I love comparing apples with apples. When it comes to property managers, this is something you can easily do. In theory, property management is pretty much the same everywhere. Or at least it should be. Strong customer service to you, superior management of tenants, and prompt notification (and resolution) of any issues that fall in between these two parties – these are the skills you should be seeking when shopping around for a property manager. This is also the expectation you ought to have when selecting the manager for your property.
Excellent property management is such a crucial element to a successful investment. Like any investment or business venture, poor management of an asset – no matter how strong the asset is – could seriously compromise the viability of your entire investment.
Think of your investment property like a small business. For example, let’s say a corner sandwich shop. You’ve done all your due diligence on the sandwich shop before purchasing the business, so you’ve checked the figures: inventory, turnover, growth, and depreciating asset values. But if you hire mediocre staff to manage and run the business day to day for you, poor management can drive it in to the ground and turn a profitable sandwich shop into a one that is not profitable.
Of course, that manager you hired during the interview sold his or her skills and assured you he or she was highly capable, yet this has not transitioned to successful business management.
You must think of your property manager as your business manager. They control the quality, checking and ultimate appointment of tenants, the (swift) sourcing of new tenants should current ones choose to vacate, and the satisfaction of tenants by way of prompt responses to repair requests and general enquiries.
“You must think of your property manager as your business partner”
Finding good tenants is only half of the battle; the other half is keeping them. Retention is so important because it is effectively the cream on the top of an already great investment. Most property investors, including myself, will factor in two or three weeks of vacancy per year in their overall holding costs, so when you are canvassing properties you are considering for purchase, in your cost analysis you should always factor in at least two weeks per year of vacancy.
If your property manager is competent, they will work hard to keep good tenants happy, and you may find yourself in the fortunate position I have been in for one of my properties, where I’ve had the same tenant for three years. This is great because to my bottom line, that’s six weeks of additional rental revenue I had not actually budgeted for. Sure, as an owner you should always act promptly to requests from your property manager on behalf of the tenant, but what good is this when your manager did not even report the problem to you for three months to begin with?
Finding a good property manager can be tough, and sometimes it is hard to distinguish two candidates from one another. And once you do find a good property manager for your first property, what happens when your portfolio starts growing? How do you manage multiple properties with multiple property managers? At what point do you consolidate, and how easy is it to transfer and change property managers?
You may get to a point, after acquiring several properties, where employment of a different property agent company for each one becomes too complex and tough. At this point you may want to consolidate this management to a company or manager who is capable of managing all of your properties, regardless of geography. There are many experienced management companies out there offering such services that can manage portfolios across multiple states and territories.
So what are the best attributes to look for when appointing and agent? And what things should you avoid? Today I’ve put together a list of things to keep in mind when seeking a managing agent:
1) Don’t just settle for the real estate agent you happened to have purchased a property from.
As a forward-planning investor, when appointing managers you must look beyond the here and now and think of property managers that are capable of managing outside of the immediate suburb/council district/city/state that your first property exists within.
Selling agents see the easiest (and perhaps laziest) “up sell” in the property world as selling a property to an investor and then offering to manage it. And in some instances, this will make sense. If the tenant has already been there long term, and the same agent has managed them the entire time, then the relationship between the tenant and the agent is usually pretty solid. So why fix it if it isn’t broken? However, this is also something to be wary of. Ask the agent what his or her growth capacity is, and then ask what discounts you’ll be entitled to should you opt to choose him or her, and then grow your portfolio.
2) Let agents you speak to know that you are speaking to other agents!
This is a common business tactic that is effective in almost any industry, and property management is no exception. You must position yourself as being a client worth fighting for. Let them know that you are a serious investor and that you are “looking for a partner to grow together with”. This sounds so much better than “I need someone to look after my place for me”. Agents worth their salt will go the extra mile and fight hard to win your business. You’ll quickly distinguish those who agents who consider you as being “too tough a client” to those who see the potential in winning your favour.
3) Experience, credentials, testimonials, and references – do you due diligence.
This is actually the most important one. Look at websites for property managers who have loads of testimonials. I always go by these. And I’m not shy about “stalking” some of those testimonials on Linked In or Facebook, sending them a message telling them I am an investor and checking personally their view of their managing agent. Ask to see references or ask for a list of long-term customers whose portfolios they are managing.
4) Negotiation, economies of scale, and “buying in bulk”.
Of course, top-notch service is the priority when appointing a property manager. But so too is the bottom line. Regardless of your investment strategy, and whether it is a short term or long term one, we are all in the property investment profession to make money, so one way to help increase revenue margins is to reduce your overall holding costs.
Sure, when you have just one property, the difference between say a 6% property management fee and a 4% one may not seem that great. But again think of that scenario in 10 properties’ time. Let’s say your weekly rent on one property is $350, the 2 percentage point difference per month in management fees is only $84-$56 = $28 per month, so $336 per year. However, when you have 10 properties, that annual savings translates to $3,360, which is a serious saving. Look for property management companies that are able to manage in this way: in other words; wherever your next portfolio purchase may take you.
5) Think beyond real estate agents.
Real estate businesses make the bulk of their revenue from property sales, not property management. No discredit to agents, but why partner with a company that, from the outset, is not as driven to provide the best management service because its primary revenue does not come from there? It is like comparing the quality of bread sold from a major supermarket versus a boutique corner baker. The boutique will almost always be better, because baking is all they do. They must hang their hat on baking as a skill or else their business fails. Estate agents sometimes see property management as merely an ‘add on’ to their primary revenue stream.
6) Regular inspections and tenant screening.
Ensure that whoever you appoint has, in writing, that their service to you will include twice-yearly (at minimum) inspections to your property. Even if the tenant is a long-term one and looks after the place, it is important for the tenant to know that the agent is actively checking up on the property regularly. As for tenant screening, ask many questions around their process of tenant selection and appropriation. Have a copy of their rental application form emailed to you and inspect it. Generally speaking, the more thorough the application forms, the better quality of property management it is.
Success in holding investment property as an asset class short or long term is significantly dependent on management. Unlike investing in say gold, or managed funds, which are typically “set and forget” investment classes, property allows you to be dynamic in the management process, which in turn can help you increase your return significantly if managed well. Just make sure you partner with people who will help this vision, not hinder it.
Cameron McEvoy is a NSW-based property investor and maintains a blog, Property Spectator.