The way real estate agencies are valued is changing like never before, but research shows that most agents are unaware of the changes or the impact they will have on the future value of their agency.
Does this sound like you?
Traditionally, valuations have been based on a somewhat generic model that relies solely on residential rent roll, strata and/or commercial management income multiples and sales revenue, plus a factor for ‘goodwill’.
Depending on which State you’re in, this model is now outdated.
The new emphasis is on profitability derived from business activity.
An agency’s income will naturally be generated from property sales and property management activities. Specifically, it is how the profit is shown in profit and loss accounts that will highlight the agency’s performance.
What impact does this have?
The new emphasis will not only have an impact on the future value of the business, but it will also be the lead factor when sourcing new finance or re-financing existing loan facilities.
One of Australia’s leading banks, for example, requires a minimum net profit margin if it’s funding a real estate agency. Yes, the security of the rent roll provides a high level of commercial collateral and comfort, but not at the expense of now minimum-level net profit margins.
The recently released 2016 Macquarie Bank Residential Real Estate Benchmarking Report is another indication of future trends in the industry. It suggests that the winners with the greatest net profit margins will be those businesses that are profit-driven through a combination of:
- Cost control
- Director revenue and accountability
- Staff management
- Property management
It appears to us, that rent roll values coupled with net profit margins are the new and only way forward.
Never has the accounting term of EBIT – Earnings Before Interest and Tax – been so relevant and important to our industry, and to the future value of your agency.
Quality portfolios are in demand
It’s not surprising that we’re experiencing high levels of demand for quality rent rolls, with buyers targeting specific metropolitan areas and looking for between 100 and 300 managements.
If you have a management portfolio that you would like us to match with one of our buyers contact us to find out more.