As with any business growing beyond the start-up phase, once a property portfolio gets to a certain size, it can become too difficult for all but the most dedicated self-manager to manage alone.
In this blog post, I look at the different models landlords can use to manage their portfolios as they expand, in a way that achieves economies of scale and without unnecessary complexity.
At a glance
Getting organised to manage a rental portfolio
The private rented sector in England is highly regulated. There are lots of bits of paper that landlords need to get, issue to renters and renew when the time come. Other bits of paper need to be signed and kept securely. It can be easy for landlords to get in a muddle and lose things if they’re doing it themselves.
Although it’s possible to search through emails to find documents for two or three properties, beyond this point, some sort of structured filing system is necessary.
Unfortunately, paperwork is not something that reduces as a property portfolio grows. The more properties a landlord has, the easier it can be to accidentally overlook a safety check or ‘mislay’ an important documents.
The bigger the portfolio, the less likely it is that the landlord will remember when the EICRs are due for renewal. This means that the landlord or someone working for them needs to get properly organised.
1. Filing systems
In the old days, there would have been hard copies in a filing cabinet somewhere. Nowadays, it’s easy to save things in electronic filing systems such as Microsoft OneDrive, Google Drive or iCloud. These are useful as they allow document sharing and retrieval from different devices, and across teams.
Many letting agents and larger landlords now use property management software. This enables them to save the key certificates and documents in the cloud, for them to receive automatic reminders, without hassle.
2. Management information
As a portfolio grows, the back of an envelope quick calculation or even spreadsheets can become inadequate or too time-consuming.
Landlords need management information to track profitability, cash flow and rent arrears, or reporting to investors. Unless the landlord is a financial whizz with enough time and inclination to do it, it’s likely they’ll need something or someone to help monitor income and expenditure, profit and loss across their portfolio.
3. Systems and processes
Managing a growing property portfolio is the same as managing any business. Sooner or later it will make sense to introduce systems and standard operating procedures.
The question is, which approach is best way to go about embedding new processes. The answer will vary according to the experience, preferences and available time of the landlord.
Skills gap analysis
When expanding any business, it’s important to understand what activities it need to be performed and what skills are needed to perform these activities.
1. Categorise activities
I discussed the issue of scaling up with Kim Opszala of Komo Properties, who has 40 tenants in 3 single lets and 7 HMOs. Kim explained that, in broad terms, managing a rental portfolio involves two different types of activities:
Activities which require a physical presence
These are the sorts of activities require someone there on the ground, and cannot be done remotely.
Certain activities involve in-person interactions with renters. For instance carrying out in-person viewings, manual checking of right to rent documents, renter check ins and check outs, and meter readings. Others involve property inspections, managing repairs and refurbishments and providing keys to inventory clerks and trades when the property is empty.
Finally, there are the tasks that are usually outsourced to appropriate trades people, including minor repairs, larger repairs, gas safety certificates, boiler servicing, electrical problems, EICRs. Some landlords who are trades people might do some of these tasks themselves.
These tasks are traditionally done by letting agents or landlords themselves, who appoint the various trades for specific skilled tasks, unless the landlord is a trades person.
Activities which can be done remotely
There are many activities that can be done remotely. They fall into the broad categories of tenant management, general property administration, financial analysis and management, sourcing and general administration.
Letting agents do the vast majority of tasks remotely when they manage a property. They rarely visit the properties themselves, apart from the yearly inspections, and otherwise only visit the property when doing viewings for new tenants.
Others (like myself) are happy to do all of these tasks themselves. However, there can come a point when these tasks become too much for a self-managing landlord.
2. Who should do what?
When scaling up a property portfolio, each landlord should make a list of all the tasks that they, and other people do.
The next stage is to figure out where landlords add value personally, and what time is available. For example, it may be sourcing deals, financial analyses, managing refurbs, dealing with tenants, managing the trades. It comes down to thinking about which tasks are best for their skill set.
