The definitive guide to property management
Many people think that a property manager’s job is simply to find tenants and make sure the rent is paid on time – and once that is done can sit back and take a chunk of your hard-earned income. The sad reality is that many property managers unfortunately do just this. However, a great property manager, like a great real estate agent, can make all the difference to your investment outcome.
This article outlines what you should expect from a property manager. It isn’t exhaustive and doesn’t include the ad-hoc requests that come through from tenants and landlords (of which there are many). It is vital to remember that your property manager is your representative for your investment. They are the ones who are going to keep your income coming through the door, act on your behalf to ensure that rent you are entitled to is paid and make sure that you are not going to suffer at the hands of a tribunal.
A great rule of thumb is this – if you would not be happy being represented by your property manager in court, then you should not let them anywhere near your investment portfolio.
What are the duties of a property manager?
In NSW property managers have to comply with 21 different legislative Acts and regulatory frameworks. This covers interactions between themselves and the landlord, tenants, members of the public and tradespeople just to name a few. Many of the punishments for breaches of this legislation and regulation are punishable by large fines, and in some cases imprisonment. A list of the legislation property managers are impacted by at a state and federal level include:
Agents Regulation 2014
Residential Tenancies Act 2010
Residential Tenancies Regulation 2010
Civil and Administrative Tribunal Act 2013
Civil and Administrative Tribunal Regulation 2013
Conveyancing Act 1919
Anti Discrimination Act 1977
Crimes Act 1900
Planning and Assessment Act 1979
Landlord and Tenant Act 1899
Privacy and Personal Information Protection Act 1998
Retail leases Act 1994
Unclaimed Monies Act 1995
Work Health and Safety Act 2011
Competition and Consumer Act 2010
Privacy Act 1988
Do Not Call Register Act 2006
Disability Discrimination Act 1992
Anti Money Laundering and Counter Terrorism Financing Act 2006
Fair Work Act 2009
What does your property manager do for you?
They manage your property in accordance with the law and ensure that you are compliant with your legal obligations as a landlord. A good property manager will also ensure that your property is maintained to standard that allows for ongoing capital appreciation and the ability for the asset to continue to produce income over time. In many instances they are the only external party that is responsible for managing your largest asset. It’s for this reason that you want a professional acting in your best interests. Below are the 8 key responsibilities of a property manager.
Marketing your property
Your property manager should complete a through comparative market analysis for your property to determine the appropriate rent. This analysis should include comparable properties in the immediate area as well as outlier properties to determine where your investment property sits within the spectrum. This will provide you with a fair idea of what rent to expect. It is important to note that many agents will over quote here and instead use your expectation as their guide. This is the mark of a poor property manager. Going back to first principles, a property manager should be acting in your best interests to maximise the cash flows from your investment rather than telling you what you want to hear. Even the best property manager operates in a market where tenants are sensitive to price on some level.
Once the asking rent has been set a property manager will advertise your property, and should write a unique advertisement that accurately describes the property. Your property should be listed on the major real estate portals and if appropriate, the agent’s website. They will answer all enquiries and take appointments to view the property, hold open for inspections or preferably both. Depending on market conditions, they may be able to lease your property on the first open for inspection or it may take more than one open. In a hot market it is often appropriate to hold a second open for inspection even if suitable tenants are found in the first to ensure cashflows are being maximised. During opens it’s important that an agent is ensuring that nothing is damaged or stolen from the property.
The property manager will then receive and review the potential applicants for your property. This task is complex, and time consuming. A good property manager will call each of the potential tenant’s references, they will verify income, and previous tenant ledgers. They will examine bank statements or other documentation to verify authenticity and confirm ability and willingness to pay. In effect they are conducting similar due diligence to what a bank would do in conducting a loan assessment on your behalf. Your property manager will also check against tenancy ‘blacklists’ such as TRA. The importance of this process cannot be underestimated. It is not unheard of that landlords who have suffered tens of thousands of dollars in damage to their property find out that the property manager put in a tenant without conducting background checks.
Once the applicants assessments are complete they are then advised of their success and asked to provide a deposit. At the same time the property manager is drawing up the lease agreement in preparation for the tenants signature. They will then contact the future tenant and advise them the bond required and accept a deposit to hold the property in anticipation of signing a lease. The property manager will then attend to the signing of the lease and the collection of bank deposit details.
Once the lease is signed the Bond will be lodged on your behalf. The lease being executed correctly is vital. An incorrect lease document will mean that the lease may be unenforceable, leaving you out of pocket. The collection and submission of the bond by the property manager is crucial. These are the funds that you can fall back on in the event that the tenant defaults, or damages the property. A failure to collect and lodge these funds will put into doubt any future claim you may have over this money should something go wrong.
