How Economies of Scale Gets Lofty Investors Higher Returns

How Economies of Scale Gets Lofty Investors Higher Returns

One of the many advantages of investing with Lofty are the benefits gained from economies of scale.

Economies of scale are defined as a proportionate saving in cost gained by an increased level of production.

This means that as we continue to launch more properties, there are more and more benefits passed down to Lofty investors.

Lofty has launched 124 properties to date. There are quite a few advantages that come along with this level of volume.

We will be walking through a few of these advantages below.

Lower Property Management Fees

Management fees

The majority of Property Management companies charge a 10% fee to manage investment properties. This fee covers tenant sourcing, repair coordination, and more.

In comparison, Lofty Property Managers in Chicago, Memphis, and Pittsburgh only charge a fee of 5.7%. This is due to our volume in these markets.

Lofty Property Managers in Cleveland, Akron, and St. Louis charge a fee of 8%. This fee is in the process of being negotiated down even further.

As an individual investor, even if you’re purchasing 10 properties per year, you will likely be stuck paying these 10% fees.

Property Management companies make the majority of their revenue off of larger clients, like hedge funds, that are purchasing hundreds, even thousands of properties.

Because they are making the majority of their revenue off of these larger clients, they are able to charge a lower management fee.

These lower management fees have a large effect on the Cash on Cash returns of properties.

Inspection report fees

Professional inspection reports typically cost in the range of $300 - $500 for a full property inspection.

There is also a significant amount of time needed to properly vet multiple inspection companies before being comfortable enough to trust their analysis.

Because of Lofty’s scale, these fees are now only $75 for vacant properties and $100 for occupied properties in select markets.

The inspections are also completed by Lofty Property Management companies in select markets, which adds an additional layer of trust on top of the low fees.

No mark-up for repairs

It is very common for Property management companies to charge a 20% markup on top of contracting fees.

This means that if there are $5,000 in repairs that must be made to a property, the Property Manager will charge an additional $1,000.

With Lofty’s scale in select markets, Lofty Property Managers now charge zero additional markup on top of contracting fees.

Leverage with property sellers

If you’ve ever purchased an investment property, you know that it’s nearly impossible to go back to the seller after the property closes & ask for them to make additional repairs or provide a credit for an unexpected tenant delinquency.

This is simply because the seller has no incentive to comply with these requests.

You are likely not buying enough properties from them to make it worth their while, and they are not obligated in any sense to help you out.

With Lofty sellers, this is different.

We work with a very small number of sellers who love the fact that they get to sell their properties in just days for all cash.

This is a massive advantage compared to selling properties on the MLS, which can take 60+ days to sell, or selling a property to an individual investor that’s taking out a hard-money loan which may not be approved.

Because sellers love selling their properties on Lofty so much, they are oftentimes open and willing to pay for unexpected repairs and provide rent credits for delinquencies, even after their property has sold on the Lofty Marketplace and fully closed.

We have great relationships with our sellers, but we also have very high standards for them, which they are all aware of.

Sellers know that if their properties have consistent unexpected issues, they will not be allowed to list properties on our marketplace anymore.

This is an advantage that is nearly impossible to obtain as an individual real estate investor.