Firstly congratulations if you’re 1 of the just over 7% of Australians that own an investment property. Residential property has a proven record in Australian history of being a very reliable investment and a great way to build wealth.
As a long-time property investor myself, I know that just owning an investment property is not a ticket to a prosperous future that comes with no pain. There are all sorts of potential issues that come along for the ride, maintenance, vacancy’s, bad tenants, rent arrears, legislation obligations and changes, the list goes on.
When it comes to dealing with these issues you have 2 choices: Do it yourself, or employ a Property Management team. I’ve written this article to explain why doing it yourself is a BAD idea, and why employing an expert property management team could not only save you time and money but make you money.
Reason #1: Finding a Quality Tenant
I will concede finding a tenant is not hard. Finding a quality tenant on the other hand is! A professional Property Management Team will have a specialised leasing person/ ‘s whose primary responsibility is to find the right tenants for a specific property when it becomes available to rent. They will have access to resources such as realestate.com and domain.com to effectively market the property ‘for lease’ social media platforms with thousands of followers, a well maintained up to date data base of potential tenants that are looking to rent something now, and of course a database of bad tenants that you do not want anywhere near your prized investment.
The benefits of these resources cannot be understated, as they will have a significant impact on both the financial viability of the investment and of course the asset itself.
Having the resources to market the property to more potential tenants will ensure that when it comes to tenant selection you will more than likely end up with a quality few to choose from, which will significantly increase your chances of finding a quality tenant in the shortest time frame possible (minimising lost rent due to vacancy). Creating competition will also ensure the rent you secure the tenant on will be in line with market rent or even slightly better. Making you Money!
Reason #2: Legislation
Legislation around residential tenancies can be an extremely complicated beast, it’s changing all the time and keeping up with it is tricky enough for the professional Property Management team let alone the property investor. All tenancies in NSW fall under the Residential Tenancies Act 2010 (RTA) and as a landlord you have a number of obligations under the Act that you must adhere to. Some examples being:
- Minimum Standards for a rental property
- Continuing upkeep of the property and obligations with regards to tenant safety
- Compliance obligations around pool’s & spa’s, smoke alarms, water efficiency ect
- Certain things that need to be disclosed to tenants before commencing a lease
- Bond Lodgements, how much and where to lodge them
- Up to date residential tenancy agreements,
- Condition reports, what to include on the report and the problems that can arise from an inadequate report
- Rental payments and record keeping.
…..the list goes on. Most quality Property Management businesses will subscribe via a membership with the Real Estate Institute of NSW (REINSW), who provide weekly updates of changes to the Act. Property Management business’s also have an obligation under the Property, Stock, and Business agents act to ensure they have systems in place to ensure staff are adequately trained and are kept up to date with the act.
As a landlord when you engage a Property Management Team by signing a Managing Agency Agreement, you are not necessarily handing over the responsibility for your obligations to the agency, but you are engaging specialised professionals to ensure you and the property you are leasing comply with the multitude of obligations that need to be adhered to in accordance with the RTA. Similar to employing a professional accountant to manage your tax obligations
Reason #3 Continuing maintenance and upkeep of the property
As the owner of an investment property it’s imperative that you keep the property maintained at a high level to maximise the return on your investment. Both in the form of the rent yield and also for when and if the time comes to sell the property. Unattended maintenance could become an issue that costs you thousands if not tens of thousands of dollars.
It has been proven that tenants are 10x less likely to report maintenance issues to owners that self-manage, as they just want to avoid any potential conflict at all costs.
Quality Property Management business’ will typically have technology in place to allow tenants to easily report any issues with the property via an app on their smart phone. Depending on your instructions these issues can be attended to quickly and efficiently, as most Property Management Teams will have a panel of on call tradies and handyman services to attend to the issue quickly. Due to the fact that these tradies and handyman services typically have well established relationships with the Property Management Team, very reasonable rates for service will have already been negotiated.
Reason #4 Regular Rent Reviews
A regular rent review of your investment property is crucial in ensuring that your investment return is maximised. A quality property management team will systematically conduct regular rent reviews. These would normally take place about 3 months prior to the expiry of the lease term, to allow sufficient notice for the tenant should an increase be warranted. A rent review would also be conducted between tenancies prior to the property being re-advertised. The consequences for not doing these regular reviews are that very quickly you could find that the rent your tenant is paying could be well below market value, and significantly impacting your return on investment.
A property management team that is highly active in your area will be well equipped to advise on market conditions and rents.
In conclusion the typical annual fee to have your investment property managed by a quality property management team will be in the vicinity of $1500 – $2000 pa. Considering that the fee is 100% tax deductable than the actual cost is around $1000 pa. I would suggest that this is a fantastic investment! ………and 1 more point, like everything in life, cheapest is not always the best, so I would steer well clear of anyone discounting these fees. Check reviews and do your homework before appointing a property manager, because getting this decision right will have a significant impact on the whole property investment experience.
Lee Waterhouse
Property Investor
Managing Director
Property Central – Penrith & Mulgoa