There are so many stories where rent roll purchases go wrong, yet when successful the process of purchasing a rent roll is a way to increasing revenue and profit. Katharine Ettenhofer looks at factors to take into consideration if you are thinking about adding to your property management business.
The pros for purchasing a rent roll outweigh the cons. By studying your business strategy and growth plans, the reasons for buying are simple. It could remove a competitor from your marketplace, position you within a new market, build on your core rent roll to assist with accelerating your growth or could even be a booster to your sales department in some instances. The list goes on and on. Every transaction has a different reason or purpose and this is what creates the opportunity to a business owner.
But for those of you that have been there and done that a typical attitude in hindsight will be one of two possibilities: either ‘Never again – it was a total disaster’ or ‘It was brilliant and assisted our business to achieve goals we could not have reached by organic measures in the time frame we set.’
Purchasing a rent roll can ultimately set the benchmark for your business to grow continually by both organic and acquired mediums, increasing your revenue streams while achieving a higher market share.
However, the horror stories cover factors such as losing 25 per cent (if not more) of managements purchased and problems with staff retention or loss of staff, leaving the business with gaping holes. This can ultimately lead to more clients exiting rapidly and tarnishing your brand’s reputation.
There are also times where existing managements have suffered as the attention is deflected onto the new clients and the acquisition becomes the main focus. The company vision becomes blurred towards their previous client database and they recognise that a shift has impacted the service levels that they once had. The only reason that we have so many horror stories within our industry is due to ill-conceived integration plans, or lack thereof, which are often handled by agents who are not experienced with mergers and acquisitions.
I am frequently asked why you would buy a rent roll, as many real estate business owners often wonder how they can translate the addition into a revenue-raising success. My response to this is if you have a definitive strategic integration plan, why wouldn’t you?
EXPERIENCE MAKES THE DIFFERENCE
Buying and selling a rent roll in the world that we live in today is lucrative and fast paced. Whether you are selling your rent roll or making a purchase for the first time, it is critical that you have a team who can advise and support you throughout the process that has done it before. As with so many things, if you lack the skill set and knowledge around mergers and acquisitions, one mistake or bad advice can potentially become a very costly learning curve for all parties involved.
When looking at making a purchase, it is important to fact find first. Like most decisions in your business and in life, you need to understand what your limits are.
Remove the emotion and make the decision based on the facts and figures that are in front of you, while aligning the outcome to your strategic business plan.
Mistakes can be made when you become commercially excited and forget about your finance requirements, capacity on lending and how this relates back to a successful profit and loss, and any additional running costs associated with the acquisition. Alternative areas where mistakes have been made by business owners in the past can include your team infrastructure, technology platforms and even your retail space needing consideration to optimise the overall outcome.
The unknown of an acquisition can be a daunting and dangerous territory if you do not have clear and accurate advice. It is also imperative to recognise and understand the parameters of the vendor’s expectations and how the purchaser is to achieve the desired outcome. Having a clear and precise vision and a foolproof contract are all key contributors that will lead to the desired outcome.
I often dig deeper with the business owners who have had a negative experience, as it fascinates me what went wrong. After speaking to principals who admitted that they would not make another rent roll purchase, the reason is very clear. They either did not have the knowledge or the correct formula to assist them throughout the transaction or lacked the preparation required to take on the purchased managements in a logical and seamless transition.
Timing, as always, is also key and must be considered when looking at making a rent roll purchase.
PLAN AND PREPARE
A successful rent roll acquisition must have the foundation to succeed before you start. The strategy as to why is already known when looking to make a purchase; however, it is the execution plan upon finding the rent roll that is where the true journey begins.
Treat it like signing up a new property management listing or sales listing. The checklist and preparation still applies; it is your ‘tool kit’ that will make the adventure of buying a rent roll seem effortless and lead to a successful transition between vendor and purchaser, whilst protecting all parties throughout the process and retention periods.
The same rule applies to merging an existing business into another business or vice versa. The importance of communication with all parties is critical and, most of all, remember: If you are integrating teams, they need to be involved leading up to the settlement of the rent roll and made to feel welcome ahead of time.
We all know that staff are the most valuable tool in any business and, when it comes to integrating the newly purchased acquisition, the rule must still apply.
WHAT YOUR TOOL KIT NEEDS TO INCLUDE
There are five topics that should be included in what I like to refer to as a ‘mud map’. This is to ensure the planning begins in the correct way. The important rules of rent rolls being sold and purchased are to avoid miscommunication while negotiating and create the foundation piece before you begin. By following the rules of engagement around buying and selling, you will ultimately remove any additional stresses and know ahead of time of any gaps or issues that need to be accounted for or rectified leading up to settlement and throughout the retention period.
Like anything else, education, execution and delivery of the terms will ultimately assist you with optimising the process in a streamlined and organised manner.
The tool kit should include:
- Critical importance – Around the sales advice and contractual terms
- Due Diligence – What this is, why you need it and how to leverage the information throughout the course of the purchase
- Pre-settlement – What this looks like, how it should be run and expectations around pre-settlement to settlement
- Compliance – What makes a file compliant vs. being non-compliant
- Settlement – What to expect and how to cover off any additional legislative requirements
While the tools of the trade vary, the formula does not. If you follow the general rule and process, your experience and outcome will lead you along the path of a successful transition and leave you with the knowledge of how to make future purchases with ease and confidence.