You’ve got your head around negative gearing, bitten the bullet and bought a rental property, which, with any luck, will shoot up in value before you’re ready to sell.
Should you maximise your return by managing it yourself or do you stand to save more than you spend by paying a property manager to wrangle the tenants for you?
The latter, says Fat Pizza actor and entertainment promoter Alex Haddad, 41, who has learnt the hard way that property management can mean a whole lot of hassles.
Haddad put his Ryde investment house in the hands of an agent three years ago, after being burnt by tenants who had been introduced to him by friends.
A landlord since 2007, he had sourced previous tenants from Gumtree and, despite confining background checks to a quick call to confirm that they were in work – ”I’m a good judge of character” – managed them himself without issue. Pocketing more of the $350 weekly rent and a mistrust of agents, as a result of helping his parents through some bad experiences with their portfolio, motivated him to take the DIY route, Haddad says.
On the strength of the personal connection, he allowed the offending tenants to move in without a bond, but soon afterwards learnt they were unemployed and had no intention of paying regular rent. Subsequent attempts to have their Centrelink payments garnished were unsuccessful and moving them on took eight months and a tribunal appearance.
When they eventually left, owing six months’ rent, they trashed the house and most of the furniture.
Haddad believes having an agent manage the property would have headed the situation off sooner, or prevented it from arising.
”Because it was a friend of a friend, I didn’t want to do any harm to them.
”An agent would have been on to them straight away.”
A large percentage of Australia’s landlords appear to share his views. About 2.5 million rental property schedules were lodged with the Australian Taxation Office in the 2010-11 financial year and 1.7 million of them included claims for property agents’ fees.
Charges are tax deductible and vary widely between states and agencies. Management fees of 7 to 9 per cent, plus GST, are common, although some agents charge as little as 5 per cent or as much as 15 per cent.
Letting fees range from one to three weeks’ rent.
Agent or no agent?
Whether or not to employ an agent is the sort of ”bread and butter” query DFK Richard Hill accounting partner David Sharp encounters at least once a fortnight.
”It really comes down to time: how much you value your time and expertise.
”Anybody can do it – it’s not rocket science – but my bet is most people don’t do it particularly well.”
Many DIYers begin optimistically, but having to find emergency plumbers at 1am to deal with bathroom floods or have holidays interrupted by complaints that the pool filter is on the fritz can wear thin, Sharp says.
”It’s all fine if you get a really good tenant and nothing really goes wrong … The reality is things can go wrong at any time.”
Besides not having a hotline to a pool of trusty tradies, many private landlords do themselves down financially from the outset, says George Kafantaris, whose Brisbane agency, Property Portfolios, manages 500 houses. ”A lot of landlords don’t know what the true market rent actually is.”
Undercharge by $20 or $30 a week and bang go the savings you made by not paying a professional. Private landlords can also be chary about upping their rent in line with the market, particularly if they’re on friendly terms with sitting tenants, Kafantaris says.
Lack of access to major internet sites where most properties are advertised can also put private landlords at a disadvantage when sourcing new tenants and can lead to longer vacancy periods.
It all takes time. Even during uneventful periods, Kafantaris suggests allowing five to 10 hours a month, or more if you want to keep up with changing legislation.
That’s too hard, says Melbourne funeral celebrant Robyn O’Connell, 58. She and husband David Nugent own two rental properties in the outer suburb of Berwick and have had an agent on the job for the past four years.
The agent takes a 5.5 per cent cut of the $325 and $350 weekly rents and is worth every cent, O’Connell says. Her agent’s vetting process has resulted in minimal tenant turnover and no dramas with those she has picked.
”She’s really good at choosing tenants. I feel that’s a gift,” O’Connell says. ”If there is something wrong and you do have to go to court, they know what they’re doing. Out of all the things you spend money on, it’s one thing I don’t begrudge.”
Have you had trouble with tenants? How did you resolve it?