Operational efficiency has always directly impacted the bottom line of real estate GPs. Given the current market conditions, this impact is now more tangible than ever.
This article will offer expert tips and insights on how GPs can increase operational efficiency.
Let’s dive right into it.
1. Bring some functions in-house
Outsourcing has its advantages, but in certain circumstances, bringing some functions in-house makes more sense in terms of operational efficiency.
For example, one function that can lead to clear operational efficiencies and noticeable savings when brought in-house is property management.
Property owners can expect to pay their third-party property managers 8-12% of the monthly rental value (plus additional fees), which certainly adds up. In terms of market size, property owners dish out almost $100 billion to property managers every year.
When does it make sense to bring your property management in-house? We can offer some main considerations that can help you answer this question:
- How content are you with your property management?
- Does your long-term property holding strategy support the investment in an in-house team?
- Can you afford the time it takes to transition and train your in-house staff?
- Can you bring in quality in-house personnel?
- How well will your in-house team be able to handle legal and compliance, as well as provide prompt responses to emergencies and urgent tenant requests?
- Can an in-house team leverage technology and data analytics to optimize property performance?
Bottom line: Bringing certain functions in-house makes much sense past a certain growth point: GPs can have more visibility into their properties while reducing operating expenses drastically. Still, the decision has to be made after thorough research of the pros and cons and your capacity to maintain the smooth operations of these functions.
2. Offer upgrades or renovations instead of rental discounts
The median asking rent posted a decline in March for the first time in three years, so many GPs are naturally thinking about increasing occupancy rates by offering discounts.
Handing out discounts or offering free rent for a month are useful options in certain market conditions, but they are not the only tools in a GPs toolbox. Discounts are easy to give out but hard to retract as people get used to getting them.
Owners can offer other perks and benefits that require only a one-time expense and provide an effect often greater than its strict dollar value.
For example, owners can offer to paint an accent wall, Add USB ports, or a smart thermostat, install an upgraded lighting package, and do small, cost-effective facelifts.
Bottom line: By making the unit more attractive and functional, GPs can keep current tenants happy and attract new tenants without having to forfeit part of their revenue stream for long periods of time in the form of discounts.
3. Creatively save time and money when renovating
Renovations on a multifamily property can cost between $10 and $60 per square foot and always seem to go over schedule. How can GPs speed up this process and get units available to rent faster? A couple of creative ways include:
- Permit your contractors to stay in a vacant unit. Not only will they complete the work faster by being on-site more, but this also allows you to open the bidding process to out-of-state crews.
- Offer to transfer current residents who live in the unrenovated units to the renovated ones. This tactic will help you rent out the renovated units at higher rates faster. It will also free up the unrenovated units for renovation.
Bottom line: By accelerating the pace of the property renovations, you can open up more units and start getting increased rates faster, boosting your profits.
4. Consider “smart” outsourcing
While traditional outsourcing of services is a common practice for real estate GPs, new services (usually empowered by technology) are emerging to offer a new way of outsourcing that drastically reduces costs and improves operational efficiency while keeping the quality of service.
Among the functions that GPs can consider outsourcing this way are property management, underwriting and data analysis, tax services, deal administration, and more.
For example, you can get tax assistance with a team like Agora’s Financial Administration. Agora’s industry-expert CPAs, backed by tax management software, can handle functions like K-1 preparation and international payments at competitive rates compared to traditional CPAs.
Bottom line: When leveraging expertise combined with intelligent tech advantages, outsourcing can free you up for more important tasks while minimizing costs. Do the research to find tech-enabled service providers and compare them with traditional outsourcing options.
5. Leverage technology to address key operations
While third-party providers leverage certain degrees of tech to provide their services, with technological advances, GPs can skip outsourcing certain functions altogether and use software to streamline tasks, eliminate human error, and innovate workflows without adding more workload.
Case in point – investor relations, fundraising, and investment operations. As a commercial real estate tech leader, Agora empowers GPs to optimize all investor relations and investment management aspects with one intuitive, powerful platform.
For example, with Agora’s help, Helu Capital raised 3X more equity in the two quarters post-implementation than in the previous two. Additionally, Iridius Capital reduced operational expenses by 25% after deploying Agora.
Bottom line: Tech solutions allow GPs to streamline parts of their operations without needing to depend on outsourced service providers or taking on added workloads.
Conclusion
While there’s no “one-fits-all” advice, it is important for GPs to continuously explore and try new ways to improve their operational efficiency, as it’s a critical factor in improving their bottom line.
