Not so long ago I had a discussion with a client regarding an impending contract for sale he was about to sign.
In accordance with recommended practice, it was agreed with the purchaser that a current set of ‘sale numbers’ would be prepared by my client. One of first things I ask all of my clients is, “how many units in the letting pool do you currently have?” My client replied about xxx (a number in the hundreds) give or take 50. While this was slightly amusing at the time it also drove home the fact that this client, and many other management rights owners, did not accurately know the numbers of units he managed within his business.
This got me thinking as to why it is imperative that every management rights owner have intimate knowledge of their letting pool and also know as much as possible about the remaining units within the building/complex. Here are some of my thoughts…
An accurate knowledge of the number of outside agents, owner occupiers and lock ups provides an excellent platform to perhaps grow the letting pool into the future. It could be that an existing investor owner is looking to purchase a unit should one come up for sale. The local resident manager can then assist with the acquisition and increase their letting pool at the same time.
Knowing your owners and their personal situations helps mitigate risk of losing units into the future. Common ownership risk can be reduced by spending more time on the relationship with the common owner/s. Also knowing an owner’s anticipated change of personal plans can assist with a potential loss of a unit.
Owner letting agreements. All units let on behalf of owners must be underpinned by an executed owner letting agreement either in the form of a P.A.M.D.A 20a or POA Form 6. These should be regularly reviewed to ensure they are consistent with current manager fees and charges and any alterations that have occurred since original execution. Perhaps now is a good time to convert all P.A.M.D.A letting agreements to the current POA Form 6 agreements?
Your financier may also have a covenant on any loans requiring a minimum number of units under management. It is not uncommon for some banks to insist on knowing immediately if the letting pool reduces below a set limit.
Knowing which unit owners are on the body corporate committee or hold positions of power is also vital. After all these are the people who make the day to day decisions for the building/complex. Putting extra effort into these relationships generally pays dividends at some point down the track.
This is purely for short-term accommodation providers. Knowing which owners are willing to switch their units between short-term and permanent letting depending on seasonality also is a must. This often helps both owner and agent manage the quieter times of the year while also taking advantage of the busier holiday periods.
All industry specialist accountants and valuers should be able to give a range of expected annual profit from property management services. As a guide permanent letting usually nets between $1,600 and $2,000 profit per unit, per annum. Holiday letting has a far greater range, usually between $5,000 and $12,000 profit per unit, per annum. By knowing the exact number of units in your letting pool, it gives some guidance as to the performance of the business in comparison to industry standards and your expected net operating profit.
All owners should ask themselves this question. Exactly how many units are in your letting pool? If you can’t answer instantly then I recommend finding out sooner rather than later.