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Buying a Rent Roll vs Organic Growth

Business growth is individual and determined by your personal and business goals.  Your goal will determine the best way to grow a rent roll. There are three ways to grow a rent roll:

Organic Growth 

Organic Growth is growth without the requirement of spending money.   You are not targeting rent roll growth in your business.  You are a sales dominant agency and rentals is a service your agency offers if your buyers are investors and need an agency to manage their property.  There is no employment of a Business Development Manager (BDM) or any advertising about your department to the public.  

In other words, Organic Growth did not cost you anything to gain that management for the office.

Many agencies will slowly build their rent roll through this method over the life of their career. 

Pros: 

  • 100% equity held in the rent roll (no mortgage).
  • No major outlay of expenses to gain managements. 
  • Business owner builds relationships with Investors. 

Cons:

  • Slow growth in property management income levels.
  • Generally, business owner needs to maintain the portfolio until it is viable to hire a property manager. 

Targeted Growth 

Targeted Growth is mistaken as organic growth, but it is not organic growth because in targeted growth you must spend money to gain new managements.  In this method the growth in your property management department is through the employment of a Business Development Manager (BDM).  

There are costs involved in gaining these managements including extra wages, business development wages, additional subscription costs and advertising. 

In this method, there is a cost to gain the growth.

Pros: 

  • 100% equity held in the rent roll (no mortgage).
  • Faster growth in property management income.
  • Rapid rent roll growth through the employment of a good Business Development Manager.
  • An operational property management department dedicated to maintaining investor properties.

Cons:

  • Salaries for Business Development Managers are high, they generally will include a Base Salary, Bonuses, Motor Vehicle and Phone. 
  • Additional expenses for hiring new employees or going to the next software subscription level will be outlaid before completely fulfilling the role required.

Buying a Rent Roll

Buying a rent roll is an instant cash injection to your revenue from day one and is normally positively geared. Depending on the size of your portfolio you may be able to easily absorb the expenses of the added portfolio or you may need to also employ the staff of the original rent roll. 

In this method, there is a cost to gain the growth.

Pros: 

  • Instant Growth to Rent Roll.
  • Depending on the size, rent roll expenses an easily be absorbed by the current business. 
  • Larger rent roll purchases will generally come with an instant property management department (employment of the key employees of the original rent roll for retention purposes).
  • A proper rent roll due diligence will provide the opportunity to ensure you are aware of exactly what you are purchasing.

Cons:

  • Purchasing & Mortgage Costs
  • You do not own the full equity in the rent roll until the mortgage is complete.
  • If a rent roll due diligence is not properly conducted, it could become a renovator’s delight. 

Depending on what your business goals are, will depend on which strategy you employ.  If rapid growth is what you would like for your business, then purchasing is the fastest way to grow your rent roll.  However, I am a believer to maximise your growth potential, you should be focusing on growth by all three methods.

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