Gain More Wallet Share Via 80/20 + Trust
Domonic Thompson, National Head of Real Estate at Macquarie Bank, shares his thoughts on how to increase your cash flow today and asset value for tomorrow.
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Dean: Hi everyone Dean at Real Estate Dynamics, I’ve got Dom with me the head of Real Estate from Macquarie Bank. Now the last question we wanted to ask him was based around if an agency was out there and they had say half a million dollars that funding or that they had to spend, they could either go out and buy an investment property and negative gear it or they could go out and buy rent roll with a cash flow in a business of which they’re already working six-seven days a week. So why wouldn’t they add to it? It would make it cash positive in the year one paid off in five years. With the investment property all of that potentially with negative gearing is going to go away if they don’t get much capital growth.
Dom: Yes, good question and certainly not here to give advice, but I guess…
Dom: My opinion, from my observation around that I think if we look at this through the evolving model that is real estate and as its transforming itself away from real estate businesses to broader property services businesses and went through that, by that we’re actually changing the lens by which we are looking at the likes of tenants and landlords. We now see them more as clients and we now see them more as clients that we can be delivering into the lifetime needs of those clients across property services more broadly.
I think the opportunity to do that with a bigger captured audience by bolstering out cash flow and or rent rolls and being able to do more transactions with more people will not only continue to see you drive your top-line through revenue as your leveraging more parts of the share of wallet for that client. Above just management fees we’re talking connections, we’re talking adjacencies…
Dean: Adjacencies being other income streams i.e. insurance, i.e. refinancing, those sorts of things which makes perfect sense. Macquarie put on an event last year in May and they had somebody out from the UK and said look here’s 100% of what we make as far as income wise and they’re 450 offices, only 20% is actually the real estate transaction. But without that 20% we wouldn’t have got the other 80% because we gained the trust with that 20%. So, I think that is perfect, we haven’t got the other 80% yet, but people are starting to think about that.
Dom: Exactly and can’t access the 80% without the 20%. So, the 20% is certainly the core part of your business, what you do now. It’s about superior execution and driving greater profitability and cash flow from that, so I think going out and buying the likes of a rent roll asset to not only bolster cash flow, to do more with more people. But I think as we start to look at what the future of valuation methodology looks like in the space, as well 96% of transactions that we see are based on recurring revenue and recurring revenue solely; not many occasions that the goodwill really comes into effect. Then I think we’ll see valuation methodology build out across multiple recurring revenue streams that sit within a property services business. So not only are you bolstering your top-line, but you’re increasing potentially the valuation of your business and arguably your exit strategy and what your superannuation fund, let’s face it, looks like.
Dean: So there’s another good reason, we’re biased, but there’s another good reason to go out and buy yourself a rent roll.