un­forced er­rors. These un­forced er­rors are nor­mally caused by a lack of train­ing and the ab­sence of doc­u­mented sys­tems and pro­cesses.

KEY PER­FOR­MANCE IN­DI­CA­TORS

One in three busi­nesses re­searched have no clearly de­fined KPIs for their key prop­erty man­age­ment em­ploy­ees.

My fi­nal mes­sage to busi­ness own­ers: You re­ally need to un­der­stand the maths of your rent roll and your busi­ness as each met­ric can af­fect oth­ers; and to max­imise both your hap­pi­ness and your fi­nan­cial re­turns you re­ally need to make ev­ery­thing re­ally count.

ONE IN THREE BUSI­NESSES RE­SEARCHED HAVE NO CLEARLY DE­FINED KPIs FOR THEIR KEY PROP­ERTY MAN­AGE­MENT EM­PLOY­EES.

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