Nothing warms the cockles of a property investor’s heart more than the idea of reducing holding costs by ‘cutting out the middleman’. There are instances where this is possible, such as if you are handy and can do some or all of the maintenance work, but regrettably not when it comes to the management of your rental property.
One key reason is that the potential savings are negligible when compared to the management fees currently charged by real estate agencies in a highly competitive market – and even more so because by DIY-managing, you will forego any tax rebate on professional fees.
Giving a manager the flick will, for example, save you $20 on a $400 weekly rent at a 5% management fee, or $32 on an 8% fee, or $48 on 12%. If you owned 10 rental properties, each rented at $400 per week, and you dispensed with a manager on an 8% fee, you would save yourself a paltry $320 per week on a weekly income of $4000 – or $16,640 per 52-week year on a rental income of $208,000 (again, before any tax rebate you forego). The impact of DIY-management on your running (rental) yield is equally paltry. A saving of $32 on an 8% fee on a $400,000 property with a weekly rental income of $400 will reduce your 5.2% yield by 0.4%.
Time and resources
Should any of these savings above appear attractive to you, the next thing to be aware of is the workload, responsibility and legal liability risk that is involved in DIY-managing a rental property – let alone a 10-property portfolio. Real estate agencies are able to offer their services on such slim margins because of the economies of scale they achieve by typically having hundreds of properties on their rent rolls.
Even at these slim margins, agencies in many areas are readily offering discounts on the average 7% management fee, giving landlords even less reason to DIY-manage their properties. This is because the ongoing general shortage of rental properties affects real estate agents as much as it does renters, only for different reasons.
An agency’s rent roll usually represents the ‘bread and butter’ income for an agency – more so than property sales – and therefore forms the true-value basis of the resale price of an agency. The larger the rent roll of an agency, the better the potential resale price. In times of a shortage of rental properties, therefore, an agency principal will often encourage the property managers to offer generous discounts to landlords on the advertised management fee.
Never mind that a property manager is worth their fee many times over in juggling the many day-to-day tasks, which, incidentally, include advertising properties, vetting tenants, chasing rents and deposit bonds, coordinating repairs, doing property inspections and, when necessary, attending the tenancy tribunal. They’re ‘worth their weight in gold’ in facilitating an arms-length relationship between a tenant and landlord, says Linda Tuck, property investor, commentator and director of Cairns-based specialist residential property management group Property Ladder Realty.
As Ms Tuck reveals, professional property managers serve as a neutral intermediary in negotiations between a landlord and a tenant. This removes the emotions that can quickly erupt between tenants and landlords even over trivial tenancy issues. If left unresolved, these issues can become potentially dangerous, resulting in legal and financial consequences for a landlord.
Professionals balance the interests of the landlord with the needs of the tenants and in so doing they remove a lot of the stress, confusion and time-wasting of an emotional confrontation, she says. By contrast, a DIY manager is usually much less likely to be able to put aside his or her self-interest to negotiate a balanced settlement.
For some, managing their own investment properties can be financially rewarding. Depending on your other commitments DIY investment property management can save you money and let you be more involved in your property. Not everyone has the time to be so hands on, so before you jump in consider your options and weigh up the benefits.