Our industry has recognised for some time now that the vast majority of tenants these days are choosing to rent. This is the complete reverse of the situation years ago when the rental population was mostly made up of people who had to rent – i.e. they were unable to save a deposit or they didn’t have the capacity to meet mortgage repayments, so they had no other choice.
Now we have a younger generation of tenants who are much more mobile and transient. They actually don’t want to commit to buying a home as they don’t see themselves as staying permanently for too long in any one location.
This generation tend to move on every two or three years, according to their occupation or profession, and renting rather than buying makes the moving on process so much easier. This new generation of tenants look at home ownership very differently; it’s simply not high on their list of priorities.
What is a priority for them however is their lifestyle. And with the quality and variety of housing generally available these days it is now possible to ‘rent a lifestyle’. This is one of a number of reasons that influence why people choose to rent.
Also, this new generation of tenants are much more informed than previous generations – and, as most good property managers know, they also become investment property owners and landlords themselves!
Just as the attitude to renting has changed – the same could also be said on the investment side, specifically with a new generation of landlords.
A closer look at the new generation
The pre-war generation, often called ‘the builders’, rarely considered buying investment property. Their priority was to buy a family home; the security of owning their own home was their main goal in life.
The next generation, the ‘baby boomers’ looked at things quite differently and they very quickly became investment property owners and our current landlords. Now while a percentage of baby boomers consider the share market to be their wealth creation path, a similarly large percentage of baby boomer investors look at property as the safest way to prepare for their retirement. These ‘mum and dad’ investors had a very different view to their parents on the type of lifestyle they wanted and definitely a different view of what their retirement should be like!
They looked at property as the solution to their needs and wants and most baby boomers still don’t totally trust the share market. Most like to see, feel and touch their investments and they also have faith that their property asset will provide an appropriate return plus long term capital growth.
But while the industry still depends on mum and dad investors to cater to the needs of the renting community, a new breed of investor has entered the market over recent years.
We now have what we can call, the ‘professional investor’. These people still look at residential property as the perfect vehicle for wealth creation but they look at it from a vastly different perspective. It’s not uncommon for a professional investor these days to have in excess of 50 properties in their portfolio – it’s certainly big business now. As a result, it’s changing the way we in the property management business work with investors. While it doesn’t change the way we manage property, it certainly changes the way we communicate with and service our clients. They now live in a commercial world, so the way we work with them must adapt to their specific commercial needs. For example, we need to be conscious that they are often time poor. They tend to want things to happen ‘yesterday’ as any other option will cost them money. So they rightly expect immediate response to any request they may have. They also expect exceptional customer service, as investing in property is their core business. Doing anything less could mean you’ll lose them very quickly!
Today’s professional investor is responsible for developing a very different business model for residential property investment.
There’s always been a need for a mortgage broker; a financial planner; a property developer; a property advisory service; and most definitely a property manager! Traditionally the property investor has had to deal with a number of different people in a number of different companies covering all these areas to help them achieve their goals, because that’s the only way they’ve been able to obtain the product or service they needed. This has made the process a time-consuming and frustrating exercise and as we’re all time-poor, this isn’t always fun! But it should be – this is the future we’re thinking about and planning for – and that should be fun.
Some forward thinking companies have recognised this need very early and engaged experts in every one of these fields in order to properly service their clients. These companies have created one-stop property investment shops, which have changed the way companies do business in order to cater to the specific needs of the professional investor.
Today’s professional investors naturally have different needs to the traditional one-off investor. In many cases this may mean a property manager is dealing not with an individual but with a syndicate or a superannuation fund and these entities have a very specific focus. The professional investor – be it a super fund, a syndicate, or a serious individual investor – responds well if finance, planning, location, construction and subsequently the management of the investment is organised for them with the least amount of time and trouble. For them, this is much simpler than spending valuable time running between a developer and property manager, for example.
Perhaps this model could be compared to dealing with a share-broker? The share-broker looks at the financial position of their investor; develops a plan for their financial future; sources the best ‘location’ in the share market to invest the money in; and provides ongoing management of the investor’s portfolio. This is no different to what is now happening with real estate investment. The professional investor of today has necessarily changed the way we look at creating investment opportunities and as a result, the ongoing management of the portfolios thus created.
Property management departments which deal with professional investors must obviously have a totally professional approach, but look differently at the way the properties are managed. While the everyday tasks of property management must be dealt with according to legislation and with Best Practice in mind, total management of the asset could include such things as budget preparation for the short, medium and long term; ongoing review of rental returns; income projections; the landlord could even require much more specific reporting processes than are normally required.
In short, while the professional investor may not ‘sweat the small stuff’ they would definitely have a more holistic approach to how their investment is managed, which could include all of the items mentioned above. Perhaps this is a welcome change from those investment property owners who certainly do ‘sweat the small stuff’ – particularly in relation to anything that involves spending money!!
So we really are in a new era of investing.
The concept of the professional investor isn’t something that’s happened overnight, it’s something that’s been evolving for quite some time. Those who recognise that today’s professional investor has very specific needs and expectations will benefit from this exciting new concept in managing investment property. The important thing is to develop a business model which will cope with the professional investor at the level they expect – from the very start of their financial planning process through to the final stage – management of the actual investment property itself.
Those of us who have been in the industry for some time will have seen the evolution of property management over a number of years. We’ve all managed property for ‘mum and dad’ investors and been grateful for that opportunity. These mums and dads will undoubtedly continue to provide a solid base for most property management departments.
But unless the property management industry as a whole recognises that we’re entering a new era of investing, some companies could be left behind. Industry sources suggest that the percentage of people who choose to rent where they live will double in the next 10-20 years. The generations coming through our industry now have a different attitude to how and where they live and work.
They aren’t as interested in owning the property they live in, but they are interested in planning for their future through professional investing.
As property managers we’ll need to continue to learn and evolve to cope with the changing needs of the professional investor in today’s new era of Property Investing.