The above image was taken at an investment property we manage, when a burst storm water pipe caused part of the home to sink requiring urgent and very significant repairs!
"Should I manage my own investment property?". This is a common question asked by prospective landlords and those new to property investment. You know your property better than anyone else, and it may seem that once your property is ready to be rented out you could save on cost and maximise your return by managing the property yourself.
Let's look at this in detail. The starting point is to ensure there is a clear understanding of what is required in managing a rental property. As we'll see, there is a lot more to it than listing a rental on Gumtree and collecting the rent!
What does a property manager do, exactly?
Before launching into considering managing a rental property yourself, let's get a brief overview of what a property manager actually does. Following is a breakdown of the main activities a property manager undertakes, which we have simplified into three groups.
1. Prepare the rental property for listing
2. Secure the ideal tenant
3. Manage the relationship during the lease period
Will I save money managing my rental property myself?
The primary reason people consider managing their own rental property is to save on management fees (it's not to challenge themselves in all the areas of responsibility listed above!).
So let's look at this potential cost saving. Management fees vary from business to business, but usually sit somewhere between 5-10% of weekly rental income. As an aside, most property management companies do not clearly disclose their fees. You can find our Newcastle property management rates and fees here.
As an example, if a property management company has a management fee of 7.5%, and you're renting your property for $450 per week, the management fee equates to $33.75 per week. That's $135 per month or $1,620 per year, paid out from an annual rental income of $23,400 before any tax rebate.
To reiterate this point - property management fees are tax deductible. They reduce your taxable income. By managing the rental property yourself you will forego this tax benefit at the same time as introducing a wealth of challenges and time intensive activity to your life.
So yes, there are quite small savings to be made by managing your rental property yourself. But what little you save, you need to make up for in confidence and ability to do the job yourself.
What are the downsides of managing my own investment property?
If the paltry savings on offer are appealing enough, you must next consider the workload, responsibility and legal liability you are introducing to your life by DIY managing your property.
1. Managing your own investment property is a lot of work
Forest Gump would agree that property management is like a box of chocolates. You never know what you're going to get from a tenant. But "surprises" such as delayed or unpaid rent or water usage, damage to a property, and unexpected maintenance requests are all part of the job. They are not a headache or a nightmare to a property manager. They are just another day at work.
However when YOU are the end point for dealing with these issues, it can be stressful and difficult to manage, especially if you are working full-time and located away from the property most of the time.
Without the systems and processes an experienced property manager has in place, there is a lot of manual effort in checking the rent has been paid on time, calculating the date unusual rental payments are balanced up to (tenants can have a habit of paying irregular amounts of rent, such as $480 one week when their rent is $450!), and arranging qualified tradespeople for all manner of potential repairs and maintenance.
2. You will deal with difficult tenants and unforeseen issues
When you hire an experienced professional property manager, you are immediately getting someone on your team and a buffer between yourself and the tenant. You are getting professional distance.
This may seem unnecessary if you have a great tenant in mind that you "know" won't let you down. But how will you deal with things if everything goes pear-shaped? For example,
Choosing to manage the property yourself is signing on to deal with difficult tenants and problems. You need to be strong in demanding rent as it is due, serving a termination notice when required to evict a tenant for breach of the lease conditions and be able to show you have all required documentation in order to back your case before the tenancy tribunal should you need to make a claim.
For example, if you wish to evict the tenant you need demonstrate that you have provided the required reminders, notices and applications at the correct intervals in order to get the demand you require issued. Failure to provide evidence of this may result in a failed claim, resulting in the tenant being allowed to stay in the property.
You need to remain professional - not emotional - about your own investment. This is far easier for a property manager to do than you as the owner. Professional property managers serve as a neutral intermediary in negotiations between a landlord and a tenant. Even the most trivial matters can escalate quickly, very easily resulting in legal and financial consequences for a landlord.
3. Managing your own investment property is not a part time job
When considering DIY management of your own investment property, you must consider your availability and remember that the tenant may need to contact you at any time.
A broken sewerage pipe or burst hot water system may occur while you're dealing with a difficult situation at work, or when you are on holidays. Dealing with matters such as these are highly unpredictable and time consuming. Your time to inspect the problem, co-ordinate quotes, and arrange repairs will be required urgently.
Put simply, you can't choose when the property can demand more of your time. You must always be available, professional and unemotional to deal with issues when they arise.
So, should I manage my rental property myself or use a property manager?
For many, cost is the main reason to consider self-managing an investment property. As we have shown, these costs are tax deductible and are relatively small alongside the rental income.
In addition, the cost in property management fees is usually offset by the speed of finding a quality tenant (i.e. reduced time of holding a vacant property), additional rental income an experienced property manager can secure for you and the ongoing peace of mind that comes with it.
Just think about what your own time is worth to ensure your investment is being looked after without any confusion, emotion, or headaches of the unknown for you to deal with. Suddenly saving around $30 a week doesn't seem as worthwhile a tradeoff!
Managing a rental property is a lot of work. If you aren't inclined to thrive dealing with repairs, unpaid rent, problem tenants and marketing, you really should hire a property manager.
Contact us now to discuss managing your rental property and our experience to help minimise your stress and maximise your return.
Carnelian Property Management Newcastle NSW
We are a family-owned and run Newcastle real estate agent offering expert property management across Newcastle and Lake Macquarie.