When the government announced its new plans for ‘cooling’ the housing market, property investors nation-wide began to panic. Costs that landlords would normally deduct for tax purposes suddenly became privileges stripped away. Interest rates and the OCR slowly starting to creep up also hurts the return on investment of rental properties. When we talk to landlords now, we are hearing about a new strategy to save costs. The property manager has become one of the first victims.
It can be very tempting to manage your own property and save on a small amount of management fees. However, poor management and limited knowledge of legal procedures can lead to big problems. You must be prepared for the responsibility of marketing the property, finding good tenants, collecting rent, regularly inspecting, and dealing with maintenance issues and disputes. The time you save using a good property manager can offset the cost quite fairly. It just comes down to research and identifying value.
We are always advising new clients to investigate the fine print of a management authority and try to weigh up the value being offered. Are there any other costs that you will bear by signing up with this company as opposed to another company? Double check that the pricing matches exactly what the company has offered you in either an email, a rental appraisal, or over the phone. Common costs that landlords sometimes miss are the extra charges for inspections, marketing and advertising fees, or sometimes tenancy tribunal fees when extra work is required.
Maintenance fees are also underestimated. A landlord should expect to spend anywhere between 4-12% of their annual incoming rent on repairs and maintenance. This could be even higher if the property requires immediate healthy homes compliance. If your property management company has a high fee for organising repairs and maintenance, then your outgoings will be expected to be higher at some points in the year. All these things can exceed what is usually thought to be a straightforward fee structure and a percentage deduction of weekly rent.
I had a situation recently where I met a potential client at their rental property during the process of appraising it. This potential client expressed their worries about being able to afford the service due to all the financial pressures the government changes presented. I asked what price they recently had it tenanted for and what they had in mind for advertising it now. They told me what they were expecting and I took that into account when appraising the property. As a property manager who was familiar with the area, and the demand seen at that time of the year, I appraised the property and found there was a chance to not only get what they wanted, but also to cover our weekly management fees on top of this. I presented the prospective client with the appraisal and asked for the opportunity to provide our service based on successfully tenanting their property at a price that would also cover our fees. They are still a happy customer to this day and have expressed how little they knew about the whole property management process until they used a service.
You may be lucky enough to have a similar experience, but if not, these are some of the ways you could actively challenge a property management company to best suit your needs. Challenge them on price, knowledge, communication, and transparency. Read the terms and conditions and weigh the overall value against the cost you are trying to save. Is that amount worth the hassle?
Hayden Walls
