Property Management: You Get What You Pay For

Property Management: You Get What You Pay For

Sourced from Real Estate Business 18 October 2018 by Thom Richards
 

Lately, there have been some new “start-ups” in the property management space that are trying to swing investors away from traditional property management. As a result, the average fees for the industry are under pressure as some investors get seduced by the promise of lower fees.

Property management is an enormous beast. There are way too many moving parts to analyse in one article. It is also so complex that unless you have been at the coal face running a rent roll for five-plus years, you can in no way grasp the complexity or quantity of tasks that are required to ensure a property is managed in a way that maximises the return on investment for the client, keeps an agency profitable and keeps staff happy, let alone redesign and innovate on the current processes.

What investors fail to realise is the real cost of saving a few hundred a year on fees; they are drawn in by fancy calculators that let them see the supposed savings that also neglect to remind them that agency fees are tax-deductible so the true cost of that experienced property manager is significantly less than what is being shown on your agency agreement.

The cheaper alternatives

Even if you are prepared to handle the workload, you need to consider the value of your time and the risk of something going wrong. It’s scary how often we see DIY landlords happily managing their property until a tribunal notice turns up on their doorstep and ends up costing them thousands in compensation, vacancy and property repairs.

The next step up from the DIY platforms are fixed fee or “cut-price” property managers who are encouraging investors to dump their real estate agent in favour of flat monthly fees. While service is included, consider the capacity of a property manager to drive performance if they’re spread across a thousand properties vs maybe a fifth of that, at premium service agency. The reduced fee also means there’s less to go around, so goodbye bonuses and higher salaries that are required to keep that manager incentivised.

The other main problem I have with both these new-age property management options is they are usually run by “founders” who have never run a property management business before, and when you read the About section on their websites, the motivation for starting the business is something along the lines of “My brother once rented a property and had a bad experience. There must be a better way!”

The cheap man pays twice

As an investor, I want strong returns from my property. I’m not in the game for the excitement of fixing a leaking toilet. Further to this, the bulk of investors I know are time-poor and property management is not their primary skill set. Handing over what is potentially the most expensive asset someone will ever own to anyone but a professional is utter madness to me.

An experienced and motivated property manager will reduce stress, ensure efficiency and constantly chase a return for you. Whether that be through utilising competition to drive down repair costs, minimising vacancy by managing tenant relationships, providing sound advice around depreciation or via the myriad of other factors that must be considered on a daily basis — some factors most landlords are undoubtedly not even aware of.

A mistake in one of these areas can cost you a great deal more than the fee saving that fancy calculator promised, and that’s before tax advantages weigh in the equation.

Ask any experienced investor and they will tell you that a good property manager is worth their weight in gold.

So what do agents do?

There is no doubt that agencies and property managers need to pick their game up and acknowledge the demand for an increased level of service. Property managers are no longer expected to fulfil the role of a caretaker but reinvent themselves as asset managers.

In my experience, real estate agents are predominantly losing business due to their lack of adoption when it comes to technology. Running an efficient business with a focus on service has never been more important, and by reviewing your agency’s approach to property management and implementing the best tech, this will ensure investors get the best of both worlds.

There is a lot that property managers do behind the scenes that landlords are never exposed to, so communication is key. As a property manager, justifying fees has never been so important and showing clients exactly what you do for them on a daily basis plus quantifying your value-add is crucial.