2020 was shaping up to be a cautionary tale for real estate agencies - but how quickly fortunes can change. 

The great real estate insolvency wave when JobKeeper ended was a bit like Y2K; much talked about but in the end, a total fizzer. 

Early in the pandemic, forecasters predicted a rise in agencies going under once they were required to pay all their staff from their own pockets again. However, for the most part, the property market remained buoyant. The economy also held steady, even in hard-hit Melbourne, and lucky for most of us the end of JobKeeper didn’t signal a tsunami of agency closures. 

Right now, we find ourselves in boom times, with Australian property prices amongst the fastest growing in the world. Thanks to low interest rates, a flood of returning expats and backlogs in materials and labour for building new homes, property is in hot demand from buyers and renters. 

With that being said, if you have been in real estate for more than a few years, you will know all too well how the pendulum swings. Enjoying busy times now doesn’t mean things won’t fall away once interest rates rise and the property market stagnates or drops. 

The players who have been around the longest understand the threat of insolvency is never far away. They take the following steps to avoid disaster: 

Keep capital in reserve

The rule of thumb is to tuck away three months worth of operating costs. It may take a while to build up this kind of reserve but if you get in the habit of saving you will be grateful for the money. 

If this absolutely isn’t possible, it helps to be aware of which assets can be offloaded in order to free up cash. 

Many business owners follow the ‘Profit First’ method. They put money away before they pay their bills, not after. The basic idea with this is to avoid spending every dollar you earn in the continued hope of earning more money to one day put aside. 

Having a line of credit or borrowing money you don’t need so you can access it on a rainy day are other ways to have capital up your sleeve. Speak with your financial team before you make big decisions in this area. 

Hold onto your employees

Keeping a loyal team is cheaper than constantly churning recruits. 

Some agencies have a reputation for being tough on their property managers but if you ensure yours are well looked after they will reward you in many ways. 

Introduce systems and processes for your team to follow, explore the possibility of building up an offshore administrative team to ease the load and create incentives for your PMs to work towards. When people are happy they are more motivated to go the extra mile on your behalf. Don’t forget about additional training opportunities; both in terms of personal and professional development. 

Take a look at some more insights about how to grow and keep your team here. 

Grow your rent roll

Last year was an anomaly, with many rental properties facing en-masse loss of renters. Fortunately, most quality agencies were able to create agreements with property owners and renters to make things work. 

Now the dust has settled, it’s a good time to think about growing your rent roll. This forms the ‘bread and butter’ of your real estate agency and (hopefully) will give you the consistent income you need to get through the highs and lows of the property market. 

You may decide to grow your rent roll by purchasing from another agency. After the stress of last year, there may be some well-priced options out there. Don’t rush into a purchase; take the time to do your due diligence so you can review existing contracts, decide whether to transition new PMs to your team, review condition reports and check how happy the roll’s existing clients are with their current arrangement. You should also work with a professional team to check the economic position of the rent roll and calculate its future value based on a number of factors.  

A strong rent roll led and managed by an outstanding team has the potential to save your agency from insolvency and allow you to move forward in all economic conditions. 

BDH Solutions are rent-roll agents with over 30 years experience in connecting the right vendor with the right purchaser. Download our information booklet on the new Victorian Minimum Living Standards Legislation