05/03/2008
Q. I’ve just bought my first investment property and I’m wondering whether I should look after it myself or employ a property manager. I’m tempted to go it alone so the fees don’t eat into my profits – what do you think?
A This is a question I’m often asked, and I’ve met landlords who have chosen to undertake property management personally.
The feeling that you can keep an eye on your property and save money by managing it yourself is never balanced by considering the true cost of management, the responsibilities and skill involved in this job, and if it’s worth your while financially.
From a commercial perspective, this is a job which only pays well if it can be done on a large scale. Consider what has to be done – tenant selection, regular property inspections, rent collection, tribunal appearances, the arrangement of repairs and maintenance and answering constant tenant enquiries. Now, think about the remuneration – at an average of 7% of the rent collected, you’re looking at about $14 a week.
Considering your one property, you want to save $14 a week ($9.80 after the tax deduction you receive for paying this cost) and spend the time (I would suggest at least one hour, possibly more, per week) to manage the property. That seems a very slow way to make money, and is a gross underestimation of the value of your time.
Add to that the fact that you aren’t trained to do this job and you don’t have the capacity to access a database of information about tenants and their histories and so are at risk of choosing the wrong tenant. I’m sure you can see that the whole proposition of self management is a short-sighted one which is commercially unviable. The benefits of managing your property personally include:
- Cost savings as no management fees will be deducted from your rent
- You may be able to keep a closer watch on your property than a property manager does as you’ll probably have fewer properties to manage
- You can be sure that your own personal standards are upheld However, the drawbacks include:
- Once you start to accumulate more properties, you may not have the time to manage all of them, especially if you are also employed
- You may lack full understanding of the laws applying to landlords and tenants and strike trouble
- The savings in costs are not worth the cost of your time
- Interviewing tenants and uncovering their financial and rental histories may be difficult
You are a property investor, not a property manager. It is an important distinction to note as you must become good at one or the other. In reality, the costs of professional management may be a small price to pay when you place a true value on the time you may spend yourself. Remember also that property management fees are tax deductible, which generally reduces them to a very small percentage of your income.
Margaret Lomas - is the founder of Destiny Financial Solutions, and is a qualified financial advisor and author. www.destiny.net.au
