When it comes to the discussion of engaging a professional property manager versus self-managing, I’m unequivocal in my recommendation-always engage the professional. I’ve spoken to plenty of people who self-manage and I understand the attraction of saving some money on management fees, however, when you’re talking about managing an asset that runs into the hundred’s of thousands of dollars, it’s imperative that it’s managed properly. Outsourcing this task can also let you focus on what you do best, which for most people is their full-time career.
Property Management is a specialist task, and it’s often said to be the hardest of all the real estate careers. I choose to leave managing my properties to the professionals. So, with that in mind, I’ve put together my top five tips on how to choose a great property manager.
1-Create a shortlist
One way of creating a shortlist of agents is to look at Domain and Realestate.com.au to get a gauge of which agents are getting the most rental listings in the area you’re looking at. They don’t necessarily need to be number one, but it’s important they know the market and are involved in it daily. This can help you focus your search on local area specialists.
Once I’ve found a few that look to be fairly active, I then open up some of their adverts and get an idea of how they advertise. Are they overly emotive? Do they stick to the facts or are they prone to exaggerating? In essence, do they do a good job of selling the story about the rental property they’re trying to lease? You’ll need to be comfortable with how they manage your listing, so this is an important step. I’ve read some articles that suggest calling up the agent and pretending to be a tenant to get an understanding of how they manage the process and how you are treated. I’ve never done this, it feels a bit sleazy to me, but it’s up to you!
Once you’ve found the few that you’d like to get more information on, call them up or email them, and ask for their standard information pack for new landlords. They’ll likely want to know the address of the property (hopefully!) so they can tailor the information to you. These packs will include information on their agency, their fee structure and generally how they approach the task of property management. The earlier you can get this information the better, as it allows you more time to work out which agent you’d like to use.
I find that there’s often one pitch that really stands out, one that comes across as more professional than the others. If there’s one that grabs you, great. If there’s more than one, that’s OK too. The below tips can be used for further researching any number of agencies.
2-Make sure the fee structure is in alignment with your best interests
I’ve listed this as the first check, not because it’s the most important, but rather because failure to get alignment here will mean you don’t need to do the other steps, and you can move on to looking at other prospective agencies. Fees are only one part of the puzzle, but property investment is a business so it’s obviously important to give them the proper attention. I’m not always looking for the lowest cost provider, but rather the agency that has a fee structure that I feel is best aligned with my outcomes. In fact, the most recent time I needed to change agencies, on the account of bad service, I actually went to a higher fee agency.
A few of the main things I look for are:
- Lots of small value admin fees-These all add up, and I just don’t like paying for things such as ‘bank fees’ or ‘postage’. Also, they make it more cumbersome when I’m reviewing my monthly property management statements, so I try and negotiate these out as a first step.
- High upfront fees-I’m always dubious about high upfront letting fees or over the top marketing expenses. I’m fine to pay for advertising and marketing expenses, as these are incurred, but I shy away from fee structures that reward the agent for just doing basic tasks. On the other hand, I’m less concerned with a slightly higher weekly percentage management fee. After all, if I’m making more rent then the agent is making more fee income, and we’re aligned.
- High re-letting fees-One thing to be careful of is a fee structure that encourages churn. If the agency stands to make a lot for either new tenancies, through a large fixed fee, or they stand to make a substantial sum from a re-letting fee, I’m always looking to understand why these are in there. A red flag can be the combination of high re-letting fees along with the advice to always go for shorter leases. Normally I try to get re-letting fees negotiated out, or reduced so that it doesn’t feel like it’s going to encourage short-term thinking on behalf on the agent.
Economics is the study of incentives, and I want my agents to be incentivised in ways that will help me, not harm me.
3-Meet the property manager in person
Where practical, I always like to meet the person assigned to managing my property. It’s not 100% necessary, but I always find it helps with communication down the line. You’re much more likely to find common ground if there are issues if you’ve met the person. Also, you’re assigning over management of a hugely valuable asset to someone, so it’s important that you’re happy with them. From the agents point of view, once they’ve met you they’re more likely to be invested with your success, and hopefully go that extra mile when needed.
4-Get an idea of their workload and experience
Property management is a hands on game, and it’s one that can take its toll on agents if they are over-worked. Try to get an idea of how many properties they’re managing, to make sure they’re not over-stretched. More experienced agents will be able to manage more properties, but there is an upper limit on how many they can manage and still be effective.
I also like to get an idea of the experience of the manager assigned to my property, or the team, in the event that duties are shared. If the manager is young or inexperienced, that’s not always a deal breaker, as long as they are being mentored by someone who is really experienced and they have all the other right attributes.
Finally, make sure you get an understanding of employee turnover at the agency. Admittedly, this is hard thing to check and you’ll probably just have to rely on the word of the agents, but it’s worth asking. A Google search might assist here, to check out what others are saying about the agency. As mentioned, property management is a tricky job, and it can be difficult for agents, especially if their systems aren’t up to scratch. The last thing you want is to engage an agency that has such a high employee turnover that you’ll be getting used to a new manager every 6 months. That leads us to out next point.
5-Ask about out their systems and processes
Property Management has been one of the biggest winners from the recent boom in property technology, and this has allowed agents to automate certain tasks. I always like to get an idea of what systems they use and how they use technology to stay on top of things. This includes asking questions on how you’ll get paid, how they’ll communicate with you, what flags they have to make sure they don’t miss anything etc. Technology can’t replace hard work, but it can augment it.
As a side note, no matter how good their systems are (or appear to be), you should always check your statements line by line when you receive them, and reconcile back to the cash received. I recently picked up an error that otherwise would have cost me two weeks rent! I’ll be writing more on the topic of how to manage a property portfolio in the future.
Final comments
Once you’ve engaged your chosen property manager, stay in touch with them regularly, and treat them well. This might even stretch to a bottle of wine at Christmas. They’re now a part of your property team, and you want to make sure they’re working hard for you. Remember, when they have a hundred jobs to do, you want them to be doing your one first. It doesn’t take a lot to stand out above the crowd.
At The Property Curator, we manage the task of finding a great property manager on behalf of our clients. If you’d like to chat to us about how we an help you purchase an invest an investment grade property, email us or drop us a line to have a chat.
Please note: the above information and analysis does not constitute financial advice in any way, and it should not be relied upon. It’s important that you seek guidance from licensed professionals, who can provide advice based on your individual needs. No investment decision or activity should be undertaken on the basis of this information without first seeking qualified and professional advice.
