Should I consider buying a rent roll or starting from scratch? I get asked this question all the time. Let’s look at the facts to help guide this decision.
If you are considering buying a rent roll, chances are you currently have or have had, the support of a franchise network or strong independent agency. You have done your time, gained your experience and are looking for your next career challenge. The time has come where you are looking to branch off on your own for the first time. To spread your wings and test the waters as an independent. Just like when we let our young out the door or hand over those Learner plates, it can be scary. And a real challenge.
Add the challenge of buying a rent roll into the mix and it could spell disaster.
Starting an Agency From Scratch
If you’re starting from scratch then you need to acknowledge some realistic expectations. In reality, it’s going to take you approximately 12-24 months to start paying yourself a proper wage. Yep, You read that right. It takes time to build momentum, for the cash flow to start coming in and to pay a wage from it. Many new businesses fail to make this realisation and is one of the underlying reasons many businesses in their first year fail. For lack of planning. You need to make sure that you are able to survive this initial period with decent savings behind you.
Buying a Rent Roll
On the flip side, I don’t recommend buying a rent roll straight off the bat. Especially if you’re just starting out on your own for the first time.
I always tell agents to start organically. Build up your portfolio and establish yourself. Build rapport with your Owners and establish your brand. This is your first priority.
One of the main reasons I prefer agents to start from scratch is it allows you to create your own systems and processes. You have the time and ability to set up your own inner workings before bringing in a bunch of managements at once. Going from 0 – 50 managements in one hit, you can (and will) become easily overwhelmed. Your situation will become chaotic and your time management will fly out the door. Suddenly you’re not meeting client expectations. Before you know it, unhappy managements are walking out the door. Managements you have paid for. Not a good scenario.
Additionally, being new to the market and without any rent roll ownership experience may be viewed as a risk in itself by a potential vendor. An agent looking to sell their rent roll will consider the prior experience of all buyers when deciding who best suits their Landlord profiles. After all, they want to guarantee a successful sale. If a seller is tossing up between an established agency and someone starting from scratch, chances are, they will choose the established agency every time. A solid history of rent roll experience will help with management retention after settlement. This is what vendors will be looking out for.
Consider your Upfront Costs of Buying a Rent Roll
As any good accountant will tell you, be prepared for the sudden increase in costs when buying a rent roll. Consider the cost of the purchase and your outgoings to keep this portfolio running smoothly. You need a decent amount of properties behind you to continue paying the bills and meet your financial obligations such as payroll, BAS, insurance and licensing.
Our Final Word of Advice
Like so many who have come before us, our advice is to crawl before you walk and walk before you run. Sure, rent roll ownership and working for yourself is a highly attractive prospect. It does have its perks. However, it’s better to first grow organically before you spread your wings. Take the time to plan properly to avoid costly mistakes. Be a success story rather than an epic fail due to poor planning and setting your sights too large from the outset. All good things take time, and buying a rent roll is no different.
If you would like to have a free confidential 15 minute chat about your future rent roll plans then contact us.
Jane Morgan is the Director of End of Month Angels, a consultancy firm specialising in Trust Accounting. Jane knows the legislative requirements of running a successful Real Estate office through her 23 years’ industry experience. Don’t trust just anyone with your trust accounting. Book an appointment with an End of Month Angel today.