When choosing a property manager, it can feel like everyone is offering much the same thing. The fees and charges between different options can make it hard to compare apples with apples.
Many investors resort to creating a spreadsheet, listing all the real estate agents they can find and recording the management fee, lease preparation fee, monthly admin fees, advertising fees, etc. for each. Some even work out the annual cost of using each agency, and whoever comes in cheapest "wins".
If this sounds even remotely like you, read on. In this article we cover the 3 criteria most people use to choose a property manager, and why these criteria are flawed.
1. Choosing A Property Manager Based On Management Fees
Investors are generally aware that the majority of the expense in engaging a property manager is the payment of the management fee, the percentage of the rent retained by the agent in exchange for their service managing the property ongoing.
With the exception of the occasional low-service / low-involvement offering (often from a Sydney-based or online-only company using satellite and high turnover staff on the ground), most management fees in the Newcastle region sit between 5.5% and 8.8%. Most commonly, the fee is around 7.7% and if you find lower than this, you are already ahead of many. Most agencies also charge a monthly admin or statement fee of $5.50 to $12.
New investors in particular generally assess and appoint a property manager based on the lowest management fee they can find. This is a flawed method of finding a quality agency, and here's why.
Let's say you have a property with a typical asking rent of $460 per week. All other fees being equal, the difference a lower property management fee makes is as follows:
What seems like a significant difference in management fees makes a difference of just $20.24 every four weeks, or only $263.12 per year.
Now, investment is a financial pursuit. Every dollar counts. But there's more to consider than management fees alone.
To put this in perspective, a saving of $263.12 per year between a 6.6% agency and a 7.7% is the equivalent of having your $460 per week property vacant for 4 days.
So, far more critical than finding an agency offering low fees is finding an agency that will minimise vacancy and fill your property fast. How do you know whether an agency will do this?
2. Choosing A Property Manager Based On Highest Rent Appraisal
Before even comparing fee schedules from various property management businesses, some investors will shortlist real estate agencies based on the highest rental appraisal they are offered for their home.
We've covered this topic in detail before in our post "Should I Choose The Agent That Estimates The Highest Rent For My Property?", but the short answer is no.
It is a misconception that a higher rental estimate suggests greater experience or market knowledge from an agency. Sometimes a higher estimate is actually a sign of an inexperienced property manager or a business development manager needing to hit their new business targets for the month by securing another landlord.
Scepticism aside, let's say one agency with a 6.6% management fee suggests listing your property at $460 per week while another agency with a 7.7% management fee suggests $480 per week. We see this all the time.
The lesser rent in this instance would see you receiving $429.64 per week after management fees, while the higher rent would see you receiving $443.04 per week. This difference of $13.40 per week equates to an annual difference of $696.80.
At first glance, it seems like an obvious decision to make to go with the higher rental estimate. But think further about this. The lower the asking rent, the broader the pool of quality applicants you will receive for your property and the more quickly your property will be filled, providing you with income.
In the above comparison, the difference of $696.80 per year equates to 10 days of vacancy in your property. It is very likely that a property listed for $20 less per week rent will be filled at least 10 days more quickly than if a "top of the market" rent is sought. Yes, a higher rent could be achievable, but you bleed income while waiting to find a tenant for the higher asking rent.
Remember, minimum vacancy beats higher rent.
3. Choosing A Real Estate Agent Based On Financial Measures Only
Of course, property investment is a financially-driven pursuit. The objective is long-term financial gain and minimal short-term impact.
But choosing an agent based on spreadsheets of fee comparisons misses many critical considerations entirely:
There are many "soft" qualities and attributes a spreadsheet comparison of fees won't address, but which are arguably more crucial to the long term success of your investment and your level of enjoyment along the way.
For more tips we recommend reading our article "How To Find the Best Property Management Company In Newcastle".
If you are seeking focused, experienced, transparent and professional property management in Newcastle, contact us now. We'd love to meet you and discuss your investment.
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.