Conclusion of lease and changeover
A property manager should always be aware when leases are due to expire as there are timeframes within which they must provide notice if they want the tenant to leave at the end of the lease term. Alternatively, a notice will be received from the current tenants that they intend to vacate the premises. Your property manager will check that the notice has been provided in the correct form and that the appropriate period of notice has been provided.
Your property manager will attend upon the premises and conduct a final or outgoing inspection report. This will then be compared to the incoming inspection report. A through inspection takes around 2 – 3 hours depending on the size of the property, its age, length of tenancy and damage. It’s essential that this is done thoroughly to ensure that the bond can be accessed if required.
The outgoing inspection report is then provided to the old tenants who should they choose, rectify any noted issues themselves or allow the property manager to do so and then either claim from the bond or pay directly. After the rectification of any issues an incoming inspection report is prepared for the new tenants. This is then provided to the tenants at the same time as the lease is signed.
Setting up a new tenant
Once the lease has been signed, the new tenants are set up in a property management system. This means recording all particulars including phone numbers, email addresses, proof of identity and bank details. In some cases it includes next of kin details. Direct debit request forms are also signed and maintained. All of these steps have occurred prior to the property manager having received any income.
Collecting the rent
Nothing will destroy the yield on your investment property faster than a tenant who does not pay the rent. Remember the rent from your property is the income that is received by you for the use of your asset. It is vital that this be collected efficiently. The law is rather prescriptive when it comes to the recovery of funds from tenants. A good property manager is well aware of this and should always be collecting rent advance and carefully monitoring any arrears.
Arrears management should form the backbone of any good property manager. Arrears are the leading indicator of stress in a households finances, or changes in circumstance. They are indicative of future problems and the sooner they are uncovered the better.
The law on arrears management and tenant interactions is very prescriptive around what steps can be taken by whom and when. It is not unusual to see a landlord sacrifice income due to the poor arrears management of their property management team. At any one time 10% of all tenants in New South Wales are in arrears. Some landlord insurance policies will reimburse the landlord for arrears but only if certain steps have been followed within the timeline set out in the policy.
Property maintenance is a fine line between attending upon a tenants every whim and keeping them happy, and work that needs to be completed to stay compliant or better still ensure the ongoing maintenance of your investment.
A good property manager understands what tasks are urgent, what tasks are routine and what tasks should not be undertaken. In general a property manager will triage any maintenance requests into the categories above. Thus ensuring that the appropriate level of attention and response time is given to the issue. Again, the law is quite prescriptive in regards to maintenance issues – certain requests need to be actioned within a prescribed timeframe. Your property manager should give you multiple quotes that are competitive and ensure remedial work is carried out satisfactorily.
A good property manager will also understand the issue of ‘sequencing’. A simple problem left unattended may turn into a big problem through a sequence of seemingly unrelated events. One example of this is an exhaust fan in a bathroom not working correctly. The simplest example of this is an exhaust fan in a bathroom not working correctly. It can be ignored for a small amount of time, however a bathroom without ventilation is unsanitary. The bathroom turns into a breeding zone for mould, which can then lead to serious illness. In fact mould is a large cause of rental abatement notices. Of course if the fan is not working it may be a symbol of something more serious in the electrical system that could cause harm.
An inexperienced property manager will likely view the repair of an exhaust fan as a ‘non-urgent problem’, however the experienced property manager will view this as urgent although not an emergency. They should advise you that works are being undertaken to repair the faulty issue, they will log the issue and repair in the maintenance register and organise a tradesperson to attend to the problem. The property manager will then attend the site to ensure that the works have been completed correctly prior to signing off the issue as rectified and disbursing any funds to trades people.
Apart from attending to and being on call for any issues that your property may have a good property manager should also have a list of items that require routine maintenance. That is those things that need to just have regular upkeep before they become an issue (think painting, carpets, re-grouting of bathrooms, gutters etc).
An indicator that things may not be going to plan is the state of the property during a routine inspection. This is one of the few opportunities that the property manager has to enter the premises legally, in an ordinary situation. During these inspections the property manager should be on the look out for a few things that might flag issues. It is during these inspections that the property manager is likely to pick up signs that your property may be being used in ways it should not, such as being used to manufacture drugs, as a boarding house or even a brothel.
