Building a Budget for a Profitable Department

Profit, Profit, Profit! 

• What was your profit last calendar year? 
• What is your target next year? 
• How are you tracking? 
• Do you have a growth plan? 
• Do you have a budget? 
• Do you split your profit centers?

These are questions and conversations that I hear being asked in offices and at real estate events. Do you have the answers?

Why are you in business? As an entrepreneur, it may be to, make money.  Whilst there are other benefits to having your own business, this is the bottom line.  In basic terms, making money maps back to having a profitable business.


So how do we build a profitable business?

Current position

In building a business, you must start with a clear outline of the current position.  My number one rule is that you MUST split out the various business units. i.e if you have a property management department and a sales department these should be separate cost centers.

Separating the businesses provides a clearer picture of the financial position of the property management department.  Simply all income and expenditure for that department are allocated. In the case of operational costs these are proportioned for the department. The key is accurate allocation - Start by mapping last financial year and identifying your true department profit.

Planning

All building is done with a great plan. Create a plan to build a profitable business by setting your targets for the year first. Do you want to increase profit, $ or %? Or decrease expenses.

To achieve these targets you will need to look at planning for both the direct financial aspect of the business as well as the non financial actions that must be taken to reach the goal.



Budget

• Financial planning is in the form of a budget.
• A budget identified income and expenditure predictions and the projection of profit.

Business Plan

• To achieve the financial targets there will be clear actions that must be taken. What are these actions? 
• A simplistic approach is to create projects. Using growth as an example, what needs to be done in order to grow the income of the business? 
• One aim may be to increase the number of properties under management. Great, how do we do that? What actions are needed? 
• What resources? 
• What materials? 
• A project plan will assist in creating this strategy, but of course it is the execution that is fundamental.

Next week we take look at Execution and Accountability and its role in building a budget for a profitable department.

Fiona Blayney

Got a property that won't lease?

Tearing out your hair with a property that won’t lease? Freaking out at the days on market creeping up? Having trouble convincing an owner to reduce their prices? You are not alone. Many of our members and clients around the country are experiencing some tougher times in leasing at the moment and are frustrated in getting their owners to reduce their rents to meet market conditions.

If the property is in good condition, marketed correctly, and available to be shown, as agents we usually know it’s the price that needs to shift. Price adjustments typically aren’t easy and often you will feel like you’re fighting against your owner at this stage of the property management process (despite the fact that effectively you are both on the same team, both wanting to get the best possible rent in the least amount of time).The important word to note here is “possible”.  Securing the best possible rent doesn’t always mean the highest rent the property has ever received. What this means is securing the best possible rent for that particular point in time, given market conditions, tenant options and situation.

The first problem is that often landlords have an assumption that the rent should continually be going upwards. There is a lack of education to these clients surrounding the time of year, market conditions, recent data, and a realistic comparison of their property to others on the market.

The second issue is that because the rental market moves so quickly, the price from a few weeks ago may not be accurate today - but we aren’t educating them along the way so they know this, we assume they know what we know, and it’s usually weeks into marketing the property before we start to speak to the owner about reducing the price to meet market conditions.

In markets like this it’s often not enough to rely on your normal renting tactics – list property online, take enquiry, show apartment, receive application, hey presto -  apartment rented!
You may need to use a few new tactics to communicate smarter with the owner to ensure you can get faster results:

1. Use your data – There is a plethora of data available to you in the property management world that is underutilised at all stages of the leasing process. Days on market, vacancy rates, registered tenants, properties leased by your agent, properties leased by other agents, number of comparable properties currently on the market, properties leased by agency each week, applications, enquiries, property visits. Data doesn’t lie and can be used to paint a very effective picture to your client from the get go, sharing this data means they can go on the journey with you & be more prepared to agree on price adjustments. Most of us have access to this information, but it’s how you use it that will make a difference.

2. Know your numbers – Know exactly what it will cost the owner to wait one more week for a tenancy. Being able to explain the cost of having no rent coming in versus dropping a few dollars a week over the course of a 6 or 12 month tenancy may help them see how important it is to get a tenant in rather than wait for the top dollar in rent. One of my favourite pieces of dialogue surrounding this comes from Andrew Reece of Inspect Real Estate “Mr Landlord – your property is currently rented for $0 per week..” that should get them thinking...

3. Preset your adjustment dates In relationships we all hate to hear the words “we need to talk”. And the same negative emotion can surround the discussion with the owner around “we need to reduce the price”, especially framed weeks into the marketing campaign. Explain to the owner from the initial stages of leasing that you conduct regular reviews of the market and WILL be recommending price adjustments along the way to ensure we achieve the best possible rent for you in this market in the least amount of time. Using the words adjustment, rather than reduction should help your cause too.
These are some points you can use to improve your process surrounding price adjustments in order to get a faster result, but there are many more great ways to think outside of the box to get your properties leased faster. We have a handy checklist guide to give away to you this week.

Click here to get your free copy of the “It Won’t Lease Checklist” and good luck! 

So you think you can grow your rent roll?

We see one very common goal amongst many property management businesses across Australia and New Zealand.... Rent roll growth! And why not?

There are many different reasons a business will choose to grow - growth, asset value, profit, sales farming, ego and more... Whatever your reason it’s importantly to firstly be sure of that reason – to establish your WHY before setting your goals, as this will affect the strategies and plans you put into place to get there.

Once you’re sure of your WHY and have set your goals –you will either go down the path of organic growth or potentially look at the acquisition of a rent roll – or perhaps a combination of the two. Which is the better option for you? Well again this will depend on your WHY but it is also vital to weigh up the pros and cons of each strategy.

Organic growth – where a BDM is put in place to prospect, appraise and grow is the most common way of growing your rent roll. The great thing about this option is that you can control quality, location & fees of properties, potentially avoid bad landlords and problem properties – however this option can be a slow way of growing due to the time taken in building landlord relationships and placing a new person on board the rent roll may not be profitable until numbers start to grow.

However more and more agencies are looking to purchase a rent roll as a fast way to grow. According to Harcourts the benefits of buying a Rent Roll include:

Pros
·         Increased size gives business momentum
·         Increases cash flow
·         Irons out fluctuations of a sales department
·         Eliminates a competitor from your local area
·         Increases networks and database
·         More opportunities for sales department
However they advise we must also consider the cons:
·         Landlord rejection
·         Buying existing issues
·         Potentially poorly run portfolio
·         Integration/transition issues

If purchasing a rent roll is something you have considered at some stage this is not something to rush into. There are many factors which need to be considered and it is strongly advisable to have an expert guide you through the process.

Lucky for you, we will have expert Matt Ciallella joining us from MC Rent Roll Broking for our next webinar. He will be on board to take us through all the considerations and variables you will need to consider when purchasing (and selling) rent rolls. Register for the live session here – or Real+ Members can watch the recorded webinar on their Real+ Platform at anytime. 

If you are Real+ member, click here to visit Real+TV where you can watch our webinar 7 Secrets to Buying & Selling a Rent Roll with our special guest presenter Matt Ciallella from MC Rent Roll Broking.