Property management fees - How to increase them
- Cashflow – the income generated from a rent roll is consistent, unlike sales where the income ebbs and flows;
- Asset – a rent roll is an asset that can be sold and, in some cases, used as equity to expand the real estate business, eg buying another rent roll; and
- Market share – the number properties under management equates to a percentage of market share for the real estate business. There is a database of established clients and customers for future business opportunities, such as sales listings and property management listings.
As the heat comes out of the sales market, the consistent income generated from a rent roll becomes more important and generally leads to a more focussed business approach to maximising the income generated from the rent roll.
The following options are generally explored to achieve this:
- Increasing the property management fees.
- Increasing the efficiency of the operation of the rent roll, eg such things as low vacancy rates, low arrears, minimising the time spent on dealing with maintenance requests by being proactive with the quality of the properties under management and owner instructions via the PO Form 6 for a maintenance spend limit and utilise automation for processes.
- Evaluate quality verse quantity, meaning it’s wise to know the income generated per property and then evaluate how much time is spent on managing each property. Is 20 per cent of the rent roll taking up 80 per cent of the resources of the business to manage these properties?
When deciding to increase the management fees you will need to obtain the written authority from the client to vary the commission, fees or expenses agreed to on the existing PO Form 6.
Before we set out the guidelines to implementing the PO Form 6 Variation, below are a few points which offer some food for thought as to how this may be approached.
- Assess the average rent on the rent roll and then determine the properties you manage under this weekly rent average;
- Assess the average management fee per property then determine the properties under management being charged less than this average management fee;
- Assess the high tenancy turnover properties; and
- Assess any PO Form 6 where the 8.2 spend limit is less than four weeks rent for an emergency repair and minimal spend authority for routine repairs.
Once you collate this data you will have a snapshot of the properties on the rent roll that are potentially a cost burden to the business. Then review these properties and consider the attitude of the owner towards their tenancy obligations and towards you as the managing agent. Are they receptive to your professional advice to protect their interests?
If it is hard work every time you need to seek instructions or they attempt to give you unlawful instructions and their property fits into the other criteria, then perhaps these are the clients you target first with any fee increase.
While your time is taken up managing these clients, there are opportunity costs to the business such as missing other quality management opportunities and high staff turnover due to unreasonable owner expectations.
You would then selectively work through the rent roll with a strategy of increasing income and the efficiency of the rent roll even though the actual properties under management may decrease.
A specific process must be followed when using the Fee Variation Form to ensure you have validly varied your existing Form 6. The REIQ recommends following part C of the Form 6 Variation Checklist in Realworks.
If you are an REIQ member and require assistance with this process, you can contact the Property Management Support Service on 1300 697 347.
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