For many landlords, investing in property is something of a ‘set and forget’ proposition. They buy a property; engage a good property manager; arrange an accountant to run the financials; and look forward to a plump tax refund each July.
But Diane Bukowski, managing director of Eezirent Pty Ltd, believes this hands-off method of property ownership can be fraught with danger.
“I think too many people forget about the value of their investment. Let's say you owned an investment property in Adelaide valued at $500,000, and you lived in Melbourne. Don't you think it is worth making the trip a couple of times a year to check on your half-million dollar investment?” she says.
Bukowski believes the value of property assets is “under-rated by the professional industry themselves”, as many property managers forget that they are in charge of a portfolio worth tens of millions of dollars.
“These are often in the care of poorly trained, overworked and under-resourced property managers,” she says.
“If it were a share portfolio, we would expect the stock broker to have a tertiary degree and there to be very high levels of accountability and control. But, there seems to be vastly different expectations when it comes to residential investment properties.”
Becoming more involved in your investment property is the best way to protect your investment, in Bukowski’s view. “This is why it makes sense for investors to be self-managing landlords,” she adds, “because no one will take better care of your investment.”
The benefits of self-managing your property
There’s no getting around the fact that handing over up to 10% of your rental income each week to a property manager adds up to a decent chunk of annual change.
“Property management fees across Australia average 8%. On top of this, owners can be charged fees for letting the property, inspections, lease renewals, organisation of maintenance and administrative costs. This can be a substantial hit to the return on investment for the owner,” explains Bukowski.
On a property that rents for $300 per week, with a property manager charging an average of 8% commission, your outlay is $24 per week. On it’s own, it’s not a great deal of money: it might buy you a few sandwiches for the week, or a couple of yoga classes.
But once you add up the costs of using a property manager over 12 months, you start to see the dollars piling up.
Weekly property rent
Weekly property manager commission @ 8%
Weekly GST on commission
($24.00 + $2.40 x 52 weeks)
Monthly statement fee
Annual statement fee
Re-let fee (assuming the property is rented to a new tenant once within the year)
$300 + GST = $330.00
Total property management fees
A weekly rent of $300 amounts to $15,600 annually, and by using a property manager, you invest over $2,000 of this income into property management.
It’s a financial investment that Bukowski believes smart landlords can avoid, which led her and business partner Geoff Mallan to launch www.eezirent.com.au. The website that facilitates direct dealings between landlords and tenants, and essentially allows private landlords to advertise via major portals like www.realestate.com.au.
“Having recently worked in real estate, I had seen research that 30% of all properties are managed by private landlords. These private landlords are locked out of access to digital resources such as www.realestate.com.au and the National Tenancies Database, so we saw that this was a sector of the market that was really being underserviced,” she says.
“If an owner wants to be proactive and in control of their investment, and if they want to maximise the return, then self-management is a good option. You don't necessarily need to live near your investment, either. You can compromise and engage a local agent to do a 'let only', and you take care of the management.”
Consider the insurance angle
While self-managing your investment property can potentially save you money, those who are considering taking their property management into their own hands need to consider the potential increase to their landlord insurance premium or excess.
For instance, Youi Insurance will extend building and contents insurance to DIY landlords, but they enforce a minimum $1,000 excess on all claims, to account for the higher perceived risks involved in self-managing.
Meanwhile, Terri Scheer Insurance offer a self-managed landlord policy that includes coverage for situations such as malicious damage by tenants, accidental damage, legal liability, and loss of rental income if a tenant absconds.
However, the premium is “slightly higher than our policy for landlords who have appointed a property manager,” confirms Terri Scheer insurance manager Carolyn Majda, “to reflect the higher risks associated with self-managing rental properties.”
“Do-it-yourself property management involves a significant time commitment, and landlords who self-manage their rental property need to be available to attend to maintenance issues promptly,” Majda says.
“If there is property damage and regular inspections are not being held, this may escalate and become more costly to fix later on. Delayed maintenance can also leave landlords susceptible to legal liability claims if a tenant or their guest is injured as a result.”
Property managers, on the other hand, have systems and processes in place to find and screen prospective tenants. Insurers also like the fact that they have access to databases that list tenants with a history of defaulting on rental payments, damaging property and eviction.
“While it is possible for landlords to successfully manage their properties themselves, hiring a professionally trained property manager can provide many additional risk management benefits and potentially minimise loss for the landlord if an issue arises,” Majda adds.
“The time and effort that property managers can save landlords as well as the experience and knowledge they provide can be well worth the cost for their services.”
Your rights and responsibilities
One of the most common areas where self-managed run into trouble is when they fail to comply with property and tenancy related legislation.
“There’s a fair bit more to managing a property than collecting the rent and fixing the odd repair,” explains Simon Waide from Rental Express in Brisbane.
“When you manage your own property, you take on the responsibility for compliance, and there’s actually a lot involved in this area.”
For example, many landlords don’t know that there are strict rules around bond lodgments. It is illegal to hold bond monies in your own account as, by law, they must be held in a trust. The local Office of Consumer Affairs can fine those landlords who are caught not following this procedure upwards of $1,000.
