Permanent Parameters

Should you build a rent roll outside your complex?

When old “grey beards” like me qualified for a full real estate agent’s licence back in the eighties, it was not an easy qualification to get!

Unlike today, you could not go to a classroom for five or six days and come out with a piece of paper to hang on the wall – and legally call yourself a real estate agent.

The deal in those days was that practical experience was just as important as “book learning”. If you had not worked as a practical real estate salesperson for a year or two, you could not get a full licence. From memory, if you had not undertaken formal classroom education at a TAFE college and completed a large number of units, you needed six year’s practical experience in real estate sales to get a full licence!

Of course, this is not a foolproof system. As we all know, there are people who have ten years’ experience and then there are people who have one year’s experience, ten times !  Some of the agents who received their licences in the eighties are just as silly, uneducated and incompetent today as they were then!

But I digress.

Today (whether I like it or not), it is easy to get a full real estate agent’s licence and this opens up some possibilities for on-site managers. Quite a few of the managers I deal with have their full licences and have decided to take the outside agents on at their own property management game. They are quietly building up a rent roll outside their complex!

Question: Is this a good idea and what are the things to be careful of?

The first thing you must be careful of is your responsibilities to your body corporate. Your prime job is that of caretaker/manager of your complex! It is your number 1 business responsibility, and probably you owe your bank a lot of money as a result of your buying that business. At all costs, you must protect this position.

If your property management activities outside your complex come to the attention of your committee and it is deemed that this outside activity is detrimental to the effective performance of your prime contract, then there may be some angst. It might be a good idea to consult your management rights specialist lawyer to ensure there is nothing in your caretaking/letting agreements that would preclude you from running an outside rent roll from your on-site office.

Another area to consider is your professional indemnity insurance. As I have said on many occasions, professional indemnity insurance is an absolute must whether you manage two properties or two hundred properties. Speak with your insurance professional to enquire whether your existing PI policy will cover your involvement with outside managements or only managements within your complex. It is too late to find out that you are on your own after disaster strikes at one of your outside rentals.

Income from a traditional real estate agent’s rent roll is calculated differently to that from a management rights rent roll. You will not be able to simply add the outside income to your management rights P&L statement and use the same multiplier for the lot. It will be a little bit more complicated than that. Also, bear in mind that when you finally come to sell your management rights, the buyer may not be interested in purchasing the outside managements at all. This is not necessarily a big problem, as there are normally plenty of buyers for small rent rolls that can be added on to an existing one.

To make your outside rent roll as saleable as possible however, keep it confined to your general geographic area. Managements scattered far and wide are not an attractive proposition to a buyer. Nor are “dumps and dumpettes”! Don’t take on managements of run down properties. You should only be interested in properties of the same high standard you have in your complex.

Tread carefully and tread slowly. There is no reason you cannot build up a nice ancillary business and a valuable future asset, but never lose sight of what is your prime business, and that is your management rights.

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