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Century 21, the largest real estate sales organisation in the world, and with over 250 independently owned and operated real estate agencies throughout Australia.
00:00 Introduction by Samantha McLean
01:18 About Century 21 Australasia
Hey guys, I’m a real estate practitioner like you are. I do own Century 21 Australia and New Zealand, but I’m still a real estate agent. The portfolio I bought a few years back was 8,000 managements in Sydney, Melbourne, and Perth. It’s been quite an experience for me. I started in property management back in the ’70s, ’72 when I was seventeen years of age. That is very much a part of my history initially, so I’m aware of what it was like.
I think it was people like me that caused the tenancy laws that we currently have today. When you gave somebody a notice to quit back in those days, it was a notice to quit. The locks were changed when they were at work, and their furniture was put out in the front garden. I think we’re responsible a lot for some of the legislation you have in the industry now.
I run a team, a property management team, in Perth, and Melbourne, and Sydney. I couldn’t tell you the exact number, but I know there’s about 80 or 90 employees, and I have managers in 11 of those locations where the property managements are set. I go through daily challenges with it. I’m not working in the business everyday. I’m certainly working on it, and see the numbers everyday as they flow through from various departments.
I have a different insight to it than working in it on a daily basis nowadays, but I certainly have a strong understanding of trying to grow a rent-roll or trying to stop it from becoming a very large diminishing asset, which it can be. My experience with that has been because of property managers and the relationships they have or do not have with landlords. That’s what I’ll try and bring to the table if that helps any of you in any way.
02:59 Building Effective Businesses
I’m going through a real struggle right now with property management because the issue we always talk about in sales-based businesses, that if I build a relationship, the conditions become negotiable. That’s a very key part of my sales side of the business. I’m not too sure that that’s as effective in property management. In fact, it concerns me that when property managers do build a relationship with their clients and the conditions become too negotiable on the part of the property managers should they come and go out of the business, which they have a tendency to do.
If there was a motor vehicle accident out there and somebody said, “Look, I rang NRMA and I booked him on a motor vehicle accident.” When they’re ring NRMA again, they don’t get the same person, but they have a story, and everybody has the same story because it follows on from notes to notes and people can track it. I don’t have a relationship, or that person doesn’t have a relationship with NRMA, but I can still get the information done. I sometimes wonder whether we should just have that style of operation within a real estate company where whoever’s in the office, whoever’s there, is dealing with the next job or next task that comes up, rather than dealing with a landlord specifically or a tenant specifically, but understanding the job path.
In doing so, it gives a business an opportunity not just to offer an exceptional service, because property managers and landlords, they’ll chase each other around and there’s a lot of phone tag going on. Because of that, the service levels can easily drop at the same time. I wonder whether or not it’s best if we had a system whereby it’s a flow of activities and whoever’s sitting in front of their laptop at that time takes care of that flow of activity, so that service is quite considerably strong to your landlords and tenants, rather than waiting based on a relationship, which I think can be dangerous to an asset.
04:53 The Investor Climate
The majority of the best investors are a capital gains-based, equity-based people, not rental return. If they’re on rental return, we’d be in trouble nowadays because of the yields that are so low because price increases have been so high,. Although in some parts of Australia, particularly in Perth right now, the vacancy rate this week hit 8.92%, to give you an example. In Victoria, or close to where you are, the vacancy rates were 2.97. In Sydney, they were 1.56. It gives you an example of the issues that investors and property managers face out there in the marketplace.
Most of these landlords, particularly in the Perth market, are having to come backwards in their rental expectations. They’re having to offer tenants more services like, “We’ll mow your lawns once a week for you as part of the rental package,” which I don’t think is a bad thing, because I’ve said to some of my team: if I had a mowing service and I got my landlords to offer a mowing service, which might sound strange, they also get an inspection on a property without having to get an inspection on the property. I know some real estate companies are heading down this path of trying to create a concierge style of service for landlords, that we all may be forced into that environment in any case, just to compete. If you’re ahead of the game right now, you might be able to pick up a bit of extra business.
06:13 Landlords’ Expectations
The landlords’ expectations are certainly changing. There’s a lot of landlords that are going to have vacancy issues right now. I went to see a doctor with my son the other day, and the doctor knows me, and he asked me if I could go into his room. My son was waiting outside and couldn’t work out why I was there. I was there for 15 minutes, and the doctor looked at me and said, “I need to talk to you seriously about something.” I said, “Certainly.” He started talking about real estate, and he wanted to know about investments here, he wanted to know about the DHA and so on.
I tried to explain to him as a doctor, they’ll take the easiest path. You know, ‘go to DHA, I get a rental return’. What they don’t see is what the price of an established home might sell in that area as opposed to a DHA home and the restrictions about not being able to take your property back that easily when you want to. When I spoke to him about his environment and what he’s doing, these people are out there, but they have to have an expectation, as I told him, that unless you go rental guarantee, which means you’re going to pay more for the property, which means you’re going to have restrictions, you need to start heading back towards catering for a tenant, which is something that certainly wasn’t that prominent when I was a property manager back in the ’70s. It was focused on landlords and landlords only.
07:33 Disruption in Property Management
PurpleBricks, there’s been organisations in Australia that have gone down the road of minimal commissions or flat fees, etc, and PurpleBricks is no different. I think that the model…I spoke to our UK people of Century 21, just to get a feel for it. They said, “Look, they might be telling you how great they are when they’re coming to Australia, but they’re not as prominent as they’re saying in the UK.”
