The ultimate goal for many property investors is to retire comfortably, supported by a successful portfolio of ‘set and forget’ properties. While this may easily be achievable for the very few with limitless time available to practice their craft, in reality, the majority of us find it difficult due to the various ongoing commitments we have in both career and family life.

The key to clearing this hurdle is to revisit your specific investment strategy and factor this into your plan. Beginning with the end in mind and taking more of a big picture approach to property investment is why our end-end investment process is so appealing for many investors. Each step covers a separate, specific element of the investment process and enables you to carefully plan ahead so as to avoid making costly mistakes.

Our previous investment articles have used a series of guidelines to help you plan, select and purchase the right asset to match your strategy. Step 6 (next month’s article) will even walk you through the process of adding value to these assets through renovation or re-development.

This next chapter – step five – will guide you through the process of developing your property management strategy. In other words, the strategy you will use to get the most out of the renting out of your property.

Our aim is to ensure that you are armed with enough knowledge to implement a property management strategy that’s right for you and that will ensure you get the most out of your property investment – from having the right tenant placed at the right price and with minimal disruption for the life of your asset ownership.
 

Common mistakes

 It is typical for many investors to rush into this aspect of the investment process and focus solely on ways  to save money where they can. Invariably, this short-sighted approach leads to greater costs in the long term through such things as;

  • Extended vacancy periods – through poorly promoted advertisement
  • Tenancy-related issues: missed/late rental payments, damage to property, tribunal attendance costs
  • Missed rental review opportunities
  • Missed renovation (value add) opportunities

 
Guided by their hip pocket (or desire to get their cash flow moving), many investors will usually choose one of the following;

  • Self-manage their rental property
  • Hire the first property manager they speak to
  • Select the cheapest property manager they can find, or
  • Use a relative to collect the rent

Unfortunately, in almost every case we’ve seen in the above, there was rarely an example of best practice for management of their asset.
 

The Do-It-Yourself (DIY) method of property management can be a disastrous decision unless you happen to have years of local rental market knowledge including having access to detailed market data (e.g.: local median rental returns and yields, market trends and tenant demographics). Additionally, it means being across the changing demographic trends and the idiosyncrasies of your prospective tenancy base i.e. What they are specifically looking for and how much they’re prepared to pay for the right property.

Too many people rush to get their properties tenanted without taking the time to properly plan ahead. Taking that approach increases the risk of getting some element wrong and then ending up worse off.

This approach makes it highly unlikely that the “DIY” method will achieve the same result that a professional property manager could. Penny wise, pound foolish…

Likewise, not taking the time to properly vet your prospective property manager is a common pitfall often resulting in an underqualified and/or, inexperienced manager looking after your investment and seeing your hard-fought gains be squandered through poor ongoing management practices such as;

  • Rent priced above market value – resulting in extended vacancy periods and resultant cash burn as would-be tenants pass over your property to other more realistically priced properties.
  • Rent priced under market value –  Resulting in locked-in losses for the duration of the tenancy (usually 6 – 12 months)
  • Unjustified rent increases – Causes unrest with tenants and can lead to lease break situations and claims lodged with the Consumer, Traders Tenancy Tribunal (CTTT) – time consuming and costly.
  • Missed rental increase opportunities – usually occurs through having a lazy agent or one who is a poor negotiator and who fears losing a tenant even when the rental increase is justified.
  • Poorly screened tenants – Often leading to rental arrears, broken leases, damaged property and time consuming (costly) tribunal attendances.
  • Lack of an effective communication conduit between tenant and landlord – this often results in dissatisfaction on the tenant’s part as they may mistakenly believe that the landlord is unsympathetic to their needs whereas in most cases it’s simply a matter of ineffective communication on the part of the property manager
  • Not understanding the legislation and the tenant’s right to quiet enjoyment of the property
  • Non-compliance with record keeping – Often resulting in claims being awarded in favour of the tenant by the CTTT as a result of incomplete / inaccurate file keeping / paperwork.

 

Typically, the response we hear from clients, after they’ve come to us for help in reviving their portfolios after they’ve made some poor decisions along the above lines, is that they wish that they had done things the right way from the start. 20/20 hindsight sure is a blessing…

The main thing is that they’ve recognised the issue and have taken steps to correct it.

The frustrating thing for us is that there are thousands and thousands of property owners out there whose properties are being poorly managed and where simple opportunities to boost the performance of their asset are missed time and time again.
 

What should you do?

As you know well by now, professional investors always take the time to conduct the appropriate due diligence for each step of the property investment process. Due diligence should be an obvious inclusion at this stage as it helps to confirm that the rental income will be sufficient to address the investment objectives set in place before the property was sourced and bought.

Sadly, this is a step that so many people just don’t even consider.

