Most investors would be surprised at just how bad a lot of property managers really are. But is yours one of them?
If you’re investing interstate a property manager will be inevitable – especially if you plan on taking the first three words of a “set and forget investment” to heart.
In the world of rush hour traffic, work deadlines and family commitments it’s easy to forget an investment you purchased hundreds of kilometres away, possibly in a town with a long and funny sounding name. But as you’re focusing on the more pressing things in life, how has your investment been fairing?
That’s a question you should be asking your property manager and there are some very easy criteria for deciding if they have been doing a good job or letting your investment plunge into disaster.
- Rents stay put
If your investment has not seen a rental increase in quite some time, two things could be at work. The more common reason is that the market could simply be in trouble. What is considered renting ‘at market’ could have remained stagnant due to increasing vacancy rates or falling employment figures. Worse, rents in the area could even be slipping – a common occurrence in suburbs or towns where there has been sizeable depopulation or where a major factory, retailer or other employer has shut down.
The easy way to find out if this is the case is by doing a little homework. The data section at the back of this magazine will tell you the vacancy rate for your suburb and will also show you what the median rent is for that area. If the vacancy rate is anything lower than 3%, it’s doubtful that there would have been no increases in “market rent” for a period longer than about 18 months. This brings up what could be the other likelihood for experiencing static rents: bad property management.
“It amazes me how often landlords miss out on their full rent… Sometimes when we take over management of a property from other agencies, we find that landlords are receiving 10% to 20% less than the current market rent for their properties,” says Rob Farmer, chief executive of property management giant RUN Property.
Farmer says that one of the most important jobs of a property manager is to negotiate rent. A good property manager will be constantly working in a group of suburbs and should know the market rent back to front. A bad property manager will insist on lower rents.
“One landlord we recently came across was found to be $17,160 out of pocket every year on three properties,” says Farmer. “That’s an average of more than $100 every week of every year. Imagine what you could do with that amount of extra cash?”
Sam Saggers, CEO of Positive Real Estate, says rents that are below market are particularly common with property managers in regional Australia. “In regional markets agents with old ideals often are reluctant to push rents up. This is particularly true is your tenants are older members of the community,” he says.
- Disputes get ugly
“Relationship building with different parties and tenants is the basis of successful property management,” says Saggers. “You must have a good working relationship with the agent, who must have a good relationship with the tenant.”
The alternative, says Saggers, is to see major problems arise such as non-payment of rent, theft and vandalism. “There is a saying in real estate: ‘build the relationship and the conditions become negotiable’… one of the most important aspects of a manager is to ensure their dealings are relationship based.”
Problems that arise with tenants can thus often be the fault of a property manager failing to communicate properly with the tenant. This is especially true if the property is within a cheaper area with a lower socio-economic profile. When this is the case, bad property managers will be reluctant to spend time in these parts of a town or city, lessening their relationship with the tenant.
- Lacks support
Farmer laments the fact that the property management division of the typical Australian real estate company is the poor cousin of their sales division. “Real estate agencies are often owned by sales people who don’t have the operational management and attention to detail required in property management. The result is the property manager does not get the support, systems and training to help them do a better job.” he says.
Farmer adds that you should be wary of any property manager that is not supported by a network of other property management professionals. “If the property manager is away, who is looking after your property when they are not?”
- Excessive repair bills
Acquiring quotes for repair work is a time-consuming exercise and part of the point of having a property manager is to take the work off your hands. Good property managers will know a number of different tradespeople and will have a working relationship with them. They will be able to source you the best deals and will help minimise your maintenance costs.
It may seem like one of the more obvious failings that a property manager could have, but you’d be surprised at just how bad some property managers can be at it. In extreme instances, property managers have been known to siphon money from their clients by using fake contractors and then billing the owners for repairs that were never done.
Property managers in far-flung regional areas are also notorious for supplying their clients with hefty repair and maintenance bills, claims Saggers. “Remember, competition tends to drive prices down. As there is limited competition in some regional areas and a high need for real estate agents and trades to service properties, you can often pay a premium for repairs and maintenance. The more remote you are the more complicated it can be.”
The best recourse is to get a property manager that has a very large client base. This ensures they have a lot of power when negotiating with trades. The property manager will constitute a large source of potential jobs for a tradesperson and can dictate a lot of the terms. If they do a bad job, the property manager can take his business elsewhere.
- Lack of repairs, inspections
Just as an unnecessarily large repair bill can signal a terrible property manager, the opposite is true as well. A generally incompetent or lazy property manager will not undertake regular inspections of the property, allowing potential problems to exacerbate and tenant damage to persist.
- Not a property investor
“A property manager who invests in property is worth their weight in gold,” says RUN’s Rob Farmer, who adds that a sign of a poor property manager is one that has little knowledge of the concerns and frustrations of owning a property that is often in a different town or city from you.
“A great property manager should be a key to helping you create a more profitable future. With property investing you surround yourself with good people who you know will look after the detail so you can keep focus on the big picture of finding profitable deals, balancing cash flow, loan gearing and borrowing capacity.”