It’s amazing that some things are very predictable with the mindsets of real estate principals and property managers.
Just about every time you mention increasing fees to improve their profit margin, the response is always the same. They believe it will not work for them!
Even after going through why it will work for them, they respond that their clients are different and think differently, their clients are ‘more tighter with their dollars’ than everywhere else, ‘this end of town’ is different and so the reasons get listed.
They may as well state why their rent roll is the only one in Australia where it will not work!
It is our experience of having done successfully numerous income maximisation campaigns across many different locations (metro and regional areas) that increasing income works- and it works very well!
Eight Reasons Why!
1. Service Driven- our industry is service driven. Compared to the petrol market, for example, our industry is not price driven. A majority of clients would rather have a reliable property management service and pay a bit extra than choose the cheapest agent in town and risk good service, simply because their investment is at stake and cannot afford for things to go wrong!
2. The Norm- what people are grumbling about now with expenses and fees going up soon become accustomed to it, and it becomes ‘the norm’ very quickly. Clients get used to new fees and quickly forget what the former fees were.
3. Familiarity- people do not like to part with what they are most familiar with. They do not like change and stay with what is familiar. People are creatures of habit and like their comfort zones. If they are comfortable with your service, they would rather stay than risk going elsewhere into the ‘great unknown’, where other department service levels are uncertain.
4. Happy and Content- people like to feel happy and content. If they are satisfied with your service levels and the interaction with your brand it takes a lot to change this. The greatest reason landlords leave service is not because of fees, but because they are unhappy with the service levels caused by negligence and poor service.
5. Relationships- unlike our business relationship with a phone company or pay-tv service, we value our business relationships where people are involved. Like your accountant and hairdresser, a property management service is placed in the same category of business value. When was the last time you changed your accountant or hairdresser because they had to increase their rates? We only change because we are dissatisfied with their service, not because they put up their fees!
6. The Actual Impact- do the maths! Say you increase your income to the equivalent of one week’s rent for every property across your department. Depending on your total fee income, this could impact your income by an extra 10-20%. This is a lot of cases will increase your actual net profit margin by 50-100%.
However, one week’s rent extra in fees is not the same impact to the client. One week’s rent to a client is approx 2% of their annual income (they hope to get 52 weeks of rent per year, 1 week is approx 2% of this). Though you increased their expenses by 10-20%, it only represents another 2% (approx) against their annual income.
7. Increasing Rent- When we know the true dollar impact to the client, we can then promote a rent increase to the client of 5% (provided your market allows for a rent increase, and you can legally do this on the tenancy). This could be an increase of $10-$15. We point out to the client that a rent increase will negate the extra fees, and in a lot of cases, they will still have change left over. It comes down to how you sell the concept to the client.
8. The Money Driven Minority- in our society, only a small portion of people are money driven. This means they live by a very tight monetary budget, watch it all of the time and constantly are trying to pay less for just about every good or service they come across. They are the sort of people that would try and bargain a cheaper price on a pie at a bakery! They place money more important than anything else! Should their fees go up they will react, however, those that will actually leave because of a fee increase is a very small portion of people. Sure, some will react to a fee increase but those that do react adversely will then weigh up the need to continue with your service over extra fees. Most will choose to stay!
So What is Stopping You?
What is between you and a greater income from your rent roll? Let it be a plan to achieve it that stands between you and success, and not an incorrect mindset!
Unfortunately, most principals who do believe this to be possible have another issue. They simply lack the personal discipline and motivation to make it happen as they get distracted and busy doing everything else! Most just put it on the back-burner and it never happens! Their good intentions never convert well into income!
Do not let yourself get too busy to make a profit, like a lot of real estate principals today!
IMPORTANT- By the way, to achieve this successfully you need to have a minimum of a reasonable level of service or better, and general stability of staff (for example- landlords not exposed to several different property managers in the last 12 months with a high staff turnover)
Landlords on current fixed term management agreements cannot be changed, and rent roll purchase properties brought over in the last 12 months should not be touched- stability is the key here!
Success comes to those who just do it- all the best and make it happen!