How to choose the right manager for your investment property

A Melbourne landlord and his property manager have been dragged through a specialist tribunal disputing allegations from an angry tenant wanting $10,000 compensation because of a barking dog, leaking pipes and faulty locks.

The case highlights the need for landlords and their managers to resolve tenants’ complaints, respond to emergencies, and prevent minor disputes from escalating into lengthy, costly legal rows, say property specialists. Using property management services can play a vital role in efficiently addressing such issues and maintaining positive landlord-tenant relationships.

“You do not know how good your manager is until something goes wrong,” says Jarrod McCabe, associate director of buyer’s agent Wakelin Property Advisory.

There are estimated to be about three million investment properties across Australia. About 75 per cent of property investors have one property and 90 per cent have two or less, according to the Australian Taxation Office.

Most owners are in mid-level jobs earning around $80,000 a year and bought the properties as long-term investments.

But there are so many disputes between landlords and tenants that bodies across the country, like the Victorian Civil and Administrative Tribunal, have specialist dispute-resolution staff who do nothing but arbitrate between complainants.

Unhappy tenant

The recent case involving a demand of $1 a day for the barking dog – backdated for 12 months – and myriad other complaints fizzled into a stalemate, with the tribunal ruling the total compensation claim, which was the equivalent to eight months rent, was “neither fair or reasonable”.

Both sides had to pay the administrative and legal costs, plus endure the hassle of appearing before the tribunal.

McCabe says the threshold issue for someone considering an investment property is to choose a dwelling with the features and location that will attract a model tenant, which usually means a quality property in a popular area with unique attractions such as proximity to transport, the beach or shopping.

Assessing a manager involves deciding who can best preserve a property’s capital value by ensuring it is well-maintained.

Read more here about Do we still need property managers?

The manager also needs to keep the income flowing by making sure rent is punctually paid at the going market rate. Disruptions to rent should be minimised by encouraging good tenants to stay.

“This is not a set-and-forget decision by the property owner,” McCabe says. “You have to monitor the manager’s performance and ensure your wishes are understood.”

Manager services

There are dozens of companies and individuals offering property management services for residential property investors, ranging from specialist divisions of large real estate companies to mum-and-dad operations.

Fees and charges also vary widely. A typical industry fee is about 6 per cent to 8 per cent of annual rent. Letting fees, which cover the cost of finding tenants, are usually around 2 weeks’ rent.

Other managers, such as :Different, claims to offer a full-service management service for a fixed fee of $100 a month, including GST.

“Property investors are usually just everyday people,” says Ruwin Perera, co-founder of :Different. “A tenant missing rent can put a huge financial strain on the owner’s family.”

Its service includes a guarantee that it will pay rent if a tenant is five days late.

National real estate companies, such as Ray White and LJ Hooker, which have a national office network, offer management and maintenance services. Considering the diverse options available, replacing your property manager should be carefully considered if you’re not satisfied with the current level of service or fees.

Expertise

McCabe says investors should consider special offers but balance that with other fees and services, particularly managers’ monitoring and property maintenance.

“The cheapest might be the first choice but more often than not, you get what you pay for,” says McCabe.

“If things start to go wrong, they might not have the experience or industry contacts – such as 24-hour plumbers and builders – needed to resolve emergencies.”

The volatile property market also mean investors need to watch changing demand and prospects for capital and rental growth.

For example, student apartments clustered around major universities and colleges are generating 8 per cent, or twice the return of most short-term savings products, say agents specialising in student property.

But because lenders are shunning inner-city, high-rise investors, purpose-built student apartment values are continuing to fall.

Rents for apartments in Perth and Darwin that during the mining boom were being bidded up by cashed-up miners fell by about 4 per cent during the past 12 months. Rents for houses in Canberra have increased by nearly 13 per cent over the same period.

Checklist for choosing a property manager

Get referrals by talking to real estate agents, landlords, tenants and neighbours in the area. What is the manager’s experience and track record? Check the agent’s online reviews.
How many properties do they manage? Have a look to see whether they are orderly and well-kept.
Are they inspecting the property at least every six months? Is there a rent review every 12 months?
How much do they charge? Does it include landlord insurance?
What strategies do they have for an emergency, such as a hot water service breakdown, or a fire? Do they use licensed tradespeople on call?
Do they check tenants’ references for credit worthiness, past rental history and current employment?
Do they set rent at the appropriate market level?
How do they market the property to ensure to get it exposed to the maximum number of potential tenants?
Is the lease fair and comprehensive enough to protect your interests?
Does the agent lodge the bond with relevant authorities?
Are there strategies for removing disruptive or delinquent tenants? What is the success rate?