The rental markets in the US, Canada, Australia, Germany and the UK are doing well in 2020. The demand for rental units arises from demographic changes, strong economies, and a persistent housing shortage. That’s working well for rental property investors.
If you’re an accidental landlord or an investor in a few rental properties, you might wonder where all this forecasted profit is. If so, you may have to adjust your property management business model a little. This will open you up to greater “value added” revenue while cutting costs of ownership and management.
Look at property management a new way and you’ll begin finding profitability.
Why Is My Rental Property Profit so Low?
Landlords in California, London, and even Berlin struggle to grow their rental earnings because their cap rates were so high to begin with. They bought a few high priced properties. While chargeable rents are high too, the ratio of buying price to rent was too low.
Low cap rates, especially in California, with all of your rental property investment money tied up in only a few properties, means your upside revenue is limited. In particular, with new rent control legislation sweeping regions making it tough to raise rent, you can’t just raise the rent to cover costs or profit goals.
There’s a couple of solutions for the issue.
One is to sell your high priced properties and then reinvest in cities or states which have high rent growth, high population growth, excellent and improving economies, and where building is occuring. Builders only build when there is certainty in success and if they are building, there will be rental apartment investment opportunities.
Too many investors get tunnel vision when looking at opportunities. They muddle with problematic properties, complaining in investment blogs and forums about persistent friction with contractors and tenants. That leads to poor communication, evictions, vacancies, poor work quality and rising costs.
The other solution is to use technology and automation to streamline services, lower costs while providing new value added services.
Big Picture Business Model Fix
- number one tip: invest in lower priced properties within up and coming cities in low tax states.
- number two tip: adopt property accounting automation software hosted on the cloud
- number three tip: use property management platform for self-service help feature for tenants
The three changes to your business model then are to own higher performing properties, use property management software to drastically lower costs, and provide tenants with instant help and other desired services.
Property Management Software on the Cloud
The cloud is a complex IT solution. However, think of it as a low cost way to rent supercomputers, unlimited bandwidth, eliminate IT costs, raise security, and open your business to a range of much desired value added services.
Today’s Millennial aged renters want instant response, speed, simplicity and digital services. Legacy applications offer none of that. This new wave of cloud based software allows you to offer value added services which you can charge a premium for (storage, wifi, high speed bandwidth, gyms, laundry, entertainment, and more). You see these extra services integrated within landlord and property management apps.
Apps are a hot area of business development for these software companies. The focus now is not just renting out an empty apartment, but rather on fulfilling renters’ wish for their ideal lifestyle. It’s the lifestyle they’re wanting and buying.
Rental Management Software
The property management software sector is booming and you’ll find a number of solutions at various price points. Here’s just a few to check out and demo:
ManageCasa Property Management Software – ManageCasa is used by landlord and property managers across the world. The software’s strength is user simplicity and powerful accounting functionality. It is the only software with full multilanguage support which is important in today’s multicultural rental world.
Cozy.co Rental Software – Cozy’s solution helps you collect rent online from your tenants. You can estimate rent, advertise your listing or screen your renter applicants.
Buildium – Buildium, one of the first property management software applications that allowed property managers to host their own software. Through growth they’ve come to focus on enterprise, large volume apartment buildings.
Appfolio – Appfolio’s new service focuses on large scale enterprises just like Buildium. It offers all the bells and whistle, however may be too complex and unwieldy for SMB rental property owners who need simplicity.
Rentmanager – Rentmanager comes as a stand alone product for those old school managers who like to control their applications and who have the IT help to configure and manage it. It provides work order management, bookkeeping, and online portal tools.
RentecDirect – This software is designed for do it yourself landlords. It offers online rent payment, mobile apps, tenant accounting, and help to market apartment vacancies.
TenantFile – Tenantfile is another DIY landlord solution. The firm works hard to keep their product updated and competitive. You can install the software at home or the office. The program produces point and click reports, backup and an interesting increase rent feature.
What Must You have in Rental Management Software?
Software is complex today, and your rental property management software needs to be managed by the software provider. You don’t want IT costs and upgrade and compatibility headaches. Hosting it yourself and taking days to learn intricacies of a complex interface may discourage you.
Some of these software developers have products that handle everything. You subscribe to the service on a monthly or yearly basis and you have no technical headaches and services are integrated. Some have real, live tech help reps ready to assist if you have questions.
Being hosted on the cloud creates lower cost, value added services, and mobile device functionality.
Look for a solution which provides:
- a free demo and free trial period so you can test it out
- help with migrating your data to their system
- low monthly subscription service which doesn’t rise precipitously with more units
- double entry accounting functionality
- online payment
- a tenant portal
Good luck in finding the right rental management solution for your business. Some of these solutions may help you evolve your business model. Hopefully, when you reorganize your investments, you’ll have many more apartments, and benefit fully from technology and rental automation software.