After making the “retained tasks” list, there will be everything else, ie things that someone else needs to do. Then comes the stage of working out the most efficient way of outsourcing them, keeping an eye on cost. This is the gap analysis.
3. Try to maximise economies of scale
When businesses expand, they usually benefit from what is called “economies of scale”. This is where the average cost of production, services or management reduces, which increases profits. In other words, there’s a higher net income per property, because the “management” costs per property decrease with scale.
In deciding who does what, landlords should look for opportunities to save costs, whilst retaining control, to benefit from economies of scale.
4. Think about opportunity costs
Do remember the opportunity cost of your own time. What this means is that when you are doing Task A, you are not doing Tasks B and C. This has a cost.
This cost is the value of what you lose when choosing one or more activities. You should choose the ones where you add the most value, and stop doing things where your time is more valuable than the cost of paying someone else.
No-one can do everything when it comes to property management. In deciding which activities to focus on yourself, focus the tasks where you personally add the most value. These will be the tasks which will cost you more in real terms by outsourcing.
If you’re a general builder, maybe that’s continuing with the hands on building activities. If you’re a lawyer or an accountant, there’ll be activities that you’ll naturally gravitate to.
5. Finalise your list of activities
The final stage of the gap analysis is to divide the list of the activities into those you want to do yourself, and those you want to outsource. Out of the tasks you wish to outsource, you should separate them into “remote tasks” and “in person tasks”.
Then you’re ready to think about who you can do which activities.
Four management models for a rental portfolio
There are four key ways to manage a rental portfolio. None of them are “the right answer” for everyone, as we all have different needs and priorities.
I’ll now go through the pros and cons of each for the landlord with a growing property portfolio.
1. Continue self-managing
According to the English Landlord Survey 2022, only 18% use an agent for management services, with most of the rest self-managing.
For many landlords, self-managing works well for them, as they have the time and desire to do it all themselves. Self-managing undeniably increases profitability, at least before taking into account the opportunity cost of the landlord’s time.
Self-management is easiest when landlords have properties close to where they live. They also need a network of reliable trades people they can call on for the inevitable maintenance and repairs. Here’s a guide with other practical tips on how to self-manage successfully.
However, the more properties a landlord has, the harder it becomes. Recently refurbished single lets with good long-term renters might not be so bad. However, if there’s a constant turnover of renters, or if the properties are HMOs, it becomes much more challenging.
Jane Scroggs, who runs specialist agency of property virtual assistants called Beam, sees many landlords becoming overwhelmed when their property portfolios grow. They may feel distracted with multiple WhatsApp groups for their renters. Often they don’t get around to filing important documents electronically, or making a calendar note for when gas safety certificates are due.
Jane advises that the secret to succeeding at self-management of larger portfolios, is being well organised. This means putting in place processes and systems, and perhaps using property management software.
2. Outsource to agents
Letting agents are usually the first port of call for new landlords on their first property or two. They may still be on the steep learning curve about landlord responsibilities and not have the confidence to self-manage (click here for a landlord guide). Alternatively, self-management might not be practical for them because of time constraints, or physical location.
Great managing agents can make a landlord’s life easy – nearing the passive income that so many property gurus talk about. However, many landlords don’t have good experiences wit agents. This is a particular problem when agents have a high turnover of staff, and poor service levels. For landlords who do want to continue using agents, this blog post has about how to get the best out of managing agents.
However, the problem with using agents is that landlords with larger portfolios won’t be able to benefit from economies of scale. This is because agents charge fees that are a percentage of gross rents. Consequently, management costs won’t reduce as a percentage of rental income as the portfolio grows.
Even if a landlord negotiates a lower percentage of gross rents, say 10% instead of 15% inc VAT, no economies will come from scale. Each new property will add the same x% of the gross rent to the expenses line.
