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Cost Allocation and Profitability

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Cost Allocation and Profitability at Hers Realtors Property Management

In the property management business, empty units are lost money. Not only are they lost revenue, they have associated costs with them such as taxes, electricity, and yard upkeep. An empty unit represents a direct allocated cost for that unit. Per customer profitability increases with long term renters. When a renter vacates a property it will sit empty for a minimum of one month or more. Turnaround on units varies and with each passing month the costs allocated to that unit increase. In addition, there are the costs of obtaining a new renter, such as advertising and administrative costs. A unit that sits empty for more months out of the year than it is rented represents a loss position at the end of the year, rather than a revenue generating asset. The longer a unit sits empty, the lower the return on the investment and the lower the performance on the asset. Long term renters are preferable because it increases the overall demand for the units. Keeping tenants happy is the key to customer retention. The goal is to get them to sign another lease term. In the property management business this means responding promptly to service calls, enforcing noise ordinances, and attending to the overall upkeep of the units. When renters are happy, they are more likely to renew their lease when the term is up. They are also more likely to refer others who are looking for housing, building a close knit community of long term residents. Property management companies should keep abreast of the satisfaction level of current customers, as this will help to turn them into long term renters. This means that every unit will be profitable instead of a liability. Long term renters increase the customer profitability and help increase sales growth through referrals. Customer retention is the key to long term...

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