WHAT MAKES AN INVESTMENT PROPERTY MANAGER WORTH THEIR WEIGHT IN GOLD?
After spending hours of your time mapping out goals, doing calculations and devising strategies; after meeting with financial planners and mortgage brokers to talk about borrowing structures and financial capacity; after researching the market and/or choosing a buyer’s agent to purchase properties for your portfolio – after going through this whole process, you may feel inclined to take a week off work and relax for awhile. But, the decision making process is not over yet. It is now time to choose an investment property manager, and as Scott Johnson from Blink Property reveals, finding one who will support your needs as an investor can be like panning for gold – the real thing will bring you riches (by maximising your investments), whereas the wrong property manager (like fool’s gold) will only weigh you down. Here are some things to look out for when choosing a property manager, including questions to ask and things to avoid, as well as the top five ways that a good property manager will maximise your investments.
UNDERSTANDING THE INVESTOR
Scott Johnson understands investing. As Operations Manager and Licensee-in-charge at Blink Property, and as a successful property investor himself, he makes it his business to help investors get the most out of their properties. “We get why people are in investing,” he says. “We’re not here just to collect the rent, we’re not about us making a dollar – we’re about the investor making a dollar to purchase their next investment.” This combination of both professional and personal expertise has sparked exceptional growth within the company. Within its Queensland offices, says Johnson, Blink is taking on 60 to 70 new properties every month – proof that their investor-geared strategies have made a significant impact in the world of property management.
Blink was born in the early days of Binvested. Nathan Birch and Daniel Young saw the need for a property management service that proactively benefited investors. The two young investors had experienced firsthand the negative consequences that an incompetent property manager could bring. They also knew the value of a good one…
PROACTIVE VERSUS REACTIVE
Birch, Young and Johnson all agree that the best property managers are proactive rather than reactive. A proactive manager will initiate communication with the investor, so that the investor doesn’t have to contact them with any concerns they may have. They will chase up any arrears and address vacancy periods promptly to protect the property’s cash-flow. They will conduct routine inspections and assess the optimum rent for the property regularly. A reactive property manager, however, will collect the rent and wait for the investor to contact them regarding arrears, vacancies and rental returns. They will wait for a problem to occur before acting, instead of taking action to prevent loss. Having a reactive property manager can be detrimental to the cash-flow of your investment, says Johnson. Prolonged vacancies and loss of rent through arrears can turn positive cash-flow into a neutral or even negative one – leaving a hole in your pocket and preventing your portfolio’s growth.
PRO-TENANT OR PRO-LANDLORD
It is also important for investors to choose a property manager who is pro-landlord rather than pro-tenant, says Johnson. Your property manager is working for you, the investor, and it is their job to make sure the tenant pays the rent each week without fail. If they can’t pay the rent, and the property manager lets this slide, then they aren’t really operating with your best interests in mind.
TOP FIVE WAYS YOUR PROPERTY MANAGER CAN MAXIMISE YOUR INVESTMENT
There are many ways that a good property manager will help you maximise your investment property. Here are the top five:
1) REDUCE YOUR MORTGAGE INTEREST
Johnson says, Blink property managers go above and beyond to help reduce their clients’ mortgage interest. He says, many investors choose to receive their statements once a month. While most property managers would go ahead and set it up this way, Blink thinks differently. They educate their clients about how this will affect the amount of mortgage interest they owe. “If you are an investor and you have a property, you are going to have an offset account,” he says. He offers a hypothetical to explain, “Let’s say I only pay you once a month, and the tenant pays me $1,000 on the first of the month.” He says, instead of the money going to the investor’s offset account (thus reducing the amount on which they pay interest) the money will be sitting in the estate agent’s trust fund – doing nothing. Blink property managers therefore advise clients to receive statements on a fortnightly basis.
2) MAXIMISE YOUR CAPITAL GROWTH THROUGH MAINTENANCE AND REPAIR
“Being savvy with Maintenance” can make a difference to the capital worth of your property, says Johnson. He says, many investors will space out cosmetic spruce-ups over the course of five or six years. “Imagine if you paint the property today, and you do the carpets in a year and a half’s time. Then, a year and a half after that you do your kitchen, and then a year and a half after that you do your bathroom,” he says. “By the time you get to the bathroom, the paint’s looking shoddy again.” If you get your property revalued at this point, he says, it won’t be worth as much as it would be if you had done the whole spruce-up in one hit (or at least closer together). It is this sort of knowledge and advice that makes a good property manager worth their weight in gold. “It’s our job to make sure that we can grow the capital through maintenance and repair, but also, at reduced cost to the owner as much as possible,” says Johnson.
