What's The Issue Behind Using A Very Low Cost Or Flat Fee Property Management Business?

Two years ago we wrote the article "Should I Use An Online Property Management Service Instead of Hiring A Property Manager?". In this post we spoke about one of the many online property management service providers offering very low fees, raising some food for thought around what may or may not be included within those low fee structures. 

Now, two years later, there are even more options for investors to consider in the management of their property. In this article we revisit the potential pitfalls of selecting a very low cost or flat fee property management business. 

​What Is Offered By Low Cost or Flat Fee Property Management Businesses?

​Generally, property management companies work on a management fee percentage structure. This means that the business receives the majority of its income as an agreed percentage of the rent received on behalf of the property owner. The fee varies from region to region and state to state (NSW being one of the lowest fee-charging states generally), and in Newcastle the typical management fee is somewhere between 6.6% and 7.7% incl GST, though some charge upwards of this. 

One high-profile, Sydney-based provider servicing the Newcastle region offers a management fee of 4.4% incl GST. There are even some startups which have entered the market in recent times offering all landlords a single flat fee to manage their property. Generally this fee covers the basics only such as finding tenants, preparing the lease, collecting rent and arranging repairs. 

​Why Should You Be Wary Of Unusually Low Property Management Fees?

​Their unique service proposition is not customer service excellence, outstanding industry experience, negotiation strength, or ability to analyse the market. Their unique service proposition is that they are cheap. When something is cheap on the surface, something under the surface is generally suffering.

​Most property management businesses have been successfully operating for more than 5 years. Many of the "name brand" agencies have been servicing their area for several decades. Property management departments are always hungry for more listings, as this is how the business and success of the team grows. If a full service property management offering could sustainably be provided for significantly less management fee income, why are so few businesses offering lower fees to win more business?

Generally, low fee charging service providers don't offer the same depth of skill, experience, and long term commitment to your property. Their unique service proposition is not customer service excellence, outstanding industry experience, negotiation strength, or ability to analyse the market. Their unique service proposition is that they are cheap. When something is cheap on the surface, something under the surface is generally suffering, right?

To be completely transparent, low cost means low profit margin to the business. This in turn means that in order to remain profitable long term, client volumes must be significantly higher for a low cost provider than in a traditional real estate agency. It becomes a volume game.

The result? Employees of these low-cost providers are likely to even more overworked and stressed than their industry counterparts (who research shows are generally stretched thin as is). The result for the landlord is they are likely to be working with a revolving door of property management staff, many of whom they will never meet face to face, and most of whom are unable to dedicate the required time to appropriately care for their property, tenant, and to be proactive instead of reactive to their needs. 

​A seasoned property manager's familiarity with legislation, how to negotiate with difficult parties, how to prepare for and succeed at a tribunal hearing... all of these things only seem critical when the run of good times ends

​But Some Of The Low-Cost Providers Have Good Reviews!

​One common thought is that a low cost property management service provider mustn't be that bad if the business has some good reviews online. The trick here is realising that many property investors are fortunate enough to experience a dream run with their investment property, where there are seldom any issues. A good tenant is found, the tenant pays the rent on time, the property rents quickly whenever it goes to market, etc. 

If this was all that was required to provide an excellent property management service, property management would be a very easy business. In reality, these are the easiest aspects of property management and require relatively little skill or knowledge to complete. 

When everything is going right, property management looks very easy. But it's when the unexpected happens and things aren't going as smoothly that you will find the experience of a seasoned property manager invaluable. Their familiarity with legislation, how to negotiate with difficult parties, how to prepare for and succeed at a tribunal hearing... all of these things only seem critical when the run of good times ends and this expertise is needed.

In Summary

Property management companies that prioritise excellent customer service also avoid overloading their property managers. A simple way to avoid such overload and to remain customer focused is to grow at a steady and sustainable pace, rather than chasing volume to keep the "head above water". 

We are proud to offer one of the most competitive property management rates in Newcastle, and an unrivalled personal service where our landlords have direct contact with our agency owners. If you are interested in a property management company offering transparency, excellence in customer service and a proactive approach to the management of your investment, contact us today. 

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