3. Hybrid model
It is dissatisfaction with the service levels from managing agents, and a realisation that self-management is difficult at scale, that lead many landlords to adopt a hybrid model.
With a hybrid model, the landlord appoints a virtual assistant to carry out the “remote tasks” that they don’t want to do. For tasks which someone needs to do in person, the landlord can use a contract property manager.
This hybrid model falls short of directly employing a team, but gives a similar level of flexibility to the landlord. Also, crucially, it gives economies of scale as the costs are not a percentage of the gross rents.
Virtual assistants
Over the last few years, property management virtual assistants have become popular with landlords with larger portfolios. VAs can provide a wide range of administrative and business support. This includes most if not all of the tasks letting agents do where someone doesn’t need to be physically present.
Agencies such as Beam employ fully-trained UK-based VAs with experience in property management, to provide services to landlords. Jane Scroggs, the founder of Beam, says that it works particularly well for portfolios with at least 20 tenants.
Jane recommends having a VA for 12 hours a month, an average of about 30 minutes a working day, to manage a portfolio of, say, 20-25 renters. The particular tasks will vary, but can include checking the property management system or WhatsApp groups for new repair requests every day, dealing with renter onboarding and producing management information.
Kim Opszala uses VAs who are based overseas to provide her with business support. Once the initial training is out of the way, it works very well for her, and it’s considerably less expensive than UK-based VAs.
Kim has produced a list of 50 tasks that landlords can outsource to a virtual assistant. They range from social media management and personal assistant tasks, to tenant management, financing management and property administration. (You can click here to download the full list if you’re interested in finding out more.) Kim also offers mentoring to people looking to scale their HMP portfolios.
One of the best things about VAs is that they enable landlords to benefit from economies of scale with an expanding portfolio. Adding an extra property won’t have a big impact on the monthly cost of a VA. However, with agents, the cost will go up by 10-15% of the gross rent, depending on the fee.
Jane Scroggs provides examples on the Beam website of the cost savings from using a VA over a letting agent. Taking an HMO portfolio of 25 rooms, with a gross rental income of £195,000 (an average of £650 per room), the potential saving is more than £15,500. Jane bases this on management fees of 12% (£23,000+), compared to the cost of a VA of around £7,500.
Having a VA isn’t a totally hands off experience for a landlord as they still require management, particularly if based abroad. But setting up standard operation procedures and templates for management reports can make this easier.
Contracted property managers
One issue with VAs is that they are remote, and aren’t able to attend the properties themselves.
Whereas a list of trusted trades people can go and do specific jobs, sometimes a property might need visiting. For instance, to check in a new tenant or carry out a property inspection.
A popular alternative to letting agents is to use a specialist contract service provider like Viewber. They can provide a DBS-checked property professionals (who they call Viewbers) to provide a wide range of property services from viewings and inspections to supplying and fitting a key safe on a fee per job basis. It’s a great service as it turns a fixed cost into a variable cost as you only pay for the property management services you actually use.
Viewber is particularly useful as a back up for self-managing landlords, who would ordinarily do the property management themselves, but can call on Viewber if they can’t get to the property for any reason.
If you’d like to find out more about Viewber, you can click this affiliate link here, and also help support this free blog at the same time.
4. Establish in-house team
There comes a point when portfolios get so large it makes sense to have employees on the books full or part-time, instead of contractors. Many start with a property manager and a DIY person.
Being an employer is a big step, with national insurance and PAYE to contend with, but it makes sense for many landlords. Kim Opszala of Komo Properties has recently employed a part-time property manager.
Some managing agents, like Acom Property originally grew from a landlord wanting to employ people directly, and had the capacity to manage properties for other people.
Final thoughts
There are so many different ways to manage a property portfolio, other than using agents.
The use of technology enables landlords to easily contract out many of the tasks they don’t want to do. This frees up time for them to spend on things that add more value. From deal sourcing, to taking time away from the business!
Please let me know what you think in the comments.