He gives another hypothetical. Most properties suffer water leaks, he says. A common one is when the water proof membrane between the shower and the wall wears away. To get this repaired costs around $3,000. “A good property manager should be able to identify that, if we’re going to spend around $3,000 on repairing that issue, for an extra $2,000 we can get the rest of the floor tiles redone and we can put a new vanity in, a new mirror, get the room painted and have the toilet redone – to make it look like a complete bathroom renovation,” he says. The bathroom “is a key room when it comes to valuation,” he says. This means, the increased value of the property should double the cost spent.
3) KNOW THE OPTIMAL RENT FOR YOUR PROPERTY
The rental value of the property can be affected by market conditions. This is a fact that many property managers overlook, says Johnson. In order to understand the optimal rent for your property, he says, a good property manager will have an understanding of external influences, such as oversupply, and then be able to adjust the rent accordingly. “I would rather an owner lose $20 or $30 a week than to lose $380 a week,” he says. Being flexible with the rent expected, while, at the same time, not underselling the value of the property, is an important negotiation that an experienced property manager must undertake.
4) ACHIEVING THE TOP RENTAL RETURN
By understanding the optimal rent, a good property manager knows what to aim for. It is then up to them to achieve it. You may find a marked difference between the way properties for sale and properties for rent are advertised by estate agents. A lot of rental properties don’t have an extensive range of photographs to entice renters into an inspection. Some don’t have any internal photographs at all. As a renter, would you spend your time going to see a property advertised at market rent when you have no idea how it looks on the inside? A lot of renters would assume that because the agent hasn’t included photos, the property must be in an appalling state of disrepair.
Blink is different, says Johnson. Not only do they use professionally taken photographs of the properties, they also include photographs taken from the surrounding area. This enables prospective renters to visualise themselves living there, says Johnson, making it a lifestyle choice, rather than an accommodation choice.
5) SIMPLIFY YOUR TAX PREPARATION
Any investor with more than one property knows how much paperwork is involved. All bills and payments related to each property must be given to the accountant at the end of each financial year. At Blink property, all of the bills that are paid by the property manager are archived and a yearly summary is given to the investor for taxation purposes. The investor can then pass this on to their accountant. Blink also operates in conjunction with My Property Tracker, making paperwork management even easier for MPT clients.
QUESTIONS TO ASK YOUR PROSPECTIVE PROPERTY MANAGER
When it comes to choosing a property manager, there are things to be wary of and things to avoid altogether – but how do you find out, and which questions should you ask?
Johnsons advises the following.
QUESTIONS TO ASK:
1) What can you do for me that no-one else can?
2) Why should I use you?
3) What is your current vacancy rate?
4) How many routine inspections do?
5) How do you deal with arrears?
1) EXTRA FEES
Johnson says, some agencies charge unnecessary fees on top of their commission, including a fee for every bill paid and a relet fee. He says, paying bills and letting a property are standard things within a property manager’s job description, and they should not attract extra charges.
2) PAYING COURT COSTS
Johnson says, it is essential to find out who is liable to pay court costs if something goes wrong. He says, if an agency takes a tenant to court for rental arrears, the agency should cover the cost. “Why should the owner pay for court costs because the agent didn’t collect the rent?” He says.
3) HIGH VACANCY RATES
A good guide, says Johnson, is between 5 and 10% of their portfolio, “so, if an agency’s got 1,000 properties, they should have no more than, say, 50 available at their peak time.”
4) OVERBURDENED STAFF
A good property manager should be able to look after as many as 130 properties with ease, says Johnson. If they have more than 140 or so properties to look after, they won’t be able to pay as much attention to your property because they simply won’t have the time.
5) REACTIVE AND/OR PRO-TENANT MANAGERS
6) MANAGERS WHO DO LESS THAN TWO ROUTINE INSPECTIONS EACH YEAR
Johnson says, at Blink, property mangers do three routine inspections each year. Legally, he says, they can do four. They keep the extra inspection up their sleeve in case they have a problem tenant and they need to get in to see what is happening.
7) AGENCIES THAT DON’T HAVE A PROCESS FOR DEALING WITH ARREARS
Blink uses a reminder system that sends daily SMSs and emails to tenants who haven’t paid their rent. The tenants become so sick of receiving these reminders that they pay the rent. This system also communicates with the owner, notifying them when their property is in arrears and also when the arrears have been paid.