Can you save money as a DIY landlord?

10/12/2012

For many landlords, investing in property is something of a ‘set and forget’ proposition. They buy a property; engage a good property manager; arrange an accountant to run the financials; and look forward to a plump tax refund each July. 

But Diane Bukowski, managing director of Eezirent Pty Ltd, believes this hands-off method of property ownership can be fraught with danger. 

“I think too many people forget about the value of their investment. Let's say you owned an investment property in Adelaide valued at $500,000, and you lived in Melbourne. Don't you think it is worth making the trip a couple of times a year to check on your half-million dollar investment?” she says.  

Bukowski believes the value of property assets is “under-rated by the professional industry themselves”, as many property managers forget that they are in charge of a portfolio worth tens of millions of dollars.

“These are often in the care of poorly trained, overworked and under-resourced property managers,” she says.

“If it were a share portfolio, we would expect the stock broker to have a tertiary degree and there to be very high levels of accountability and control. But, there seems to be vastly different expectations when it comes to residential investment properties.”

Becoming more involved in your investment property is the best way to protect your investment, in Bukowski’s view. “This is why it makes sense for investors to be self-managing landlords,” she adds, “because no one will take better care of your investment.”

The benefits of self-managing your property

There’s no getting around the fact that handing over up to 10% of your rental income each week to a property manager adds up to a decent chunk of annual change. 

“Property management fees across Australia average 8%. On top of this, owners can be charged fees for letting the property, inspections, lease renewals, organisation of maintenance and administrative costs. This can be a substantial hit to the return on investment for the owner,” explains Bukowski.

On a property that rents for $300 per week, with a property manager charging an average of 8% commission, your outlay is $24 per week. On it’s own, it’s not a great deal of money: it might buy you a few sandwiches for the week, or a couple of yoga classes. 

But once you add up the costs of using a property manager over 12 months, you start to see the dollars piling up. 

A weekly rent of $300 amounts to $15,600 annually, and by using a property manager, you invest over $2,000 of this income into property management.

It’s a financial investment that Bukowski believes smart landlords can avoid, which led her and business partner Geoff Mallan to launch eezirent.com.au. The website that facilitates direct dealings between landlords and tenants, and essentially allows private landlords to advertise via major portals like realestate.com.au. 

“Having recently worked in real estate, I had seen research that 30% of all properties are managed by private landlords. These private landlords are locked out of access to digital resources such as www.realestate.com.au and the National Tenancies Database, so we saw that this was a sector of the market that was really being underserviced,” she says. 

“If an owner wants to be proactive and in control of their investment, and if they want to maximise the return, then self-management is a good option. You don't necessarily need to live near your investment, either. You can compromise and engage a local agent to do a 'let only', and you take care of the management.” 

Consider the insurance angle

While self-managing your investment property can potentially save you money, those who are considering taking their property management into their own hands need to consider the potential increase to their landlord insurance premium or excess.

For instance, Youi Insurance will extend building and contents insurance to DIY landlords, but they enforce a minimum $1,000 excess on all claims, to account for the higher perceived risks involved in self-managing.

Meanwhile, Terri Scheer Insurance offer a self-managed landlord policy that includes coverage for situations such as malicious damage by tenants, accidental damage, legal liability, and loss of rental income if a tenant absconds.

However, the premium is “slightly higher than our policy for landlords who have appointed a property manager,” confirms Terri Scheer insurance manager Carolyn Majda, “to reflect the higher risks associated with self-managing rental properties.”

“Do-it-yourself property management involves a significant time commitment, and landlords who self-manage their rental property need to be available to attend to maintenance issues promptly,” Majda says.

“If there is property damage and regular inspections are not being held, this may escalate and become more costly to fix later on. Delayed maintenance can also leave landlords susceptible to legal liability claims if a tenant or their guest is injured as a result.”

Property managers, on the other hand, have systems and processes in place to find and screen prospective tenants. Insurers also like the fact that they have access to databases that list tenants with a history of defaulting on rental payments, damaging property and eviction.

“While it is possible for landlords to successfully manage their properties themselves, hiring a professionally trained property manager can provide many additional risk management benefits and potentially minimise loss for the landlord if an issue arises,” Majda adds.

“The time and effort that property managers can save landlords as well as the experience and knowledge they provide can be well worth the cost for their services.”

Your rights and responsibilities

One of the most common areas where self-managed run into trouble is when they fail to comply with property and tenancy related legislation. 

“There’s a fair bit more to managing a property than collecting the rent and fixing the odd repair,” explains Simon Waide from Rental Express in Brisbane.

“When you manage your own property, you take on the responsibility for compliance, and there’s actually a lot involved in this area.”

For example, many landlords don’t know that there are strict rules around bond lodgments. It is illegal to hold bond monies in your own account as, by law, they must be held in a trust. The local Office of Consumer Affairs can fine those landlords who are caught not following this procedure upwards of $1,000.

“You have to make sure that bond funds go into trust accounts, and that correct forms have been filed. There is legislation around maintenance and who is responsible for what,” Waide says.

“Particularly in Queensland, there are a lot of rules around things like smoke alarms compliancy and pool fence regulations, and this legislation is changing all of the time. If you’ve been managing your property alone for a few years, you might not even be aware of these changes.”

There are also rules that guide your access to the property, because tenants are entitled to a reasonable expectation of privacy.

“You can’t just drop by without issuing an entry notice. There’s a lot you need to be aware of because being ignorant of the law is not a defence – you can’t just say ‘I didn’t know’,” Waide adds. 

“For those who are thinking of managing their property themselves, I would advise that you go and do a basic property management course, so you can at least get up to date with the current legislation.”

How to choose the right property manager

Some property managers are so good at what they do, they’re worth their weight in gold. They’re organised, passionate and proactive about keeping both landlords and tenants happy, and they take all of the stress out of property ownership for you. 

Then, as is the case in all professions, there are some property managers who go through the motions, but who generally fail to give your investment the time and attention it deserves. 

So, how do find the best property manager for the job? 

Elise Nusco is the property manager at Richardson & Wrench Rooty Hill. Her agency is known for achieving low levels of vacancy, despite the fact that the local area is experiencing high vacancy rates, and Nusco attributes this success to their proven policies for maximising rents and minimising vacancies. 

“Marketing for many property management offices is poor and isn’t given the same attention as properties for sale,” she explains. 

“As well as intensive marketing, we make sure that presentation of the property is at its best, and we ensure that the rental amount is fair and competitive with the market, so it’s not over market value and it’s not too cheap.” 

To locate a good quality property manager who will work help you achieve the best possible results with your investment, Nusco says it’s a good idea to ask for references and seek out evidence of their track record with similar properties. 

“I think experience is a huge factor when choosing your property manager – you want to be sure that the office has stable staff, a good reputation and good market presence in the area,” she adds. 

“It’s also very important that they treat property management as a big part of their business, and they’re not just a sales office who do rentals on the side.”