If you’ve read my last few articles, you’ll be aware that I’m passionate about Property Management, and I’m also passionate in my view that the current model needs to change.
My belief is that over the last decade or so property management has become an entirely different business to the way we’ve seen it in the past, but we haven’t really evolved our model.
So let me throw something uncontroversial at you… for the traditional model to cope with the lack of quality candidates to fill the vacancies within our industry, attract more highly skilled people to it and run successful, profitable divisions we need to harness economies of scale.
This view is partly bought on by the staffing crisis but a look at my history and you’ll see that I’ve pretty much always been at the vanguard of the sector – I was the first male in my area in Property Management, the first to win a Property Management award (twice), and I created the first stand-alone Property Management business in my area (and probably one of the first in Melbourne) in the late 1990’s.
This isn’t anything new now, with growing numbers of specialist Property Management firms operating on both a large scale (the largest currently being 25,000 managements nationally) and as smaller, more agile owner operated companies.
These specialist firms have understood the gap in the market and seized the opportunity to begin recasting the sector and unless the traditional estate agency-based model adapts, some agencies are going to feel the bite – if they haven’t already.
They are run by highly engaged directors who focus on providing a greater client experience and focus on having teams who are motivated to do the same, in general their fees are also higher as they push the point of value to the client that they are a specialist firm and so they require fewer properties to manage to get past their break even and into profit.
This is out of reach for most smaller rent rolls because with the costs involved in running this business unit, they can’t reach profit until they get to critical mass.
Unless we can resolve the staffing crisis in other ways, perhaps we need to look at a completely different business model – Outsourcing our total Property Management operations.
Nearly 20 years ago, I became involved in a company where we either bought or merged a number of smaller rental divisions and created a larger business with total of over 3000 managements across 2 dedicated offices and 20 plus staff – the model was based on bringing the agents who owned smaller, less profitable rent rolls on as shareholders and paying a monthly dividend, then bringing on external investors and acquiring other rent rolls; this was a profitable business even after the payment to each of the shareholders so you can see where scale becomes important.
We achieved this economy of scale by amalgamation of the other businesses and consolidating their costs into one entity – each of the agency-based shareholders still received the sales listings of any property which came from their rent roll, and their share of the consolidated entity would grow as they referred further managements into it – so this model can work and work well but it requires the principals of individual agencies involved stepping back from the ego and the responsibility of trying to manage a rent roll that they may well not truly understand.
It was also a business which had a very high retention rate of both staff and clients compared to other agencies in the area, and had little difficulty attracting high calibre junior and senior staff due to the specialised business model and the career progression on offer.
One of the prime benefits of this model is that it can be marketed as an independent Property Management business and act to attract new clients of its own right which would then increase the profitability of the enterprise.
A hybrid version of this would be a “co-op” approach where there is a contribution to the costs of running an amalgamated enterprise yet each party retaining their individual rent rolls, although there are structural challenges with this model.
Another option is the contracting out of the company Property Management activities to a third-party provider – either for a set fee or a percentage of the fees derived from the activities – then white-labelling under the owner’s brand with all the running costs paid by the external provider.
Each of these models can offer significant cost savings for the business owners and present the opportunity for us to not only recast the way that the sector is seen by the public, but also offer a greater career path for current and future Property Managers.
Covid and the ensuing changes in society’s expectations of how they want to be dealt with has seen firms like these flourish and create significant gains for their business owners, and while there are adjustments needed to get their model exactly right in some instances, these Property Management firms are going to present a significant challenge to the more traditional agency model over the next few years and unless we adapt our way of doing business in the sector, they will become the ascendant business before we know it.
The companies that are the more responsive to the new environment and staff their businesses well, and support those team members.
The directors who are energised toward their team and show leadership and genuine care for the staff and their business asset are going to be the ones attracting the high quality staff who are supported and trained well, given encouragement to be their best, and will be motivated to deliver an outstanding client experience.
These firms will be the ones showing great profitability and adaptability, and they will be the ones leading the charge in areas such as team retention, service delivery and client growth.