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Logo of Phnom Penh Post newspaper Phnom Penh Post - Running a serviced property business

Chrek Soknim, Deputy director of VTrust property co., Ltd.  HOEM SEIHA
Chrek Soknim, Deputy director of VTrust property co., Ltd. HOEM SEIHA

Running a serviced property business

Doing business on serviced properties is lucrative in the Kingdom’s current market. Nevertheless, before jumping into this business, you might need more than capital – and that’s why property enterprise leaders always refer to sound out information about the market, gain real estate related skills, show a keen interest in this business and spend time dedicated for the business. Once you have most of the things above, it means you’re well-prepared to start. But this isn’t easy for every property owner because an owner might find they fit well with a certain approach, but might not with another.

1). Manage on your own
Of course, having a 10-20 storey building is your big asset to start an investment in a serviced property. However, there’re some pros and cons when it comes to managing your own properties.

First, the benefits you as a property owner gain from managing your own property are the gross incomes. You have an opportunity to enjoy your sole-proprietorship cross incomes, especially when you reach a peak of occupancy rate.

However, it isn’t a way to be a smart property investor. Because you’ll have to devote most of your time and energy to the management of your property, you’ll be tied up with it and won’t have much time for future business ideas and policies to expand your investments.

When it comes to managing your own property, things that might adversely affect your productivity are a loss of focus, high operation costs, limited operation capacity and quality and risks involving unstable cash flow to settle the operation costs on time.

Of course, you might doubt how these might occur when you manage your own property. First, let’s study how you might lose your focus. If you dream of a big achievement in property investment or development, setting aside some time for running your own serviced properties – offices or apartments – will scatter your business activities, leading to a high cost of operations and an inability to shape your business fields of expertise.

Second, like any business, the scatter of operational activities is closely associated with high operational costs. Scatter of operational activities occur when operational fields move apart in many different directions, where cash flow is needed to supply excessively. The margin of the income, of course, becomes small.

Third, a loss of focus also affects the capacity and quality of services. Since you have your own management on all kinds of operations like sales and marketing, finance, human resources, building and facility maintenance and strategies, you’ll have to allocate human resources to govern each of the sectors.

And that might affect your capacity and quality of productivity and services you’re providing to the tenants.

Last, managing your own property is highly risky because of the fact that cash flow is not there in time to respond to your current needs – like employee payments, utilities, maintenances, taxes, etc. For instance, with poor management or under some circumstances, late payments or low incomes from the tenants because of many reasons can make your accountability low, hence resulting in weak health of the company – and sometimes leading to bankruptcy.

Another success factor of your high occupancy is the effective sales and marketing to find tenants to fill your serviced properties, but I’ll bet it isn’t easy to achieve by less experienced and untrained work teams. Unless you have huge capital for one or two year(s) of operations with meager incomes, you shouldn’t do it.

2). Lease to property managers
Lease is when you rent your apartment or office buildings to a property management company for a period of time. For most property owners who want freedom, they lease their buildings to property management companies with a fixed amount of rental prices.

Leasing frees the owners of properties from involvement in the business, while they enjoy monthly or yearly rental pays based on negotiations. However, leasing can be disadvantageous to both owners and leasing contractors.

First, the future of rental prices is unpredictable. The unpredictable future of rental prices could affect both of the parties – the property owners and contractors.

If the future rental price goes down below the fixed rate of the past renting, it affects the property managers. However, if the price goes higher than the fixed rate of the past renting, it affects property owners because the set prices indicated in the contracts can’t be adjustable.

Second, since property managers are seeking win-win strategies to incorporate property owners as strategic partners, they’re more likely to manage properties for others than lease the whole building because the latter places them at more financially secured zone in term of serviced property operations.

3). Let it be managed
I couldn’t suggest any most brilliant way to success in property investments, but there’s always a strategic way when you invest in serviced properties. That said, let your properties be managed by a reliable property management company.

However, I’m sure the first question that might come up in your mind is how this works and benefits you as property owners.

By letting your properties be managed, you agree with the property managers to do all the management of your properties on behalf of you, while you’re not involved in the operations of the business at all.

The property managers earn a small percentage from the rentals of your properties based on the number of sales they could make. Property managers are responsible for all the operations of the business, and the activities involved are sales and marketing to fill your serviced properties with tenants, property maintenance, staffing, just to name a few.

Property owners can enjoy a number of benefits by letting their properties be managed. First, thanks to the brand name, market maturity and experience of the serviced property managers, they can fill the properties with higher quality tenants who would pay higher and on time for the rents and with fewer costly and time consuming legal problems.

The tenants could stay longer thanks to proper services – because property managers have every resource they need to better their services. Second, thanks to skills and a wider network of the property managers, the vacancy cycles are often shorter, and the occupancy rates could be considerably higher.

Because well-resourced and experienced property managers have every information and data about the tenure laws, it will make your life more enjoyable without hearing any problems pertaining to the rents. That ensures you a high return on investments, consuming less or no time all at with your incorporated properties.

Whatever way you choose, there’re always pros and cons. However, in the context of the Kingdom’s current market and business environment where stiff competition is there, to profit from serviced properties is getting harder and harder if you have small capital, low skills and experience, and no entrepreneurship talents to make your investments in the sector profitable.

Our strength is that we have a demanding market of properties and other real estate related sub-sectors. On the other hand, we have a weakness hindering us from achieving a high or stable growth of serviced property business in the current market of Cambodia because the scale of business is too small.

To make it strong, of course, we have to incorporate by handing over your management of your properties to any property managers you trust.

Worded by Hoem Seiha
Contributed by Chrek Soknim

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Comments

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CentennialBusiness's picture

Nice information, There is obviously a lot. Your points are very valuable and knowledgeable. Thanks for sharing this great blog with us.