With property continuing to gain favour as the commodity of choice among Australian investors, an increasing amount of rental stock is coming online.
This has seen a notable rise in the number of boutique property management agencies offering their services to property investors, with traditional real estate agency ‘rent rolls’ evolving into businesses whose sole focus is providing property management services.
Having more choice is always a good thing, and the increased competition within the sector means landlords can shop around for the most suitable candidate to look after their rental.
But exactly how do you qualify a decent property manager? And how do you assess and measure their performance to make sure they’re doing the best possible job of maintaining your asset?
Management fees – what’s reasonable?
Fees charged by dedicated agencies are comparable to traditional real estate management costs, and are generally based on a percentage of your investment’s rental income as with a commission.
You will be required to pay a letting fee, which is often charged as the equivalent of one week’s rent, and an ongoing percentage of the gross weekly rental to facilitate all management related aspects of your investment.
Given management fees can be as little as 5% or as much as 12%, this charge should be negotiated with your preferred agency.
But remember you get what you pay for, so try not to be too ruthless when working out the final commission. As a guide, the average fee is usually around 7% to 9% these days.
Other variable costs can include:
- Marketing expenses to advertise your property in different mediums
- Statement fees
- Administration charges for things like postage
- Tribunal appearances and warrants of possession
You can also provide written authority for your agent to deduct things like rates, water charges and urgent repairs up to a specified amount from your rent.
When you decide on an agent, you will need to sign a management agreement. Make sure all the matters you want them to handle and any specific conditions are negotiated and put in writing, to avoid any conflicts down the track.
Clearly state your expectations around things like:
- How often inspections should occur
- Whether you want copies of inspection reports and other management related documents to be sent to you
- Whether you want to be contacted regarding approval for all maintenance issues or only repairs that cost in excess of a nominated amount (say $200)
In most instances, the agreement will also contain a clause stating that a notice period of 30 or 60 days applies should either party wish to terminate the contract.
What should you expect?
An experienced property manager can remove a significant burden from you as an investor, freeing up your time to find more high growth assets and ensuring all tenant interactions comply with relevant legislation.
Given that the cost for their services is tax-deductible, it pays to engage them in order to take care of all the little things. You can expect a good property manager to:
- Help to determine a fair market rental for your property
- Market the premises and find suitable tenants through comprehensive applicant screening processes
- Draw up a concise tenancy agreement and ensure it’s properly completed and signed
- Conduct regular inspections, including entry and exit condition reports
- Lodge the bond on your behalf
- Pay the net rent into your nominated bank account (or via cheque), minus any deductions
- Handle the day to day management of your tenancy, including:
- Rent collection and maintaining appropriate records
- Handling any tenant disputes that may arise
- Arranging repairs as needed
Your managing agent will also represent you should things go awry and you end up before the Residential Tenancy Tribunal.
They will have an excellent understanding of the legislation governing your rental premises, and subsequently ensure that all formal notices and requirements related to the lease agreement are organised in accordance with the law.
This is one of the reasons it can be difficult to self manage, because the regulations you must comply with as a landlord can be difficult for the layperson to fully comprehend and follow.
Additionally, a well-rounded property management agency has access to tenancy databases and records that may not be publically available. These resources can mean the difference between identifying a reliable resident for your property or the tenants from Hell.
Assessing your management team
A great property management team will go above and beyond for their clients. They will be pro-active in conducting annual rent reviews and keep a close eye on the local market and your competition in order to maximise your investment property’s income earning potential.
Measuring the performance of your property manager is relatively straightforward. It’s a case of asking the same important questions that you should raise with candidates when qualifying the best person for the job…
- How long have they been in the industry?
- How many properties do they currently manage?
- How well do they know the local market, including your tenant demographic?
- What is their tenant turnaround like?
- How long does it take them to find suitable tenants and what does their application process involve?
- How will they market your property and where?
- What is the average period between tenancies?
- How do they determine the fair market rental price for your property?
- How well do they communicate with you and your tenants?
- How do they manage your enquiries and any tenancy issues, including maintenance and repairs?
- What technology do they use to assist in managing your investment?
- What steps do they take if the tenant is late in paying rent?
- How often have they attended Tribunal and what is their success rate?
- How much are you paying in management fees and associated charges?
Just as you conduct regular reviews of your property investment portfolio, it pays to evaluate the performance of your property management team. If your current manager comes up wanting, it might be time to look elsewhere.
Remember, how well your property manager works for you can mean the difference between a strong cashflow position and a shaky one, thereby influencing the long-term success of your portfolio.
With more and more options available in the form of a burgeoning property management industry, it’s easier than ever to find the right person for the job and make changes if something isn’t quite right.