How to manage a growing property portfolio?
I was recently interviewed by Landlord and Blogger Suzanne Smith, aka The Independent Landlord, for her latest post (click to read - definitely worth 5 mins of your time!).
She raised some really interesting and helpful points to be aware of when scaling your property portfolio, which I’ll outline for you here.
Economies of scale.
In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation.
In property investing, an example could be landlords obtaining a greater discount from their managing agent the more properties they add to their portfolio.
Does this example happen IRL though? No!
As Suzanne explains in her blog, ‘agents charge fees that are a percentage of gross rents. Consequently, management costs won’t reduce as a percentage of rental income as the portfolio grows.’ ‘Each new property will add the same 10-15% of the gross rent to the expenses line.’
This is one of the things that our clients love about working with us to help them manage their portfolios. Adding an extra property won’t have a big impact on their monthly cost.
Foundations for scaling.
The foolish man build his house upon the sand, goes the parable.
Getting organised with a simple filing structure is FAR EASIER to do at the beginning of your property business, when you have less files.
As Suzanne points out in the blog post (and we know this from working with almost 100 clients since starting Beam), it can be easy for landlords to get in a muddle and lose things if they’re doing it themselves. The bigger the portfolio, the less likely it is that a landlord will remember when a safety certificate due for renewal.
As a portfolio grows, with it comes infinitely more documents and responsibilities. Introducing a simple CRM is another way of keeping track of data and compliance - and it’s much easier to implement when you’re uploading 20 tenants’ documents vs 100!
What is ‘opportunity cost’ and why is it important?
What this means is that when you are doing Task A, you are not doing Tasks B and C. This has a cost.
As the blog post explains, ‘this cost is the value of what you lose when choosing one or more activities. You should choose the ones where you add the most value, and stop doing things where your time is more valuable than the cost of paying someone else.’
I know it can be really hard to let go of some of the tasks you are used to managing. I even wrote a guide ‘10 Essential hacks for becoming a delegating pro’ which you can read here. But I think many property investors don’t actually realise the cost implications of them being the most expensive person to do Task A, plus not getting Tasks B and C done.
The 4 property management models.
Most property investors think the only two options are DIY or appoint a letting agent.
Suzanne and I discussed how our UK based team of property-specialist virtual assistants offer a hybrid solution for our clients, which also factors in economies of scale, foundations for scaling and opportunity cost.
We talk about this in more detail in her post including typical cost saving for a landlord using an agent vs working with us. Here’s the link again to save you scrolling back to the top!
Thanks for reading!