If professional investors had determined that the rental potential of the property suited their overall strategy and they proceeded to buy the property, they would have a strategy in hand to start making instant rental income through the right property management professional.
 

Benefits of hiring a professional property manager

The only way to really understand the value of hiring a true property professional is to do the right amount of due diligence and select the right property manager.

Hiring a property manager with lower fees doesn’t always mean you’re going to save money. Where you will save money is with a property manager who delivers ongoing exceptional performance.

A good property manager will proactively manage and review your property portfolio (quarterly or bi-annually) and will recommend areas of improvement for the property to benefit you and your tenants. For example, post review of your property portfolio may justify a rental increase, change of tenant(s) or perhaps even a renovation in order to maximise your rental opportunity and create additional equity for buffer or drawdown/investment purposes.

 
The expertise of an outstanding property manager will help you;

  • Make money by setting your property at the right price
  • Make money by using their marketing skills to rent your property quickly
  • Make you money by negotiating the best possible market rent
  • Make you money by guiding you through a renovation to add value/increase rent
  • Save you money by selecting the right tenant
  • Save you money by being diligent with the ongoing management of your property and tenants

 

Follow the following steps during your due diligence finding the right manager.

1.  Go with a specialist

Always enquire with property managers who specialise in in-depth research when managing property. Don’t be tempted to hire a family friend in the business who manages properties in another area nowhere near your property, just because they are offering you a cheaper price. Remember, cheaper rarely means better!
 
2.  Trust your gut

Make sure that you feel comfortable dealing and speaking with your prospective property manager. They should come across as approachable, honest and knowledgeable. Remember, if you get that positive impression, your tenants will likely do so too and have a better experience with your manager.
 
3.  Check their qualifications

Make sure your prospective property managers is a licensed real estate agent in your state or territory. You can easily check this by contacting the Office of Fair Trading (OFT) in your state or territory.
 
4.  Put them on the spot

Ask questions there and then. Many property managers have pre-prepared answers for many of the questions that landlords might ask. You want to know that your manager has the knowledge rather than the script to refer to.

Ask things like;

  • What is your level of experience managing rental properties?
  • Will you be managing my property or will another manager be taking over after I engage your agency?
  • What is your strategy for chasing up rent arrears?
  • How do you approach the issue of repairs and maintenance of a rental property?
  • How would you go about finding the most competitively priced contractors to work on my property?
  • How often do you conduct scheduled and unscheduled inspections on a rented property?
  • How many properties do you personally manage? Many property managers have portfolios that are too large for them (200+) to really work in a proactive manner. They’re usually spending their days chasing rental arrears (poorly screened tenant!) or maintenance issues as opposed to having some breathing space to review your property and assess any value add or rental increase opportunities based on local market conditions.

 
5.  Check references and testimonials

References and testimonials are the key to finding out what your prospective property manager is really like. Each potential manager should be able to provide you with at least three names and contact details of clients (current or former) who can vouch for their service. Check them.
 
6.  Ask about their past

This will give you a fair idea about their professional history. A good sign of their honesty is how they handle themselves in answering these questions on the spot.

Ask questions like;

  • How long have you been in the industry? (many property managers are juniors with little or no professional experience)
  • What was your role or profession before this?
  • How often do you contact your clients and provide progress reports?
  • How do you handle dispute resolution with tenants? Give me an example and how you resolved it.
  • Have you ever been involved in a dispute with any of your landlords? If so, give me an example and how you resolved it.
  • What are your strengths and weaknesses as a property manager?
  • If you were a landlord, would you pay for the services you provide and why?

 
7.   Ask about their tenant selection methods

A great property manager should be able to demonstrate their methods of tenant selection before you enlist their services. Ask for examples.
 
8.   Most importantly, ask about their services

Today’s market is a far more sophisticated one and the days of property managers simply collecting rent and handling repairs should be gone! Unfortunately, most traditional property managers still offer the same old service and view property management as secondary to the core offering of their business model which is usually sales.
 

The range of services you should expect to receive in addition to traditional property management includes;

  • Strategic property investment advice
  • Property structure and finance strategy advice
  • Tailored property management solutions including provision of structured rent reviews and lease renewals integrated with renovation and value-add commentary in order to unlock equity and maximise yield
  • Quality renovation advice and project management
  • Portfolio review – providing tailored ongoing advice and support with respect to the performance of your investment property vis-à-vis local and wider market conditions
  • Non-property related advice, including superannuation / retirement planning, risk protection, direct share advice, taxation and estate planning

If you don’t currently have access to the above services as part of the overall service offering of the company you are either with or are considering using, then there are alternatives and would encourage you to pursue those before signing or renewing any agreements.
 

In next month’s article we look at the importance of developing the right renovation plan and how you can transform a dilapidated and undervalued property into a polished, well-oiled wealth creation machine – on time and on budget.
 
 

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