Do it for the money!

At the end of a financial year this seems like a timely question: Do you really just want to own a real estate agency just for the love of it?!

Of course I enjoyed what I did – I had almost 30 years of agency leadership and no one would last that long in a job you hate. And yes I got a lot of pride from my team’s progress and helping lots of people grow their careers. I’ve always loved dealing with people and real estate has that in spades. But I could have got that working for someone else.

I was a real estate agency principal because I thought that was the best place to invest my time and my money.

Like many of you, I’ve owned investment properties. As agents we can’t resist that next great listing with its promise of high tenant appeal and almost guaranteed capital gains! And they probably average 10% over time, maybe even 15-20% in these booms. But early in my career an accountant challenged me to see my company’s rent roll as my main investment. And it turns out that in many agencies the rent roll can return 40% or more – every year regardless of the market!

A real world and current example: A rent roll I’m selling at the moment will cost you approx $1.37m. (The banks might lend you up to 70% of that.) And its income last year was approx $630,000. Yes, a 46% gross return!

Now I know they’re not directly comparable. An investment property is more hands off and you have lots of overheads to run a PM business. Buy a rent roll and you will need more staff and office rent and marketing costs and some other variable expenses. But if you can stay close to the fixed costs of your current operations – add only the PM’s you need and the interest cost – then your bottom line really can take a big lift from a rent roll addition. Let’s say your office rent stays the same. You already have admin and a support team who can absorb more work (and I know they’ll say they can’t.. but maybe they can!) I was always amazed how little extra my overheads rose when I bought a rent roll.

When I started my last agency in 2006 I thought I could grow it without a rent roll purchase. So I “invested” over $1.2m into marketing and operational overheads. I ran ads in every place you could imagine. We had busy BDM’s out there trying to entice landlords away from my competitors. It was a huge mistake. This approach can get you crap clients who want deals to join you and then you inherit these tight, won’t-spend-a-cent headaches that we really don’t want to build a business around.

I know some businesses nail their organic growth. And congrats to them. I never made it work in my market to the extent that I could get my baseline operational overheads covered in a worthwhile timeframe. That’s why I went on to buy 8 rent rolls. It gave me immediate cashflow, immediate market momentum and presence. I got more managements, more sales listings and I found recruitment easier. Those purchases made my agency profitable.

There’s a lot of reasons to own a real estate agency. Maybe you’re building it for your kids and another generation. You might love engaging in and giving back to your local community. That’s all admirable and yes I did that too. But I think we’re ultimately in business to get the best possible return on our money, and our time.

I’d love to have a confidential chat with you about your rent roll or agency plans. Please call me on 0423 332 022.

NB: I’m a business broker specialising in the sale of Queensland rent rolls and real estate agencies. I’m not a financial planner or accountant, so the above are just my thoughts from my own agency journey. Please seek specialist advice.

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