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In our line of work, we're constantly speaking to property investors from all walks of life.
It's always interesting to hear how people got to where they are and why they made the decisions they did.
Conversations with self-managing investors can be particularly insightful. After all, they've made a decision not to use a traditional property manager.
We like to find out their rationale for that decision and use it to constantly improve our service for our existing clients.
In this post we'll look at why people choose to self-manage their property... and why this decision isn't for everyone.
Self-managing investment properties in 2014
It's certainly possible to manage your own property.
- Tips and advice for property investors flows freely online
- Contracts and legal documents can be bought at your local newsagent
- The RTA publishes plenty of useful information to help you lodge bonds
- You can advertise your property reasonably cheaply on sites like Gumtree
- And arrange rent payment by direct debit (no need to worry about chasing and cashing cheques anymore)
This is certainly a big advance compared to what self-managers had to contend with as recently as a decade ago.
But despite the practicalities of self-managing your property, there's more to the job than just placing a tenant and signing a lease...
The most common reason cited by landlords for deciding to manage their own property is the potential savings on management fees. But this saving should be compared to the possible costs of getting things wrong.
The cost of getting it wrong
Recently, we spoke to a self-managing property investor from Norman Park whose tenant had fallen behind in rent. Whenever she knocked on the door to ask for payment, she found herself intimidated and conceding more ground to the errant tenant. She wanted to issue a notice to leave, but didn’t know how to go about it. Meanwhile the situation continued to deteriorate.
The unfortunate truth was that the property investor was going to face an up-hill battle to get any compensation for lost rent and property damage.
She didn't have landlord insurance because the premiums for self-managing investors can be extremely high, and she would have a tough time making her case at QCAT because she didn't have evidence to show that she'd followed all the correct procedures to chase her rent and remove her tenant.
This story illustrates a handful of the key challenges self-manaing property investors face.
Finding a good quality tenant
Obtaining a good quality tenant may seem as easy as placing an advert in the local paper or on Gumtree. But the reality is that it's not that simple.
Most potential tenants now turn to the major real estate portals like RealEstate.com.au when looking for properties - but unfortunately that particular site doesn't allow private landords to advertise.
Consequently, most self-managing investors are forces to dramatically reduce their tenant pool and advertise on sites like Gumtree. These sites can attract high risk tenants that may have poor rental histories - restricting them to look beyond traditional agencies.
Legal obligations and regulatory updates
Market developments, whether in the local economy or in the laws and regulations that landlords must abide by, will need to be kept abreast of and adhered to. Tenants are becoming more aware of their rights, and a landlord will need to honour his or her responsibilities.
Day-to-day property management
There is an onus on the property investor to keep the home well maintained, and good exit and entry records – including documented evidence such as photographs of damage – should be compiled.
Regular inspections will alert the landlord to any damage done or general maintenance work needed, and rents will need to be collected in a timely fashion.
Who is Self-Managing right for?
Despite those seemingly enormous challenges, we do speak to a number of property investors that self-manage with great success.
Here's a few instance where self-managing might be particularly applicable.
- If you're in extremely close proximity to your property i.e. if you're subletting the upstairs or downstairs level of your home
- If you're renting to close friends or family in a low risk situation (even this should be approached with reluctance!)
- If you're very 'hands on' and you want to manage every facet of your investment property
- If you have the time and expertise to find and vet suitable tenants and ensure the upkeep of your property
Managing a property effectively takes time and experience. One wrong move, or bad tenant, and any savings will be swallowed by the costs of legal fees, arrears on rent and domestic bills.
Professional full service agents will have the experience and expertise, and technological capability, not only to market to a far wider audience but also to properly check on prospective tenants.
Doing it yourself may save money in the short term, but in the long term the value a professional property manager brings will directly, and positively, impact the return on your investment.
By Simon Waide, Rental Express