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How to Improve Profit Margins

July 21, 2020

Increasing Owner Profit Margin

One of your top priorities for the coming 12 months might be to learn how to improve your client’s profit margins.

That’s because small improvements in the revenue/cost ratio magnify earnings for property owners. And for owners it’s all about earnings.

But where to grow revenue and where to cut costs is the question many property managers and landlords struggle with. With the trends in the industry, we’re all going to have to learn how to improve profit margins.

Reversing the Squeeze on Profit

This pandemic has really put the squeeze on property owners profit margins and overall ROI. And it isn’t easy to fix a sinking profit margin during a recession. But you should certainly try.

This recent stat chart from csimarket.com suggests profit margins sunk considerably during Q1 2020 and operating margins in particular. Q2 might be a more alarming statistic and the outlook for the rest of the year is cloudy.

Profit margins in rental industry. Screenshot courtesy of https://csimarket.com/

One formula suggests that a 5% improvement in profit margins creates a 20% increase in profit. That makes the topic a whole lot more interesting. In fact, in the world of property asset leveraging, profit margin optimization is essential.

What’s Good for Owners Might be Great for You

Assisting your owner clients with the profit margin issue may help you fix your own profit margin and operational woes. Raising rent and service fees won’t fly well in this current environment. You’ll need to review how to grow property rental revenues and how to cut property management costs.

This process will generate better profitability so you can raise your property management fees.

There are key “profit margin growth hacks” which may create the biggest turnarounds in profit margins. Once you find them, you can assess the dollar value more precisely. You might create your own profit margin forecasting models with pivot tables to help you see which items really do affect the bottom line, over many months.

There are tools in your property management software which can aid in this pursuit.  You can go straight through to the profit margin growth hacks.

Profit Margin Hacking

This topic of engineering or even hacking of rental property profit margins is one of the most challenging and complicated. You won’t find property rental margins or property management margins discussed online much.

This means there’s a lot of passivity and fatalism about it, believing that not much can be done, or that monkeying with things might fail. It’s all about intent and imagination, something that’s within your power.

In other blog posts, we’ve touched on how to improve tenant retention, introduce digital amenities, be more efficient and now we want you to focus on profit margins, to raise revenues and lower expenses.

It’s worth it to keep improving your profit margins.

Changes in each of your client’s profit margins are viewable in the financial reporting feature of your property management software — ManageCasa.  Please check ManageCasa out and see how it will be the center of your profit building strategy for 2020, 2021 and beyond. Let’s see more of the margin improving hacks that ManageCasa will help you with.

Your New Emphasis on Profitability

Your property owners will appreciate your new focus on profitability as you hunt for new approaches that will grow better long term results. You’re not promising immediate results of course, but improvements might come sooner than you think. Here’s our list of profit growth hacks.

Despite the Covid outbreaks, social distancing requirements, disease prevention demands, and financial setbacks still coming, it looks like we’re progressing past the Covid 19 profit-crushing recession. The good news is property owners are reporting fewer late payments and more retail tenants are reopening their businesses. For commercial and residential property owners, the business outlook is starting to look better. The expectations of many will get ahead of them.

That means a transition back to profit is in progress. And when your owner/clients see better profit, the sooner they will reward you with better fees and higher operating budgets.

 

Please Do Bookmark and Share this Post on Facebook. It will be updated with new insights and sources.

 

Taking Initiative to Optimize Returns

Are you showing your property owners sufficiently well what you’re doing to grow margins and begin the process to better profit performance in 2021? A quicker return to profitability might be a welcome statistic to them. Creating a system that gets this message across is a big asset to your company — to strengthen your relationship.

Part of that profitability growth may entail new digital services and digital amenities. Simply adopting digital property management accounting, communications and maintenance solutions puts you on a path to digital mastery.

Digital is the biggest property management trend and it’s the most exciting.

Where Can You Grow Owner Revenues?

Where Can you Cut Owners Expenses?

