Why growing your property management business may not automatically increase profit

Adding to the number of properties under management is what people talk about when growing a property management business.

That makes sense as more properties mean more management fees. More management fees should mean more profit.

When building my own rent roll, at every stage of growth there was also another decision, that costs money, that needed to be chosen. When to employ the next property manager.

There are two obvious approaches. Growth creates a choice for each property management business owner to choose.

The first option is to wait until your existing property managers are over capacity before employing another team member.

From a financial perspective, that makes sense. You max out the productivity of your existing team before paying for another salary. The problem with this option is that service levels drop, staff become stressed as there is too much work and not enough time to do it all on time.

The second approach is to employ before the person is actually needed. That was the approach I chose. It affected our profits in the short term, but service levels were so important to maintain.

Property management is not a role someone masters in a few weeks. I chose to employ ahead of growth.

Each business has its own processes and systems that they have developed. Each property owner has a preferred way to interact and set expectations. Each property has an individual maintenance and letting history.

I wanted new property managers to have time to learn the role properly, understand how we work, what we use when we work, and how to best communicate and build relationships with owners, tenants and tradies. The goal is that the new property manager is confident of their role before taking ownership of a full portfolio.

In return, this gave me, the existing property managers and property owners confidence that growth was manageable.

Employing ahead of growth comes with an obvious financial consequence.

You are paying a salary before the income that supports it can be earned.

Your business needs approximately 25 to 30 new managed properties to pay for your new property managers salary. With the cost of adding a new vehicle, phone and computer, the number of properties needed is even higher.

I had planned for this as it It was part of the investment I knew was necessary to grow safely.

The decision to make is whether the long-term benefits justified the short-term cost of hiring early.

I'm a believer that there is more than one correct way to build a business. Each decision is a trade off between options.

A property owner has different priorities to another. Some businesses choose to maximise the bottom line. Some prefer to employ later.

While I preferred to employ earlier, it did lead to the my carring additional cost when there was no income to support this

But this decision meant that my new property managers had the time to genuinely understand their role rather than simply float into a whirlpool unready when their workload came to them.

The trade-off was worthwhile for me.

With hindsight I don't see that my decision was really about employing another property manager. It was a decision about deciding what sort of business I wanted to build.

It was important to me that my property managers had the time to understand their owners, tenants and properties. To have the skills and the time to learn the skills to be able to identify and solve issues before they became bigger issues.

That did put a large hit on our short term profitability. The team were getting paid. I was eating through our bank line of credit. But, it was planned for. The Growth happened as we worked towards, and we came out the other end with a bigger and engaged team.

I believe this decision contributed to the reputation we continued to build, the relationships we had with our clients, and ultimately the business we were able to sell.

Growth was always important.

But I understood that growth without solid, confident foundations was a business ready to fall over after the slightest shudder.

Niall Heeran

Niall helps business owners understand what buyers value by identifying the operational drivers that influence business value, buyer appeal, and sale readiness.

Former Principal of Copo Property Management, which he built from a one-man operation into a fully systemised business that was successfully sold to a national operator.