FOR MANY people, being able to earn money without lifting a finger is the dream. This is a big part of why property investment has become so popular with everyday Australians. It gives them the chance to make it financially while enjoying life outside of nine-to-five work.
But a lot of effort, time and money goes into the process of buying a property, which is why savvy investors, especially those looking to build a portfolio of multiple properties, seek out property managers to help them manage their rentals.
This is often a favourable arrangement for both parties. Many property managers are investors themselves and are thus highly experienced in how to deal with tenant concerns, maintenance and the other nitty-gritty aspects of leasing out a property.
They are also able to commit the time needed to ensure that everything runs smoothly, allowing you to get on with all of the other tasks that gobble up your time: work, family, social commitments, sports, balancing the budget…The list goes on!
However, hiring a property manager doesn’t always work in an investor’s favour.
In some cases a property manager fails to communicate effectively with the landlord, by passing authority to call their own shots. This can result in some rather unpleasant discoveries at the landlord’s end.
Profiting from property without breaking a sweat is not always smoothsailing. For this reason, it’s important that every investor is prepared both legally and practically for the less common, but still possible, risks of working with a less experienced or ineffective property manager.
With great power comes great responsibility
According to the Real Estate Institute of Australia (REIA), the usual duties of a property manager include advertising the property (if it is still on the market), keeping the landlord up to date on rental market trends, screening and selecting tenants, collecting rent, and taking charge of repairs and maintenance. In the event of tenant ssues, the property manager may also act as the landlord’s representative at a tribunal.
These responsibilities should typically be spelt out in writing so there’s no confusion as to what your property manager should be doing for you. It’s vital to remember that you’re giving them a lot of power, so you need to be mindful of the ways in which they can misuse that power.
While an effective property manager is one who basically ensures that minimal involvement is required from you, this doesn’t mean they don’t have to communicate with you (and vice versa) throughout the duration of the lease.
Remember that you’re giving a property manager a lot of power, so you need to be mindful of the ways in which they can misuse that power
When your property manager isn’t giving you regular updates on your property, that should ring some alarm bells. Either they are not paying attention to the property at all, or they may even have run off with the rent they were supposed to be collecting on your behalf.
It’s a good idea to have an agreed-upon frequency of updates from your property manager on the property’s status, whether or not there’sanything major to report.
They say no news is good news, but in the world of property any news is good news, because at least you know what’s going on. And if you don’t hear from them within the expected timeframe, it is your responsibility to initiate contact. It is advisable that you also conduct surprise visits to keep your property manager on their toes.
When things go bump
Repairs and maintenance area crucial part of a property manager’s job. In the absence of the landlord, it is the property manager who tenants will be contacting when something needs fixing. In some cases, the fix may be an urgent one, such as when pipes burst, the ceiling or roof leaks, the electricity is shot, or severe damage is dealt by a calamity. At other times, it maybe a fault that does not seriously impede the tenant’s standard of living and therefore does not necessitate immediate action.
So, while property managers should be making decisions on fixes, it is important to set a limiton the extent of their powers of execution.
“Whenever there will be a cost to the owner as a result of repair or maintenance work, written approval should always be sought,” says Tamara Dunstan, principal at Advantage Property Management. “From a legal and professional standpoint, there should be written quotes outlining the scope of work and associated costs.”
This emphasises the importance of drawing up a comprehensive contract when hiring a property manager. You can seek the aid of an experienced investor to help you prepare the contract clauses; and secure the assistance of a legal expert to make sure there are no loopholes and that the agreement can be enforced in a court of law.
The contract can specify details like the extent of repairs a property manager is allowed tomake independent of the landlord. Nonetheless, Dunstan believes that property managers shouldbe willing to involve landlords whenever work needs to be done, inorder to avoid issues down the line.
“Whether I have an allocated amount for maintenance or not, I always update the owner on the circumstances, and give them a strategic plan of action. I like to provide three comparable quotes for the owner’s review and consideration,” she explains.
“Whenever there will be a cost to the owner as a result of repair or maintenance work, written approval should always be sought”
She also cautions landlords against making verbal agreements when it comes to authorising action, as they won’t hold up as evidence when problems arise.
“Before proceeding with the work, there should at least be an email from the owner authorising it,” she says.
If you do encounter a situation in which your property manager has overstepped their boundaries to your detriment, the most common solution is to bring the case to your local tribunal, who will then make an o cial ruling as to responsibilities and consequences.
Each state has its own organisation dedicated to addressing the concerns of tenants, landlords and property managers. As long as you’ve got it all in writing, there’s generally no need to fret!
CASE STUDY: WHEN PROPERTY MANAGERS OVERSTEP
Jim* bought a property, renovated it and leased it out, hiring a property manager to handlethings and setting a budget limit for them to execute non-emergency works as necessary.
Shortly after the home was rented, the tenant complained about the garage, and the property manager had a tradesperson come in to do some expensive work without Jim’s knowledge. Jim only received the bill for the works after several months. Upon investigating Jim noted that the work in question should not have been regarded as an emergency and confronted his property manageras to why he had gone over the agreed-upon budget without informing him of the situation beforehand. However, the property manage rinsisted that Jim had assented to the execution ofthe works via a verbal agreement, and the casehad to be brought before the local tribunal.
Scenarios like Jim’s illustrate the importance of proper communication between the landlordand the property manager. The propertymanager was responsible for advising Jim aboutthe tenant complaint, given that it involved asignificant cost. Had he done so, they could haveworked together to come up with a solution toplease all parties.
The property manager should also have different options for tradies and let Jim make the final call on whether to make therequested improvements.
This situation also drives home the importance of putting important transactions inwriting. If the property manager was unable toprovide evidence that Jim gave his verbal assentto carry on with the work, Jim would have hadthe upper hand in this case.