(Small Project South Side of Brisbane)
Apart from operation inexperience leading to conflict between the owners’ committee and the property managers, a risk factor is gradual loss of lease income due to high transaction volume in the property market. If the new owner is an owner occupier instead of an investor, a loss would be incurred.
Side note: Occupancy rates on the other hand, are constantly above 95% and should be close to 99%-100% (just Google Brisbane rental market). It’s not a risk.
How does a manager mitigate losses due to loss in the letting pool?
Strictly speaking, the on-site manager is in charge of the upkeep, maintenance, security and leasing for the units within the business. A good manager should be constantly keeping in touch with the owners via monthly newsletters / updates or online group messaging applications to build trust and keep owners informed on the premises. If a manager is competent and trust has been built, it should be quite organic that the manager is also the property agent to represent the seller when the time comes for an exit.
Not only then does the manager have control of who to sell the property to (choosing investor profile instead of owner occupier) but they can also reap the commissions from the transaction and also keep/gain another client in the leasing pool in the process.
Allowing the manager to have enough capacity to engage owners and acquire new prospects is critical to improving ROI and mitigating risk associated to loss in leasing pool.
P.S. in addition to operations expertise, if an investor can access projects with high caretaking income ratio (fixed guaranteed income that increases with inflation) and negotiate a fair purchase price then letting pool loss is mitigated from the initial point of purchase. At APM we have devised our own in-house ratios and analysis methodologies to compare projects and their value with respect to the proportion of the income derived from the management fees as opposed to the leasing fees.
Large projects with the majority of income derived from management fees are highly sought after and usually sold off market.
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