Expanding Your Real Estate Business into Property Management
For many real estate professionals in New Zealand, property management represents an attractive opportunity to diversify their business and create a steady income stream. As the rental market continues to grow, particularly in urban centres like Auckland and Wellington, expanding into property management can be a strategic move for real estate agencies looking to broaden their service offerings. This article explores the benefits, challenges, and key considerations for real estate businesses considering a move into property management.
The Current State of Property Management in New Zealand
Before diving into the expansion process, it’s crucial to understand the current landscape of property management in Aotearoa. According to the Ministry of Housing and Urban Development, approximately 34% of New Zealand households rent their homes, with this percentage rising to over 40% in major cities like Auckland.
The Residential Tenancies Act 1986, which underwent significant amendments in 2020, governs the relationship between landlords and tenants. These changes have increased the complexity of property management, making professional services more valuable to property owners.
Benefits of Expanding into Property Management
1. Steady Income Stream
Unlike the often cyclical nature of real estate sales, property management provides a consistent monthly income through management fees. This can help stabilise cash flow during slower sales periods.
2. Client Base Expansion
Property management allows you to build relationships with both property owners and tenants, potentially leading to future sales opportunities.
3. Increased Market Knowledge
Managing properties gives you insights into rental trends, property values, and neighbourhood dynamics, which can be valuable for your sales business.
4. Diversification of Services
Offering property management services can make your agency more attractive to investors looking for a one-stop-shop for their property needs.
Challenges to Consider
1. Regulatory Compliance
Property managers must navigate complex regulations, including the Residential Tenancies Act, Healthy Homes Standards, and local council requirements. Staying compliant requires ongoing education and diligence.
2. 24/7 Responsibility
Property management often involves after-hours emergencies and tenant issues, requiring a commitment to round-the-clock availability.
3. Financial Management
Handling trust accounts, rent collection, and financial reporting requires robust systems and processes to ensure accuracy and compliance.
4. Tenant Relations
Managing tenant relationships can be challenging and requires excellent communication and conflict resolution skills.
Key Steps for Expanding into Property Management
1. Education and Certification
While there’s currently no mandatory qualification for property managers in New Zealand, industry bodies like the Real Estate Institute of New Zealand (REINZ) offer property management courses. These can provide valuable knowledge and credibility.
2. Develop Systems and Processes
Efficient property management requires robust systems for rent collection, maintenance requests, inspections, and financial reporting. Consider investing in property management software to streamline operations.
3. Build a Team
As your property management portfolio grows, you’ll need dedicated staff. This might include property managers, maintenance coordinators, and administrative support.
4. Understand Legal Requirements
Familiarise yourself with the Residential Tenancies Act and other relevant legislation. Consider engaging a lawyer specialising in property law to review your contracts and processes.
5. Marketing Your Services
Develop a marketing strategy to promote your property management services. This might include targeting existing clients, local property investors, and online marketing campaigns.
6. Join Industry Associations
Organisations like the Independent Property Managers Association (IPMA) provide valuable resources, networking opportunities, and advocacy for the property management industry.
Case Study: Ray White New Zealand
Ray White, one of New Zealand’s largest real estate groups, has successfully integrated property management into its business model. The company manages over 18,000 properties across the country, demonstrating the potential scale of property management operations.
Carey Smith, Chief Executive of Ray White New Zealand, emphasises the importance of property management in their business: “Property management provides a stable income stream and helps us build long-term relationships with property investors. It’s an essential part of our full-service offering.”
Financial Considerations
When expanding into property management, it’s important to consider the financial implications:
Setup Costs
Initial costs may include:
- Property management software
- Marketing materials
- Additional office space and equipment
- Staff training and recruitment
Revenue Potential
Property management fees in New Zealand typically range from 7% to 10% of the weekly rent, plus GST. Additional fees may be charged for services like letting fees (where permitted), inspection reports, and tribunal attendance.
Operational Costs
Ongoing costs to consider include:
- Staff salaries
- Software subscriptions
- Vehicle expenses for property inspections
- Professional indemnity insurance
Conclusion
Expanding your real estate business into property management can offer significant benefits, including a steady income stream and increased market presence. However, it’s a decision that requires careful consideration and planning.
The New Zealand property management landscape is evolving, with increasing regulation and professionalisation of the industry. This presents both challenges and opportunities for real estate businesses looking to diversify.
By investing in education, developing robust systems, and building a dedicated team, real estate agencies can successfully integrate property management into their service offerings. This expansion not only provides additional revenue streams but also positions the business as a comprehensive property services provider in the competitive New Zealand market.
Remember, success in property management relies on building trust with both property owners and tenants. By focusing on delivering excellent service and staying abreast of industry developments, real estate businesses can create a thriving property management division that complements and enhances their existing operations.
As you consider this expansion, it’s advisable to consult with industry experts, legal professionals, and perhaps even successful property management businesses to gain insights into best practices and potential pitfalls. With careful planning and execution, property management can become a valuable addition to your real estate business, setting you up for long-term success in New Zealand’s dynamic property market.