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Roger Hollis's picture
Thu, 07/15/2010 - 00:00 -- Roger Hollis

My recent blogs about the impact of Google Maps’ property search application on property and relocation agents have also had another common theme; added value.

Adding and demonstrating value are part and parcel of every business, but could landlords be doing more? Are there opportunities to add value – and charge more – that are going begging? In an industry where the yield is a key factor, maximising revenue and hence returns is an absolute priority.

So let me tell you about the approach taken in the USA, especially by institutions such as pension funds operating within the private rented sector.

The investments these institutions make are for both income and capital growth. Rising asset prices are all well and good, but the income received is vital if these institutions are to meet their commitments, such as dividends and pension payments.

With income the absolute priority, the landlords looked to maximise revenues from the properties they owned. But with rental income still falling short of the yield required, new revenue streams were sought.

So institutional landlords in the USA provide what would traditionally be termed ancillary services, but have very much become core to business models. Telecommunications, waste disposal and other utilities are now provided by the landlords themselves, using their economies of scale to generate a profit from supplying such services.

Another central service is furniture. CORT, our American parent company, supplies rented furniture to landlords, who in turn provide it to tenants as part of their service packages. The tenants benefit from a bespoke service that provides them with the furniture they need with no up-front costs, while the landlords can add value by providing the solution.

Such a model is exactly how an institutional private rented sector could work over here. If institutions need a yield of, say, 6% to make an investment attractive, but rental yields are anything between 3.5% and 5%, some of the remainder could be found from ancillary services.

As long as the service adds value, then tenants can be found that will be willing to pay. By providing an extra something – and, importantly, charging for it – institutional landlords can give their yields the boost they need. Talk about added value.