How property management success adds up

I recently read an article that stated a property management business is not profitable until it has around 500 properties (or units) under management.

This is simply wrong.

The number of properties under management is not the only measure of a property management business’ growth and level of success. What’s more, until you stop focusing on this one number, your business will continue to suffer the loss of properties/units under management, higher-than-needed productivity levels, and low profit margins along your (very bumpy) path to growth.

This is because growing your business is not about this one number. It’s about what I call the critical measures.

Focusing only on the number of properties/units under management leads to:

• Business growth at all costs — this is a huge cost financially, emotionally, and physically because it drains both principals and the team
• Willingly discounting fees and managing properties regardless of their standard or location
• Lower-than-average weekly rent with a diverse range of properties/units under management
• Greatly diminished profits and asset value
• Possible business breakdown, loss of team and properties/units under management, and damage to your brand and reputation

If you are only focusing on the number of properties/units under management, believing that once you reach (say) 100 properties/units you will be covering costs, chances are you are suffering losses along the way. Chances are also high that at 100 properties/units under management, you will still not be achieving the income levels you expected. And so, once you reach your target, you will have to delay engaging further resources (for example, an extra team member) because you’re still not generating enough income. And so the vicious cycle of gain and loss continues.

A better path to property management success

So what should you be focusing on instead of just growing the number of properties/units under management? You focus on critical measures.

Critical measures determine the current flexibility or volatility of your property management business. By cross-checking your trust accounting software reports, you can identify your business’ average management fee, average distance-to-property ratio, average weekly rent, management splits, number of owners against properties under management, percentage of fixed-term leases, monthly disbursement methods and timing, and arrears management factors.

Evaluating these measures lets you know if your current operations are working to achieve your business goals and targets towards growth. Put simply, the strategic pathway to a successful, profitable, and highly reputable property management business is to know your own market and build your business in accordance with these critical measures.

The most critical measures are, in order, average management fee, average weekly rent, and then the number properties/units under management. In this instance, the reason to know number of properties/units under management is so you can strategically manage growth, retention, productivity, and profitability.

Most property management businesses target a number of new managements per month target and achieve it by discounting management fees. This is because the growth manager focuses on winning business at all costs. This means the properties/units under management are low value in comparison to the market average weekly rent. Moreover, the properties/units are likely to be scattered far and wide from your market area, which places increased strain on resources.

However, if you know your average weekly rent and average management fee figures, then the monthly income target can be strategically set.

Say your target is an additional income of $15,600 per month. You can reach that target if your average weekly rent is $300, your management fee is 10%, and you add 10 new properties/units under management per month:

$300 rent per week x 10 new properties/units x 10% x 52 weeks = $15,600 per month added to your annual income

However, this same monthly target could be achieved by adding just 6 properties/units per month:

$500 rent per week x 4 new properties/units x 10% x 52 weeks = $10,400 +

$600 rent per week x 2 properties/units x 10% x 52 weeks = $6,240 = $16,640 per month added to your annual income

In this scenario, the growth manager has achieved more than his or her monthly income target with only 6 properties/units, and he or she is also reducing the level of effort needed to manage those properties.

The bottom line to growing your property management business

The bottom line is this: When it comes to growing your property management business and planning for this growth, stop focusing only on the number of properties under management, and start focusing on strategically managing all of your business’ critical measures.