“You have to make sure that bond funds go into trust accounts, and that correct forms have been filed. There is legislation around maintenance and who is responsible for what,” Waide says.
“Particularly in Queensland, there are a lot of rules around things like smoke alarms compliancy and pool fence regulations, and this legislation is changing all of the time. If you’ve been managing your property alone for a few years, you might not even be aware of these changes.”
There are also rules that guide your access to the property, because tenants are entitled to a reasonable expectation of privacy.
“You can’t just drop by without issuing an entry notice. There’s a lot you need to be aware of because being ignorant of the law is not a defence – you can’t just say ‘I didn’t know’,” Waide adds.
“For those who are thinking of managing their property themselves, I would advise that you go and do a basic property management course, so you can at least get up to date with the current legislation.”
“Self-managing his property cost this landlord $10,000”
As the principal of Alexa Real Estate in Adelaide, Xenia Ioannou has worked with plenty of self-managed landlords who have turned to her for help after landing in a sticky situation.
In one instance, it was a client who already used her services that almost ended up with a whopping fine, thanks to the missteps of a self-managed landlord.
It all began when a tenant in Adelaide complained to her landlord that her air-conditioning unit was broken. The landlord told his tenant that he couldn’t afford to repair or replace it, but offered her a $10 per week rental decrease to compensate for the lack of cooling.
“When the landlord offered a rent reduction, she accepted – but the law states that you can’t do that. Legally, it has to be fixed and you cannot override legislation with a personal agreement. But, the landlord did not know this,” Ioannou explains.
A few years later, the property was sold to one of Ioannou’s clients. He wanted her to take over management of the property upon settlement so, during the sale process, she called the local tenancy tribunal to enquire about the amount of bond that was lodged.
“The person on the phone said, ‘Why does that address ring a bell?’ She asked me to hold and when she came back on the line, she said, ‘Oh, you are aware of what’s happening with this property, aren’t you?’” Ioannou says.
“It turns out that the tenant wasn’t happy with the situation and had applied for a rent reduction of $30 per week for the two-and-a-half years that the air-conditioning wasn’t fixed – plus the costs of living in a motel room during the really hot months, as she couldn’t cope without cooling.”
In total, the tenant was asking for around $10,000, which included an amount of $4,000 for the rent reduction alone together with the cost of the motel.
“I asked what the chances of the tenant winning her case were, and the person at the tenancy tribunal said, off the record, that it was virtually 100%, as it’s illegal for the landlord to fail to repair something like this,” Ioannou says.
To make matters worse, the responsibility for paying the tenant would fall on the current owner, regardless of the fact that it was the previous owner who had fallen foul of the law.
“I rang up the new purchaser, our landlord, who had no idea about any of this, and I recommended that he instruct his conveyancer to hold back an amount of money to cover these costs,” Ioannou adds.
“He did, and the money was paid back to tenant out of the self-managed landlord’s pocket. At the end of the day, even though the tenant accepted the $10 rent reduction, the tenancy tribunal disregarded that because according to the law, she shouldn’t have had to put up with that situation. It sends a very clear message to landlords to ensure that you do the right thing and follow the letter of the law.”
How to choose the right property manager
Some property managers are so good at what they do, they’re worth their weight in gold. They’re organised, passionate and proactive about keeping both landlords and tenants happy, and they take all of the stress out of property ownership for you.
Then, as is the case in all professions, there are some property managers who go through the motions, but who generally fail to give your investment the time and attention it deserves.
So, how do find the best property manager for the job?
Elise Nusco is the property manager at Richardson & Wrench Rooty Hill. Her agency is known for achieving low levels of vacancy, despite the fact that the local area is experiencing high vacancy rates, and Nusco attributes this success to their proven policies for maximising rents and minimising vacancies.
“Marketing for many property management offices is poor and isn’t given the same attention as properties for sale,” she explains.
“As well as intensive marketing, we make sure that presentation of the property is at its best, and we ensure that the rental amount is fair and competitive with the market, so it’s not over market value and it’s not too cheap.”
To locate a good quality property manager who will work help you achieve the best possible results with your investment, Nusco says it’s a good idea to ask for references and seek out evidence of their track record with similar properties.
“I think experience is a huge factor when choosing your property manager – you want to be sure that the office has stable staff, a good reputation and good market presence in the area,” she adds.
“It’s also very important that they treat property management as a big part of their business, and they’re not just a sales office who do rentals on the side.”
8 questions to qualify your property manager
- Do you have a policy to never, ever hand out keys to prospective tenants?
- Does your standard marketing campaign include high quality digital photography and text that sells the features and benefits of my property?
- Can you provide examples of recent marketing campaigns you have run?
- Do you have detailed, documents systems and procedures in place, and what are they?
- What is your policy on addressing arrears and what is your process for dealing with late rental payments?
- Can I have my rental income disbursed to me weekly, fortnightly or monthly – or is monthly my only option?
- Are you able to provide references and testimonials from satisfied clients?
- How do you manager your rental roll when your property manager/s are sick or on holidays?
Source: Simon Waide, www.rentalexpresspropertymanagement.com.au