A lot of people have worked out that it’s not the cheapest agent that’s the best agent. They’ve worked out that it’s the agent that can get the job done. Sure, there’ll be always people that will go to a cheaper agent. I remember a guy doing my gardening at my house and he’d come over once a week. Somehow, I’m not quite sure what happened, but I was Googling real estate in the area and his address came up. His property was for sale. I walked out and I said, “Roger, I see your property’s for sale with a ‘for sale by owner’-type website.” He said, (Canadian guy), “Yeah, Charlie, I sold it.” I said, “What’d you sell it for, Roger?” He told me and I couldn’t believe it. I said, “If you haven’t signed the contract …” He said, “Oh, I’ve signed it.” I said, “If you can stop it, you need to stop it. You’re $50,000 under what it should be selling for, easily.” These are the risks that people run. From a social media marketing aspect, we haven’t yet begun as an organisation to start promoting ourselves in opposition to these services and start talking about these services for what they really are.
09:00 Acquiring Wentworth Holdings
When I bought Wentworth Holdings, or before I bought Wentworth Holdings, I was asked to run it for them because it was a public company that was in significant decline. They had 11,000 managements. I want you to think about this, just to give you an idea of how poorly…if we think people talk about real estate practitioners running their businesses poorly. We, as an industry, have it all over them compared to some of the corporate worlds out there. They had 11,000 managements with 351 employees. The properties under management, as you can well imagine, per person was probably one-third the industry standard.
When I pulled their financials and overlaid them into my own spreadsheets, 76 and a half cents of every dollar they are earning is going to salaries and commissions. This is a critical part of our industry, is trying to understand that and also trying to make sure that within our industry that we look for key indicators, we look for the cost of advertising over gross, we look for the cost of salaries over gross, we look for the properties under management, we look at the accrued leave in our system. A lot of agents don’t do that.
This organization had over 1400 days of accrued leave plus long service leave. A company like that has a million dollars of exposure, without even knowing it had a million dollars of exposure, let alone all the people it needed to let go. If we don’t keep control of those small but key areas in our business, we’re all going to suffer the same fate. When we’re running a small real estate company and you’ve got 100 managements, it’s hard to get to the next level. You’ve got to maybe hire another person. All of a sudden you’re behind the eight ball. You’ve got to keep on top of that cost of salary over income or the properties under management at that same time. If you’re not doing it on a monthly basis, it gets away from you very, very quickly.
10:50 Recognising Your High Achievers
That’s being totally frank with you. I can say to you we’ve got great training, and we have awards platforms, and we have training events, and we have staff functions. We have all of those things. I don’t know quite what it is, but recently I had a chap that did some great work, so I gave him a bonus at Christmas time. [He] did some more great work so I gave him another bonus. [He] did some fantastic work, and my team said, “You know, you really need to give this guy more money.” I gave him a substantial amount of more money, and three weeks later he resigned because he felt pressure. He felt pressure of all of a sudden earning more money, and he didn’t feel like he was up to the job. I sort of sat back and I thought, “I don’t know which way to go. You don’t pay enough or you pay too much.”
The majority of people in sales and property management, if they had a task list today, a short term objective, and at the end of that day, they had a sense of achievement and you helped them develop that sense of achievement, you’ve got a lot greater chance of keeping them, especially if the environment is not the office space and the way in which you behave towards people, I guess in the rest of the team. I think those things are absolutely critical, but even at the end of the day, it’s still not enough to actually keep people who get tickled with a feather by a recruitment person about how great they are and they’re gone, or they have some problems at home which you’ve got no control over and they’re gone.
12:08 The Landlord / Property Manager Relationship
This is what my biggest concern is. I really do think the relationship process between landlords and property mangers is far too close. I’m only going on experiences that I’ve had. I would really prefer to put a system in place where, again, if you think about this, a lot of property managers, as I mentioned earlier, and landlords play phone tag a lot. They’ll email or they’ll text or they’ll phone and it goes to voicemail. I think if I were a landlord, I’d like to be able to pick up the phone, call an office, ask them what the issue is, let them tap away, say, “We’ve got an inspection coming up this day. You’ll get a report on that. Next time you call, somebody will update you on what it is.” As a landlord, I would prefer that because again, I’d like to know you’ve got a good property manager and so on, that’s great, but at the same time you can still have great property managers working in an environment where it’s controlled by the flow of work that’s required, rather than when an individual is ready to do the work.
Again, as a landlord, a landlord will ring, [or] I’ll ring and I’ll say, “Look, where are the tenants paid up to?” “Look, Charles is not here at the moment. I’ll get him to call you back.” I’ll call back and off we go. We play this game again. If somebody said, “Yes, I can just tell you that right now, it’s this. By the way, there’s an inspection due next week. You’ll get a report,” because if it can be set up that way, and I’m certainly not at that stage, but we’re trialing something that could work that way. I’d prefer to run my property management business that way because honestly when I get my gains and losses spreadsheet and it’s more losses than gains, you look at it and it’s always the same thing. Our property manager’s gone, moved on. Landlord sold, didn’t call us.
13:52 A Viable Business
Obviously from my own acquisition, I find it as a very important role. It’s just very difficult in some areas. In some locations it’s very hard to build a property management business as viable. Sometimes it takes away from the opportunity of listing and selling real estate. If you’re in a small country town or a small region where the investment portfolios are not that great, you’re probably just better off focusing on sales because the downside is if you do build a sizable management, you don’t have very many people to sell it to. That’s the thing I find the most difficult. If you grow your property management to a certain level, you are going to struggle. It’s going to be worth less and less each time you add a property management on as a multiple of a dollar.
In Brighton, for example, is probably two and a half million dollars. The one in Perth is two offices and there’s three million each. I’m not going to find somebody too easily to buy those. That is the biggest problem I have. Growing the management is critical, but taking it too far, which I think I’ve done in most cases, becomes a burden if you’re not careful.
Nice to meet you, guys!