Originally published on Forbes.com
In any given market, roughly 60-65% of the people live in a home they own. That means at least 35% to 40% live in homes they don’t own. Most brokerages only elect to serve barely two-thirds of the population — the buyers and sellers. What about the other 35% to 40% of the people who still need a roof over their heads?
Renting Makes Sense For More People Than You Might Think
My own experience this past year is a good example. I wanted to buy a new home for just my wife and me in the Short North area of Columbus, Ohio. Like so many metro areas right now, the real estate market and local economy are on fire. Nothing we looked at made sense. On a whim, I decided to check out the local rental market. We ended up signing a two-year lease in a newer apartment building with an enclosed parking garage. I expect to buy here eventually, but I want to wait for the current frenzy to subside.
Offering real estate services to all of the people who need a roof over their heads can be a key point of differentiation for you as a brokerage owner in your market.
Synergy Is Profitable
There is great synergy in bringing the sale and management of real estate under one roof. The reason this synergy exists is because so many real estate investors will regularly expand their portfolio if they have reliable professional management in place. At our firm, the relationships with our property management clients are some of the most rewarding and profitable we have. (The commissions we earn on their new purchases are pretty rewarding too.)
Property management is not an easy business. However, with the right systems and support staff in place, it can become a self-managing business that could cover a large percent of your current overhead. Over the last 10 years, we have set up systems, partners and technology to make this possible. Here are some tips and suggestions to get you started if you decide that offering property management services is a sound way to expand your brokerage business.
• Go through your database and identify all of the people you and your agents have helped buy rental properties over the years. Find out what their management situation is now and find out how you can help them. This is a great reason to reconnect with members of your sphere of influence you may have lost track of over the years.
• How are you handling your personal investments? You may already have processes in place that you can formalize and expand that you have not even thought of.
• It should be relatively easy and inexpensive to alert your database to your new services. Again, this is a great reason to make calls and send out some personal notes.
• You will likely start with just a handful of units. Your current receptionist should be able to handle some additional incoming calls. If you have a bookkeeper handling your operating account, they should be able to handle an additional trust account for owner funds.
• We have tried several property management software solutions before landing on our favorite. Test the waters and sample solutions until you find one that works best for you.
• As your business grows you may consider hiring an accountant that specializes in using that platform to handle your accounts receivables and monthly reconciliations.
• Licensing law is in your favor. However, you will be handling other people’s money and the division of real estate in your state will want to make sure you are following all of the applicable laws and regulations, so do your research and consult your legal team.
• Starting small with a few key clients who already know and love you is the way to go. As the business grows, you can add staff. The key is to not let this new venture take over your business — view this as an add-on. It is “found money.” Your sales and business, and more importantly your agents’ businesses, cannot be affected.
• Maintenance staff is another consideration. At some point, you will want an employee or two on staff to handle problems in occupied units. In the meantime, take another trip through your database and utilize social networks to find independent contractors to take care of issues that arise, until you reach a point where hiring additional staff makes sense.
• Getting paid matters. For example, our standard fees are 10% of any rent collected including late fees plus up to one full month’s rent as a lease-up fee. For new clients with a larger portfolio — more than 20 units — we may charge a nominal sign-up fee to cover the costs of adding their properties to our system and bridge the gap to when we actually collect rent and get paid the first time.
Offering property management services has transformed my business in three major ways.
- The business covers a tremendous amount of overhead in good times and slow — that’s overhead I would have had to cover anyway to support my agents and sales business.
- Property management allows us to differentiate ourselves in the market as professionals who understand investors and their businesses.
- Our sales business has increased because our landlord clients are eager to expand their portfolios, knowing they can count on us to take care of their properties.
To realize these benefits in your own brokerage, consider expanding your services offered to include property management.