02/05/2013
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Choosing the right property manager
Q: I have purchased a couple of properties now and had mixed results from agents. Some have been good and others have not performed well. One manager I had was useless in not getting me as much rent as I felt the market could have, and I had constant repair bills for the property, although it was fairly modern. How do I make sure I don’t get a dud property manager?
A: First of all, it is important to interview a few agents and seek their feedback. I would recommend making a list of questions that your ideal property manager should be able to answer with ease. The main questions of concern are:
1. How long have you been working for the current company?
This provides evidence of track record.
2. What other similar properties have you rented in this area recently, and what rents did you achieve?
This will give good evidence of their track record.
3. What is your tenancy selection process?
This will give you an indication of what sort of tenant you should expect to get for your property.
4. Do you own investment properties yourself, and what do you look for?
A serious investor will want maximum results, and understands you better as an investor.
5. How many properties do you manage?
Too many properties with no solid system means your manager may be overworked.
6. What is your current vacancy factor?
The lower this figure, the better chance your property will not be vacant for too long.
7. What systems do you have in place for managing your properties?
Good systems will make your life more seamless, such as bill payments on your behalf and 24/7 access to your file online so that you can track your rents live and see what notes are on file for your property.
8. How many arrears do you have currently?
Too many arrears is catastrophic for your property potentially being in arrears.
9. Can I contact a few of your existing landlords?
Having raving fans is always a sign of good business.
10. How long do you think it will take for my property to be rented?
One day? One week? Two weeks? One month? A positive agent is more likely to get a result.
11. Make up some more q’s
The reason for asking your potential agent these questions is so that you can get a good sense of how they will manage your property. A dud property manager is not even worth their fee, and a great property manager is priceless.
In selecting a property manager, it is important to understand how an agent works, as many real estate offices employ young, inexperienced staff to save on running costs, but this can be at the cost of the landlord (who is paying the agent’s wage). I have personally seen many real estate agencies over the years have a fast turnover of staff, with some roles changing four or five times a year. Keep in mind that many agents will follow the path of least resistance. You need a proactive agent, one who is not afraid to stand up for you and help you reach your goals.
Case study
Let’s look at a real-life example of a property being poorly managed. You have a property worth $320pw; however, the previous agent rented it at $220pw. (Don’t laugh – I picked up a file for one of these a few weeks ago.)
Why would an agent not push for extra rent? There can be many reasons; however, often this is because it is quicker to get a tenant if the rent is drastically reduced, and it saves the agent time that would be spent showing prospective tenants through the property.
Let’s break down why an agent may not push for simple rent increases. Say the tenant comes in once a week to pay their rent, so the agent has a relationship with the tenant. If the tenant is paying $300pw and the rent is increased to $320pw, the tenant will complain to the agent and make their workload more stressful – yet the market rent may well be $330pw, because the tenant has been in the property for 12 months.
In this case, what benefit will it be to the agent to increase the rent if it increases their workload? To put it simply, a 7% fee on a $20pw increase is $1.40, which is not going to be of great value to the agent.
However, if your property manager is landlord driven and proactive, they will look at your properties under management and think that $20pw is $1,040pa extra for the landlord, and if the landlord has multiple properties this will increase investor profits, and a happy landlord means a greater opportunity for them to grow their business.
Furthermore, if your property is managed by the principal (owner) of the agency or a switched-on manager, they will look at their own business and think: if I increase all my landlords’ rents by 10%, then the office’s income will also increase by 10%, along with the value of the business.
A property manager with good systems and procedures minimises risk and vacancy periods, and ensures that rental arrears are kept to a minimum so that everyone benefits.