  1. find new mortgage refinancing sources to help with better refinancing terms, lower rates and help with the  tighter lending restrictions from banks
  2. help to lower property taxes and reduce capital gains losses
  3. cut tenant turnover losses and raise occupancy rates
  4. reduce property management fees
  5. cut some services
  6. cut emergency repair/response costs
  7. reduce renovation materials, labor and inspection costs
  8. costs for meeting building codes, inspections and regulatory compliance
  9. automating bookkeeping and accounting
  10. reducing situations requiring paying legal fees

Collaboration with Property Owners

Helping them tackle these big challenges, may keep them from switching to a bigger property management firm with a more full range of services.

By creating a framework of collaboration, owners might reveal their issues and allow you to understand better how to help them. Right now, you might be in the dark yourself. Your property management software platform creates a medium of collaboration. It shouldn’t just a reporting tool, but rather a medium that helps you tack shrinking profit margins and high turnover rates.

And although raising rents is the most popular revenue generation solution, rents might be headed the other way this year and occupancy rates falling (multifamily). So fighting the trends with digital solutions and solid property management services is the right way to go.

How To Raise Profit Margins for Owners

  • keep occupancy rate optimized near 100%: keep renter prospects interested via visibility marketing and build continuous rental leads who are eager to rent suites.
  • advertise vacancies for all properties aggressively: write excellent ads, promote well, and ask current tenants for referrals to let them know their unit is in big demand too, and they’re lucky to be occupying it).
  • set the right rent price:  after forecasting market conditions carefully
  • buy more properties: help owners find more units or properties so you can grow revenue
  • search for better mortgage refinancing sources:  to access super low rates and more flexibility
  • tenant experience management: educate tenants more on how to keep their living situation stable, how to maintain their unit, their lives balanced and healthy, and to manage their personal finances well (a company blog and help section can contribute to positive messaging).
  • use online marketing: to create continuous, persistent renter inquiries and awareness of your rental properties and increase your brand image
  • use digital proptech to increase business efficiency:  — use digital tools to go virtual and reduce paperwork, meetings, and time loss from face to face relations. Young renters love technology.
  • make your online property management platform the center of your property management services: the software is an immediate and constant reminder of your connection to owners. A solution like ManageCasa makes it pleasant, upbeat, and reassuring experience for owners. While other enterprise level property software makes the relationship mechanical, alienating, complex and stressful, ManageCasa focuses on a pleasant user experience. That makes digital property management more desirable to owners and your own staff.
  • introduce a uniquely valuable digital service:   which cannot be acquired in competitor’s rental buildings: (e.g., free wifi , bluetooth touchless entry doors , high speed internet ).
  • increasingly interact and manage tenants via all in one digital communications tools:  (use ManageCasa) to show fairness, professionalism, courtesy and civility, consistency, and to keep spirits up — poor communications and negativity contributes to tenant turnover
  • be an increasingly mobile property manager:  so you can manage more properties in real time and attend to matters in person when it’s most important
  • find a cheaper, smaller company office space: lots of them available, to cut your own costs so you can improve your own fee structure
  • go virtual with contractors:  hire contractors who can manage themselves to delivery reliable, timely service.

2021 is Coming Soon

2020 might well be the year of the year of cutting expenses while 2021 will be the year of rapid growth.  But will property managers and owners have created a good profit margin? We hope these hacks might help you optimize your pivotal profit margin so you can accelerate owner’s ROI.

You should be a source of strength and knowledge for your struggling clients. It’s something they won’t forget.

 

Take a Demo of the ManageCasa Platform. It’s a great way to learn all the ways it can help grow your profit margins.

 

Additional Resources:

activerenter.com/rent-it-blog/51-ways-increase-your-rental-property-cashflow

son-rise.net/top-7-factors-that-affect-the-profitability-of-rental-properties/

ny.curbed.com/2019/4/5/18295708/nyc-rent-stabilization-guidelines-board-affordable-housing

smartland.com/blog/how-to-enhance-your-real-estate-investment-profit-margins/

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