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Should you pay for property management? Is it worth it?
How much does it cost to hire a property manager and is it worth it?
For someone starting out as a property investor, finding the right investment property is only half the battle. If you want to ensure that you get the best possible return on the money you spend, it’s essential that you find the right person to manage your investment.
From finding tenants and chasing rent to managing any maintenance tasks, property managers perform a long list of important duties. But how much does it cost to hire a property manager and how can you be sure that you’re getting value for money? Read on to find out.
What does a good property manager do?
While there could be dozens of real estate agencies that offer property management services in your local area, not all of them will offer the same level of service. The duties and responsibilities that a good property manager will handle generally include:
- Determining the accurate rental value of your property
- Advertising to renters and screening prospective tenants
- Inspecting the property regularly and updating you as to its condition
- Ensuring that rent is always paid on time
- Organising trades to perform repairs and maintenance duties on the property
- Liaising with the tenants to deal with any complaints or issues that may arise
- Dealing with difficult tenants, including guiding you through the eviction process if necessary
Our guide to choosing the right property manager offers more detail on what to look for in a property manager.
How much does a property manager cost?
The fees real estate agencies charge for property management services vary depending on where you live and the agency you choose. As a general rule, you can expect to pay a commission of between 7% and 10% of your weekly rent plus GST, but the agencies we spoke to for this article quoted commissions as low as 4% in some areas and as high as 15% in others.
However, the services included in this commission vary between agencies. With some agencies, this fee covers two property inspections per year, weekly rent collection and maintenance (excluding insurance claims). With others, you’ll need to pay extra for some of those services.
It’s worth pointing out that the lower the commission fee percentage charged by your agent, the fewer services likely to be included as part of your package. Before selecting a property manager, find out exactly what services you are paying for and what will cost an additional fee.
Depending on the agency, you may need to pay additional fees to cover things like:
- Letting and lease renewal. The letting fee is usually based on the property’s weekly rent, often around one or two weeks worth of rent but sometimes more. Lease renewal negotiation is sometimes included in this fee but can sometimes also be charged as a separate fee of $25 to $100.
- Admin fee. This typically ranges from $5 to $10 per month.
- Tenancy database checks. Usually $12 per person.
- File preparation and tribunal attendances. Fees range from around $100 to $200 when there are disputes between tenants and landlords.
- End of financial year statement. $25 to $50.
- Lease transfer fee. This charge ranges from $0 to $500.
- Insurance claims (eg if you have a landlord’s insurance policy and your tenants left without paying the last month’s rent). $0-$150.
Ask any prospective property manager for a full rundown of their commission and what it covers before you decide whether they’re right for you.
Pros and cons of using a property manager vs doing it yourself
There are two choices available when it comes to managing an investment property: hiring a property manager or doing it yourself. Choosing a property manager allows you to take a step back and free up more time for yourself. This can remove a whole lot of stress from the situation and, if you choose the right agent, allows you to rely on the experience and expertise that only an accomplished property manager can offer.
The main downside, of course, is that property managers don’t offer their services for free and their charges are an ongoing expense you will need to budget for. The good news is that those fees are usually tax-deductible, but you also need to consider the fact that some investors simply don’t like handing control of their investment to someone else.
Meanwhile, if you choose to manage a property yourself, you can take a hands-on approach and have greater control over your investment, and save money at the same time. But managing your own investment property can be time-consuming and stressful, and you most likely won’t have the same expertise or useful contacts as an experienced property manager.
For a full rundown to the advantages and disadvantages of each approach, check out our guide on how to manage an investment property.
Hiring a property manager vs DIY
Julie Harrington has dabbled in property investing for about 15 years. Although living on Sydney’s North Shore, Julie was born and raised in the NSW Southern Tablelands. She bought her family’s home in regional NSW from her father after her mother passed away, and decided to rent the property out following her father’s passing.
Going on a recommendation from a family friend, Julie chose a local real estate agency to manage the property for eight years. “When the last lot of tenants moved out I was left with a filthy property,” Julie explains. “Carpets uncleaned, a whole wall of tiles off the laundry wall, filthy hand prints all over every door and cupboard, mould-covered walls and curtains in a house that was never known to be mouldy – so the tenants must have had it shut up and heated like a furnace.
“I had to replace all the curtains, they stole my garden furniture and left me rubbish everywhere and an overgrown, weed-filled garden to sort out on a 1,075sqm block.
“It also came to my attention that if the tenants wanted something fixed, they called the plumber or whoever themselves and got the bill sent to the agent for me to pay. I was rarely advised of any repairs being done and knew nothing about it until I got my monthly statement from which they had deducted costs. This was despite asking the property manager on many occasions to advise me of repairs being done to the house beforehand.”
Julie was left thousands of dollars out of pocket and with a house that was “unrentable” until repairs were completed. “They had managed the property for eight years and I really did not know what I was paying them for. Rent collecting was about all they did,” Julie says.
After such a negative experience, Julie made the decision to manage the property herself. “I found my own tenant on Gumtree and he’s been in the property for nearly a year,” she says.
“You can get a Lease Pack from the newsagent’s for $15 or so, do the property condition report which you and the tenant agree to, lodge the bond with the bond board and that’s about it. As a condition on the lease I have the rent paid into my account by direct deposit to avoid late payments and chasing money. I do three-monthly inspections on the property and he emails me if there is anything he wants me to know.”
So far so good for this DIY property manager, who admits that if she ever employed an agent to manage a property again she would be interviewing them to find out exactly what they offer for their commission.
However, Julie also says that employing an agent is useful if you do not live anywhere near your investment property. “You do need eyes on the ground and local knowledge for tradesmen etc,” she says.
“My advice would be to choose an agent who provides you with quarterly inspection reports and who has a property management team who are qualified and trained. Make them earn their commission. I enquired with another national name local agency and was told that they did do this. Their commission was higher than I was paying but I think it is worth it if you get your property looked after correctly.”
Traps to be wary of when choosing a property manager
The most important thing to remember when finding a property manager is that you choose an agency that offers value for money. You want an agency with plenty of experience when it comes to managing similar properties, but you also don’t want to choose an agency that manages too many properties and can’t offer personalised service and attention. Comparing a number of property managers and interviewing the top candidates will help you make the right decision.
Another issue to keep an eye out for is that some property management agencies charge a flat fee for their services. There’s always the risk of this flat fee being raised in the future to keep pace with inflation, while there’s also no incentive for the agent to ensure that the weekly rent charged on the property keeps pace with the rest of the market.
Last but not least, make sure you know exactly what you will get for your money before you choose a property manager.
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