A routine inspection should also identify any damage that has occurred so that it can be rectified, or at least noted for repair prior to the tenant moving out. Your property manager should be providing these to you as soon as they are completed, along with any notes on issues / recommendations.
A good property manager will be able to provide you with an up to date list of accounts. These should be either mailed, emailed or available online for you to view at your own leisure. The accounts will show you income, and expenses. They will provide a complete breakdown of the work done so that they can be provided to your accountant. A good property manager will have an online portal so that these are managed efficiently and are available live for you.
How to choose a good property management firm
Below is a list of the criteria to help choose a good property management firm. It’s important to note that a good sales firm is not necessarily a good property management firm. You are often better to have a firm that is dedicated to property management. Here are some (arguably controversial) indicators of a good property management firm:
- The agency should NOT have a main street frontage office
- They should not be a franchise
- The Principal is a property manager themselves
- They MUST have an online portal for you to log into
- When meeting you they must present a market opinion based on facts
- The leadership team must have risk management experience
- It shouldn’t be the same firm that acted for the vendor.
- They must not lead with price as their central offer
Let’s elaborate a little further on the below:
The agency should NOT have a main street frontage office
If I am managing property what am I advertising? Almost all tenants conduct their property searches online. Think about yourself, have you ever rented a property because you saw it in the window of a real estate agent? No you haven’t. The fact that there is a street frontage is a clear indication that this agency is a SALES agency not a property manager. This means that their focus will mostly be on sales and your investment property will be the poor cousin. It’s also worth considering who is in effect paying for that prime street frontage and super expensive furniture – it’s you through higher property management fees.
They should not be a franchise
There are plenty of great things about a franchise. However, consider the current landscape in property management. Most people aren’t exactly glowing about their property managers. And to date, who have those property managers tended to work for? Large franchises. Just like the big banks and mortgages, there are plenty of up and coming firms that offer a better experience and are hungry for your business.
The Principal is a property manager themselves
If the management team of the agency consists of salespeople what are the chances that property management is going to get the attention it deserves? This is a common gripe heard from landlords, that when it comes to selling their property they have their agency’s undivided attention but when it comes to managing the property in the years after the service is lacking. Having Directors of the business with property management experience is likely mean you’ll get a better experience.
They MUST have an online portal for you to log into
The days of waiting for anything via post are over. If your property manager doesn’t have a portal for you to login and see your investments then it may be time to look for a new property manager – it shows they aren’t taking property management seriously. You should be able to see inspection reports, maintenance requests and your profit and loss on request. Anything else is below market standard.
When meeting you they must present a market opinion based on facts
When you meet with your property manager they must present a comparative market analysis. This should walk through your property specifically as well as take you through other properties on the market. If they seem to not know what properties are available in your market, or have any idea around days on market and current rents then this is a potential red flag.
If a property manager is telling you that they will get you a rent that seems high based on your own expectations or relative to comparative properties then beware. This is a well-worn sales tactic to get you to sign a management agreement. Remember these agreements often have 30 or 60 day notice periods that mean once you’ve signed it’s not easy to move to another agent. A property that is over-priced relative to the market will sit vacant for weeks costing you income.
The leadership team must have risk management experience
When you look for property managers you don’t want a slick salesperson. You want someone who is well read, understands the law and has a very strong background in risk management. Believe it or not a previous credit officer from a bank makes a very good candidate. Why? They have attention to detail, they understand that small mistakes can cost a lot of money. They are naturally conservative. They have experience managing risk. Consider how important risk management is in property management. When your property is vacant there is a trade off between the length of time it is empty and the asking price. Striking the right balance should be a mathematical proposition, not a guess.
It shouldn’t be the same firm that acted for the vendor
It’s all too easy to continue using the same firm that the previous vendor used, especially with an existing tenant. However, you have no indication of how they managed the property previously and they are also unlikely to reduce their fees to reflect the competition in the property management space. Often when a new property manager comes in they are able to identify if things have not been done correctly by the previous property manager. Having a fresh set of eyes can only be beneficial.
They must not lead with price as their central selling point
If a firm competes on price as their central selling point it should raise serious questions about their offering. Whilst you never want to be gouged on fees, this is likely your most substantial asset and it’s important to have a professional managing it. It’s also important to consider the indirect costs of a poor property manager, such as foregone rent due to vacancy and arrears. These are often much greater than the couple of per cent in management fees between a cheap property manager and an excellent one.
If you’re a property investor and would like to know how Certainty Property can help you get the most out of your investment leave your details here and a member of our team will be in touch shortly. When your property is vacant or your tenant is in arrears we pay the rent instead – because that’s how property management should be.