South Africa

PayProp Masterclass shows agents how to survive sales market storms with annuity rental income

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Estate agents did a lot of soul-searching in 2023 as property sales slumped. Almost 1 in 5 owners considered selling their agencies, according to PayProp’s yearly State of the Rental Industry survey – more than twice as many as in 2022. But would that be jumping the gun?

“I spent a lot of time thinking about innovative ways of injecting stability in a tough industry,” says Andre Van Rooyen, Head of Sales at PayProp South Africa and an award-winning former estate agent. “And the answer is building annuity income, stable income in your business. Building a managed rental book should be a big priority.”

In April’s PayProp Masterclass Series presentation, he shared his top strategies for managed rental growth with an audience of more than 300 property practitioners – and showed how agencies of any size can put the plan into action.

“The question I often get is, am I able to compete in the market because I have a smaller book?” said Van Rooyen. “And the answer to that is yes. I’m very happy to say that at our recent PayProp Awards ceremony, the smaller books saw some great growth. Don’t be intimidated by bigger competitors – you’re still able to build from a low base.”

Make the most of your existing book

The first place to look when signing new managed rentals is among your existing placement-only mandates. The State of the Rental Industry report revealed that a lot of agencies have significant room for growth on this score: 17% of agencies had 50% or more of their landlords as placement-only, and according to Van Rooyen, they’re missing out on low-hanging fruit.

“If you are able to get the mandate to do a placement, and if you are able to place the tenant, it should be a very easy sell for you to get the managed rental as well,” he said. “There’s a very simple test: if you walk into your office and you find agents cold calling, ask that agent if they can upsell your managed rental service. Empower your agents to also sell your managed rental services.”

Building your rental service to sell

Van Rooyen advises agencies to support their rental agents by developing services and marketing materials to convert placements into managed rentals. As he points out, they already know all about presenting to prospective clients on the property sales side of the business, and can apply the same skills to growing their rental books.

At the moment there’s still room for improvement in this regard. In the State of the Rental Industry report, almost half of agents said that they didn’t have a tailor-made sales presentation for negotiating rental mandates, and fewer than 1 in 3 have a specific budget for growing their managed rental book.

Additionally, Van Rooyen says that agencies can tailor the services they offer to make full management more appealing for landlords. This could mean tiered rental management services at different rates instead of a one-size-fits-all approach, or adapting a vanilla management service to meet the needs of the local market.

Pricing is a smart counter-punch to a race to the bottom

One major obstacle to the growth of managed rentals is that they’re traditionally seen as a cost centre, not a source of annuity income. As a result, many agencies haven’t put much thought into their managed rental pricing structure.

“How did we decide as an industry that we should charge a flat rate of 10% management commission?” asks Van Rooyen. “I don’t think we’ve really thought about our pricing as managed rental agents because we haven’t realised how big of an impact it’s going to have on our businesses.”

Or indeed the value to landlords.

Almost all agencies charge a procurement fee, but less than half charge for incoming and outgoing inspections according to Van Rooyen, despite the considerable time and effort (and peace of mind) that comes with ensuring a rental property is fit for purpose. Van Rooyen adds that agencies should be charging tenants an application fee to cover the cost of credit checks – only about two thirds do this at the moment.

But the biggest area of confusion for agents is monthly administration fees, billed to tenants. These are rare, and often mistakenly thought to be illegal: 36% of PayProp Masterclass attendees thought they couldn’t charge them.  

In fact, says Van Rooyen, administration fees are completely above board as long as they are included in the lease agreement. Agencies that include it in their fee structure typically charge R80 to R120 per tenant per month, although he points out that agents should always set a fee that’s appropriate for the rental amount. “If your average monthly rental is about R4 500, you don’t want to charge R100 in monthly fees. You want to charge about R40, R50.”

Secure your agency’s future

Sales market conditions are shaping up to be better in 2024 than they were in 2023, but meanwhile Van Rooyen says it’s the perfect time to grow your rental business. “If you have that managed rental book sustaining your business, when tough times come again – and we know they will – you won’t be desperate. And if you’re coming to the end of your career and want to sell, the asset you’re really selling, that keeps on giving, is your managed rental book.”

He sets out three questions for agencies. “Is your rental budget sufficient for the level of growth you want to achieve? Are your agents and agency focused enough to achieve your growth targets? How can you diversify or adapt the services you offer to change placements into managed rentals? The answers you come up with will set your business up for success in managed rentals.”

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