Should I self-manage the property or rely on an expert?
Self-managing a property is an option for those with spare time and a number of key skills. But for novice investors who aren't prepared to dedicate the time and effort, it’s usually not the best choice.
Also known as “DIY landlording”, self-managing a rental property cuts the property manager out of the picture, with the owner handling the tenants themselves.
This strategy will certainly save the investor the property management fees. They must, however, ensure they aren't creating a false economy, with mistakes and wasted time more expensive than hiring a professional in the first place.
Remember, tenanting a property is not just about advertising for the tenant, selecting them and placing them there. It's also about regular reporting, upkeep and communication with the tenant.
You will need to keep records and paperwork in relation to their tenancy and be wary of not breaking the rules, which vary from state to state, around notice periods. If you ever need to take a trip to the Tribunal, you might wish you had a property manager.
It’s no small feat.
Those looking to negotiate with their tenants and maintain a fully functioning investment property will need:
- Good communication skills and a good manner with other people;
- Strong knowledge of tenancy laws (or the aptitude to learn these details);
- The time to handle tenant complaints, repairs and breakages;
- An objective approach to disputes and situations (yes, it's your property, but you need to leave your emotions at the door);
- An organised manner, keeping accurate paperwork, calendars and details.
The Australian Landlords Panel 2012 found that landlords received higher rental yields and profits when a property manager was used, and generally had better investment experiences.
Terry Scheer Insurance executive manager Carolyn Parrella explains that property managers conduct regular inspections to identify issues, know what to look for and have a network of tradespeople and professionals to call on when necessary.
“Property managers can provide landlords with risk management benefits and potentially minimise loss for the landlord if an issue arose,” says Parrella.
“While it can be tempting to save a small percentage of rental income by self-managing your rental property, the benefits of appointing a property manager can far outweigh the costs,” she says.
Another benefit of having a property manager with local expertise is their ability to assist with vacancies. They can provide advice around additional improvements that can be made to attract tenants and warn you if the market is softening.
Good property managers have processes in place for every piece of paperwork and situation available. Similarly, should you have a question about a tenancy issue (such as "Can I still renovate mid-lease term and how can I negotiate this with my tenant?"), a professional property manager will be invaluable.
A good property manager can also make the asset a little less ‘high maintenance’. If you’re happy for repairs up to a certain dollar figure to be made without approval, you can trust your property manager to step in and sort it out. Similarly, you don’t need to be on call constantly in case something goes wrong with the property.
The cost of having a property manager in your investment team sits at 6% plus, with some competitive options in most areas, plus extra fees when advertising, re-letting or similar. The fees are usually tax deductible.
However, for “hands on” investors who live locally to their property, it may suit to self-manage and deal with your own tenants directly. Providing your personal attention to the property can have some benefits over choosing a cut-price property management company where each agent is managing a number of homes.
Online tools are increasingly making it easier to self-manage, providing the legislation and paperwork at your fingertips, and this is only set to continue.
Be honest with yourself about how much time you are willing to set aside to commit to the day-to-day running of your investment property.
For help getting started in property investment, speak with a RAMS home loan specialist and pick up your free RAMS Investor Pack.
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Disclaimer: Information in this material in general and does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you. You should also obtain independent professional advice relevant to your financial circumstances.
The taxation positions described are general statements and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and their interpretation.
RAMS Financial Group Pty Limited does not endorse or assume any responsibility for the advice, content or services provided by Property Observer or any other third party referred to in this material.
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