This month I want to show you why you should be building your rent roll, even in these difficult and trying times.
When things get difficult most of us take the attitude that we will wait and see. Well I’m sorry, but I believe that the agents that will do well during this time are the ones that look for opportunities, and continue to develop their businesses despite what is going on around them.
In this climate cash flow is king, and the stronger that cash flow is, the stronger the business will be against financial stress. So, any opportunity to improve your agency against that stress, at this time is critical. To give you an understanding of what I mean I’m going to show you what would happen if you doubled the size of a 300 property rent roll, and most importantly, what difference this makes to cashflow and profitability.
Please understand that this is an example, and figures will vary from agency to agency. What I want you to understand is the concept. Property management is one of the few businesses that responds to economy of scale, so, with rent rolls bigger is better. Naturally it goes with the proviso that you have suitable systems and procedures in place to handle that growth.
So, let’s look at some figures.
We are going to work on an example of a 300 property rent roll with trading figures that we would expect to see in a best practice scenario, and the impact to the cashflow and profitability, after purchasing another 300 properties.
We are working on the premise that the management fee income is averaging at $1,300.00 per property per year with just over 20% of letting and other fee income, and the rent roll being purchased has identical figures.
The initial rent roll should be producing a net profit in the high teens under good management, so in itself is profitable and worthwhile.
However, when we undertake a rent roll acquisition we have a range of fixed costs that have already been covered. Those fixed costs like office rent will stay the same, while a large number of variable cost will only rise marginally, not proportionally. You are also able to take advantage of restructuring office systems, and implementing technology to a greater extent that can also improve profitability.
So despite having to borrow over a million dollars to purchase the extra 300 properties, with low interest rates, and principal payments being made to pay the loan off completely over 10 years, you still end up with $190,000.00 per annum in extra cash flow.
So you can see that there are plenty of benefits that flow on from having a larger rent roll.
And there are many other benefits that we can’t discuss at the moment because of time but can be found on the blog page of our website.
I trust this article has been of interest, and please feel free to call or email us to discuss further. This has been Chris Goodway from the Rent Roll Broker, Thanks for reading, till next time …. stay safe.
N.B. We are not offering financial or investment advice and our discussion does not take into account your specific circumstances and therefore should not be acted on without full understanding of your current situation and future goals and objectives. These should be discussed with a fully qualified accountant and/or financial advisor. In failing to do so you risk making commitments to a product and/or strategy that may not be suitable to your needs.