By analysing the standard profit points for a rent roll so you can calculate how many staff and managed properties you need to be financially successful.
No matter how well-regarded your property managers are, if the numbers don’t add up your rent roll won’t deliver a good profit for your agency.
Markers for healthy returns from your rent roll.
Properties per manager
The sweet spot for a single property manager at a real estate agency is around 90 managed properties.
Any more and your PM will begin to lose track of clients and tasks. Their service standards will slip and they won’t find the time to seek out and onboard new business.
Once the figure passes 90, an assistant may take the edge off the workload for your property manager by liaising with clients and taking care of basic jobs.
If you want to grow your agency past 90 managed properties, you have the choice of either taking a step back in terms of profits, hiring a second agent and rapidly building the rent roll or purchasing a ready-to-go rent roll and hiring PMs to cope with demand.
The ratio of property managers to properties is not linear. For example, while one PM on their own can handle 90 properties, two can generally manage 250. If you have three PMs on your team, the number will grow to 500.
The standard from there is:
5 - 6 PMs - 900 properties
8 PMs - 1550 properties
12 PMs - 2500 properties
18 PMs - 5000 properties
17 PMs - 12000 properties
The number increases this way because you will have more ‘hands on deck’ to help each other out. As you grow, things will also become systemised and streamlined, making it easier to manage more homes.
Once your agency has more than 500 PUM, and good systems and procedures in place, outsourcing non-urgent tasks becomes easier and makes more economic sense.
Of course, with an average churn rate of 10-15%, your profits won’t be completely predictable but as an example, you can see how adding 2500 properties to your rent roll and hiring six PMs can set you up for profits with less stress than attempting to grow organically.
Profit ratios
If you have the ideal number of properties to property managers you should have a highly profitable, client-focused business without the need to charge higher than standard commissions.
Based on BDH Solution’s knowledge of rent rolls and their value in Victoria, the average return on investment for a productive and well-run rent roll is 26%. However, we have seen returns of as low as 2-3%, usually because they have too many property managers, too many vacancies or a problem with churn. If this is the case for you, it’s time to identify the ways you can improve or perhaps to sell your rent roll and focus on sales.
Where the money goes
The biggest expense in your agency will be your people, reflecting around 50% of your income.
Things like premises and operations should be in the 4-6% range or even less if you have a team of people working remotely.
Some agencies are generating enough revenue for 10% profit margins to feel like good money. The problem is they are not aware of how much better things could potentially be.
Sample revenue breakdown
Take a look at the revenue breakdown of a well structured property management department.
Total property management revenue: Above $1M
Income
1. Management fees 85%
2. Letting fees and ancillary fees 11%
3. Other 4%
Expenses
1. Wages 49%
2. Premises 5%
3. Operating expenses ??
4. Operating Surplus 25%
Personal*
1. Principals 1.66
2. PM 10
3. Leasing .36
4. Business Dev .43
5. Admin 6.05
6. Total 18.57
* the business may have a separate sales department
Numbers to consider
You don’t have to be on an unstoppable trajectory when it comes to your numbers and they do depend on your long term plans for your business.
Having a rent roll with 5000 properties may not be your goal, regardless of the profit potential. You could also decide to improve profits by providing a premium service people are willing to pay more for, rather than having as many homes on your books as possible.
The important thing is to be aware of your numbers, your profit points and what the benchmark is. This way you can focus your team’s KPIs on making progress towards the ideal financial outcomes and make strategic decisions which will give you better returns, sooner.
DISCLAIMER: This article is NOT intended as financial advice and is for marketing purposes only. Please seek independent professional advice.
BDH Solutions are rent-roll agents with over 40 years experience in connecting the right vendor with the right purchaser. Download our information booklet on the new Victorian Minimum Living Standards Legislation