How is the Geographical Spread of your Rent Roll affecting your Profitability?
There is a misconception in the Real Estate Industry that the more properties that you have under management, the more successful and profitable the business is.
A big factor in the profitability of a rent roll is the geographical spread of the properties managed. The further away a property is from the office, either in distance or time, the more it can cost to manage due to the time it takes to travel to and from the property.
To work out the geographical spread of your rent roll
- Compile a list of all of the properties you manage from your Trust Account program
- Sort the list of properties into suburbs showing the distance from your office, both in kilometres and time travelled.
- Plot your office on a map and draw concentric circles at 10km, 20km, 50km, >100km etc.
- Now draw circles according to travel time in each band. You may find that even if the properties are within the 10km band, traffic congestion for example may affect the travel time
- Calculate the AAMI of each band and compare this against your overall portfolio to ascertain the financial viability and profitability of the properties located greater than 20 mins from the office. How do I calculate my AAMI?
- Consider how much more income a management at more than 20 mins from the office compared to managements less than10 mins from the office will need to provide in order to be profitable
Look at selling the managements of the properties that are costing you money to manage, or are not generating your desired profit. You could then use this money to build your rent roll within your newly determined geographical area and with an increased income per property.
Without doing this exercise a business owner may be making decisions on growth strategies that create more work not profitability.
Remember, if you are not managing the right properties to ensure a profitable business, then you may face bigger problems down the track when you need to value or sell your entire rent roll.