When Do Landlords Need To Downsize Their Portfolios?
Managing a portfolio can take a great deal of effort. On average, you should shoot for at least one manager per 150-200 units to operate efficiently. If your unit per manager ratio is getting too high, then maybe it’s time to downsize.
Landlords downsize for many reasons: they decide they want to focus on other business opportunities, they’ve forecasted a downward turn in the market, or (most frequently) they’ve decided it’s time for retirement. No matter your reason, here are a few things you should consider before you shrink that portfolio.
Ways to Downsize
When downsizing, there are a few options to consider: you can sell some or all your properties, you can hand your properties off to a management company, or you can find and train a successor to manage your business. Reducing or liquidating your property holdings can be a strong choice in the right market, but it can also be difficult to find an appropriate buyer at a reasonable price. If the market does not bear opportunity, you’re better off finding an alternative solution.
For the second and third options, the most important question is: who do I trust to manage such an incredibly valuable asset? One of the first places to look for someone to take over your business is right under the family tree. Take the time to decide if you have any children or grandchildren that would succeed in such a role – but be careful. Make sure your judgement is not clouded by your familial bond. If you do decide to hand your portfolio off to a successor, take the time to coach them into being a quality landlord like yourself. They get you as a mentor to show them the ropes while you start to make your way into the good life of retirement. It’s a win-win. Plus, you get to relax knowing your portfolio is in the right hands because you trained them.
If a strong candidate is not available, hiring a property manager to look after most or even just a few of your properties can lighten the load of a hefty portfolio. Their fees are negotiable, and each has their own level of care, attention, and expertise, so find a manager that fits your own management style. Alternatively, consider delegating the portions of your job that feel most time-consuming to you. For example, if the leasing process has become a nightmare in your market, a leasing agent might be the perfect solution for you.
Downscoping
Another route to take that’s a little different than downsizing is called “downscoping.” By definition, downscoping is “the divestiture, spin-off, or other means of eliminating businesses that are unrelated to the company’s core business.” In other words, it’s the refocusing of business by aiming for a smaller target.
Let me explain. Say you have a diverse management portfolio with properties ranging from single family homes to huge apartment complexes. Take a step back and think: which properties take the least amount of upkeep and involvement, with the maximum amount of profit? Let’s say you determine that single family homes are the most profitable for you. You could then decide to focus on those properties and sell off your other assets in different sectors of the market. Another example could be the clientele you’re reaching, or even the neighborhood in which you’re investing (wouldn’t it be great to walk to all your properties?). Focus your time, attention, and investment in the portion of your business that is most profitable and manageable—that’s downscoping.
When a Downsize is the Wrong Option
Before you jump to any drastic shift in your portfolio, we encourage you to consider the fourth alternative. For many landlords, day-to-day management can be significantly reduced by implementing property management software, or tenant management software. Good property management software will save you time, money, and plenty of ibuprofen pills. And if you’re hell-bent on reducing that portfolio, software like Innago can help there too. Retire to the beach and let most of your administrative management be automated from afar. Instead of liquidating such a strong asset, you can have a steady retirement income for years to come. We’ll show you how to relax on the beach and enjoy the sun while your leases are signed across the country or across town.
When it comes to your portfolio, whatever you decide, it’s important to consider all your options. For some, the market is ripe for a big sale. For others, a shift in management practices and structure is all that’s required. Find the right fit for yourself and make it happen!
For more interesting articles on managing your properties, be sure to subscribe to our blog and Like us on Facebook. And don’t forget to share your thoughts in the comments!
