Property Manager vs. Owner Managed

Hello All,

I currently manage my investment property (2 units, 2 tenants) as it saves me approximately $70 per week on management fees. Last week the agent who sold me the property called and offered to manage the property for a 6% fee ($63 per week). I have previously had bad experiences with property managers - unauthorised repairs/maintenance, putting tenants offside by being too harsh, not informing me about rental arrears.

The tenants in unit 1 are excellent, rent is always on time, little to no call outs for repairs and very pleasant to deal with. The tenant in unit 2 was high maintenance at the start but is pretty good now, pays a premium rent around $60 above market value and pays the rent just prior to entering 2 weeks in arrears (I warned him at the start I will issue an eviction notice if arrears exceed 14 days).

I am extremely time poor, I work full-time hours across 4 days per week + OT, sole carer for our 4 children 2 days per week (2 in primary, 2 at home) while my wife is running her business and the remaining day is normally a family activity day.

The $70 is a nice saving however I'm starting to think I could be better using that time sorting out arrangements for another IP purchase.

Thoughts on using a PM vs Owner managed?

 

I am a Real Estate agent and therefore this may sound Bias.

There are advantages of both at the end of the day. But... Have a PM gives you freedom and security. Sure there are some bad managers out there, but find the right one and youre good to go.
They have access to systems which will ensure you have safe and strictly chosen tenants, and have systems and rules in place to assure you you get paid in a timely manner.

$70 a week is a small investment to secure an investment worth hundreds of thousands is well kept.

 

Lots of benefits to using an agent:
Change of legislation '
Using correct contracts and forms served on time
Ensuring that market rent is in place (many self managers tend to have a "but they are a good tenant" attitude so charge below market rent)
Fees are tax deductible
Vacancies are minimised
Correct representation at tribunal hearings
Correct insurance
Regular routine inspections
Use your time to make money don't use your time to save money.
etc...

I see a lot of self managing landlords do it all wrong, even arrears are calculated incorrectly, we bought one over from a self managing landlord a few weeks ago and told that the tenant was $4000 in arrears - they were $6000 in arrears, self managing landlords cannot calculate things correctly and to the day.
Disclaimer here: I only see the ones who have stuffed it all up, the ones that are doing it very well do not need to come to us.

However, at the end of the day there is no right or wrong it's what you feel most comfortable with but a good manager should be an asset to you.

 

Your similar to myself, question I always ask myself when considering the same is would I trust anyone other than myself to successfully manage my business affairs unsupervised?

The answer is always No.
If I didn't have the time etc to operate the business myself I wouldn't have one, I'd sell up and do something else to make $'s

 

I sold a property in 2014 which I managed myself, the agent told me I had the best records she had seen for an owner manager. The only time I struggle with calculations is when the tenant pays $20 short, each time he has made up the difference in the next rent payment though.

I previously suffered from the "but they are a good tenant" attitude and it cost me, however it still cost less than paying managing agent fees. Towards the end of lease I look at what other properties in the area are renting for and then make a decision on what to do with any increase.

I was generally unimpressed with the agents in the area where the IP is. The first agent wouldn't do individual inspections and only held open homes on the property once a week for an hour, they also massively inflated the rent meaning there were 0 inspections in 3 weeks. The second agent who found the tenants and managed it for a short time made promises to the tenant which were untrue (e.g. promised an A/C) and came to me every time there was an issue no matter how minor.

I have been through around 7 managing agents across 5 properties in the past 10 or so years and none have ever made me feel I am getting value for money on the management fee.

I also don't understand why it is a % of rent as opposed to a flat rate? What additional work is there week to week on a $600 p.w. rental as opposed to a $300 p.w. rental? (I understand the $600 per week is harder to let however the compensation for this is the one week's letting fee right?)

 

This is how I generally feel about it, my main concern is that the time and effort put into managing the property could be better used gearing up for another IP.

I just can't justify the % management fee - Over $3,500 p.a. - I could spend that on trades and never go out for a repair again.

 

How many hours per week on average do you put in to save that $70 per week?
Id want it to be less than 1hr

How do the banks calculate it with managing IP's? Is that 70 helping your serviceability or are there other advantages?

 

It's less than an hour per week. I'm not sure if it's helping my serviceability, if it was I would definately contihue to manage it myself.

 

My wife self managed a few of our IPs due to bad experiences with local property managers.

We finally found an awesome one (from this forum) and she now looks after them - it makes our life so much easier! She's efficient and awesome with keeping us in the loop. Wish we had have found her earlier.

Cheers

Jamie

 

Is she local to your properties Jamie?

 

Yep - Canberra and Queanbeyan

 

You'll probably know the answer to the point @bob shovel raised above. Does the saving I make from managing it myself help my serviceability?

 

Not likely - bank will accept the rent as income and discount it allowing to all the usual IP related expenses.

 

When he first moved in and was demanding an A/C be installed among other things (in fairness to him I found the agent to be quite dishonest/incompetant and there is every chance this was promised) I wrote him a lenghty letter giving him the option to break and lease and leave with no penalty or stay and accept no A/C will be installed. This, and other issues, lead to him threatening legal action against me etc. etc. which never eventuated.

His lease is up in March and we plan on issuing an eviction notice mid next year to carry out further renovations on his unit. As he is paying a premium rent and has that tendency to blow up I am tossing up whether or not to potentially stir the pot by pushing him to get back in advance with the rent. (As a bit a background he sold his business earlier this year to retire and was defrauded of $100k during the process which was the start of the rental arrear problem. Prior to this I was told by the agent he had a good record of paying rent over 9 years)

 

Go and have a chat with a few local PM's and see what they have to say. But find out about the actual PM's that will look after your properties not the pm spruiker! It's all good for them to day they have 20 years experience blah blah blah but then just had your file on to a kid that has little idea and no guidance!

Might be a question for the forum, a few people have props up there, surely there is already one pm up there is worth paying!

 

I managed and did the book keeping for my commercial property with 12 tenants for over 20 years, however I started my working life as bookkeeper and later as PM and licensed REA, so I was well qualified to do so, I did the accounts up to P & L and let my accountant do the rest and file a tax return, I also managed GST and payments to tax office.

Keeping the books was the easy part, dealing with the tenants was a constant and travelling over to keep an eye on the property was something I did every 2 weeks to make sure everything was tidy and clean and to check toilets, make sure no one had left the water on etc. plus watching a couple of tenants who were inclined to spread beyond their own realm

 

Nah - most banks will still take 75-80% of gross rent irrespective of how it's managed.

Cheers

Jamie

 

Therein lies one of the issues, the encumbent RE in the area (they seem to have 90% of listings) have been through 4 property managers since I purchased so they do not fill me with confidence. The agent who found the tenants and who I had massive issues with has now closed the business and LJ Hooker have taken over their rental roll (I am still missing one of the rental files despite numerous requests for it over the past 8 months).

I'm thinking I may hang on to it for the time being, I haven't really found any compelling reasons a PM is worth 6% of the weekly rent. If a decent PM comes along with a flat rate deal I might reconsider.

TC

 

Wow 12 tenants. I'd definately be out of my depth on that one! Then again some of the PM's I've used would be as well.

TC