Real estate agent fees are often the biggest expense of owning an investment property after home loan repayments, and investors who manage their own rental property could save thousands of dollars per year. But is it worth it?
According to recent research by finder.com.au, one in four Australian landlords manages their own investment properties, pocketing the percentage of the rent that agents take to handle advertising, inspections and organising repairs.
Tenants expect problems to be solved immediately, which can be challenging for inexperienced landlords. Photo: Paul Bradbury
Finding ideal tenants and juggling their ongoing needs can be challenging, especially while working full-time, so for property investors looking to pocket all of their rental income, are the savings really worth the hassle?
See here for more info about whether or not you should replace your property manager
What are the benefits of managing your own rental property?
According to Finder money expert Bessie Hassan, cutting the cost of investing is the key motivator for DIY landlords.
“Agent management fees usually range between 5 to 12 per cent of the weekly rent – which is a significant financial outlay if you’re counting on every dollar to make it worthwhile,” she said.
Community housing providers need extra funding to help boost supply. Photo: Darbs Darby (Andrew Darby)
For investor and founder of Rethink Investing Scott O’Neill, saving money was what prompted him to initially self-manage the properties he and his wife Mina own.
“At one point I was managing nine rentals, and there was actually one in a different state as well,” he said. “Doing that saved me money, but it took a lot of time, and it was stressful too. My time was better spent elsewhere.”
He said the desire to save money can end up causing problems. “I used to use Gumtree because it was cheaper and there were more tenants. Quite often they were tenants that couldn’t get in elsewhere through real estate agents. Quite often they came with inherent problems as well – there were two tenants with drug issues.”
Who makes the final decision on tenant selection is a critical aspect of property management that requires careful consideration to ensure responsible and reliable tenants are chosen.
What does a property manager do?
Apart from advertising for tenants, vetting suitable candidates, collecting rent, and organising maintenance, property managers also deal with difficult situations such as disputes and issuing breach notices.
According to Realty8 principal and founder Royden Juriansz, property managers come into their own when problems appear.
“A good property manager is very transparent and not afraid of giving the owners bad news, but also giving them a solution,” he said.
He suggested tenants preferred dealing with property managers, as they were perceived to be better equipped to deal with unexpected issues than landlords, who weren’t always contactable.
Director of Precise Property Management Michelle Allen said outsourcing provides an “arm’s length approach to a transaction”, and said many landlords didn’t feel comfortable negotiating leases, rent increases and maintenance issues with tenants.
“The legislation is becoming increasingly complicated and people’s expectations are always increasing,” she said. “A savvy investor would be best to engage a property manager, and those costs are tax deductible.”
Is managing your own rental property worth it?
According to Mr O’Neill, the savings of DIY management are outweighed by the amount of free time the job can take up.
“It is a false economy I believe,” he said. “Outsourcing will allow you to have more time for yourself.”
Ms Hassan said landlords who weren’t prepared to deal with emergency repairs or tenant disputes should consider engaging an agent.
“If you don’t want to be disturbed on a public holiday about a leaky tap, then it might not be for you,” she said.
Mr Juriansz said homeowners needed to balance the savings with the risks of self-management, adding that insurers may charge higher premiums for self-managed properties.
“At the end of the day, the cost of property management is really not a lot in respect of the overall value of an investment,” he said.
How can you get the best deal from a property manager?
If saving money is the key motivator for taking the DIY route, there is usually some wriggle room when it comes to management fees.
“I’ll always negotiate a good price no matter who they are,” said Mr O’Neill. “All you need to do is put them against each other and they’ll come down in price in any case.”
Mr O’Neill says finding a property manager who provides above-average service is just as important as getting a good price.
“Use a rental manager who either owns the business or doesn’t sell property as well,” he said. “Ask how many properties they are currently managing. If it’s a large number, they might be time poor.”