A lazy or inefficient property manager can do more than just frustrate landlords and tenants – they can damage your portfolio and cost you some serious money.
Blogger: Julie Beck, Hatch Property
I recently assisted clients living in UAE, who had left their Sydney home to the care and management of a significant property management company on Sydney’s north shore while they worked overseas for an anticipated period of three years. They always believed they would be returning to live in their beautiful home however, as it turned out they remained in UAE for seven years.
They contacted me when they wanted to purchase a property to utilise as a base as their 12-year-old son was to commence secondary school in another Australian city as a border. In looking at their entire situation I suggested it was necessary to evaluate their Sydney home and its effectiveness in their investment portfolio. This led me to do an inspection of their home with the property managers where I discovered that after a major weather event some three years earlier, significant roof damage resulting in internal flooding had occurred. Insurance had denied the claim as regular roof maintenance had not been undertaken – the gutters had not been cleared which contributed to the damage. This required $13,000 worth of rectification work. The property managers arranged the repairs and then instigated gutter cleaning, however this continued for only a couple of months.
I was very surprised that regular roof maintenance was not being carried out as the area had numerous very large gum trees is close proximity to the house.
Approximately eight months after the storm event termites were discovered inside the home, thought to have entered due to the dampness created when the gutters flooded. Another expensive rectification process was implemented with a termite treatment and maintenance program.
On my inspection of the property inside the home, when I stepped backward in the upstairs master bedroom the timber floor subsided. On pulling back the carpet we discovered a large hole in the rotted timber flooring, and evidence of termite bait. Clearly the hole had previously been identified as termite bait had been placed in it.
I was extremely concerned at the risk implications this property held for the owners and, based on their track record, I had no confidence in the ability of the property managers to look after it. I discovered numerous other risk elements that had not been identified by the PM and on questioning him, found that his experience level and even concern about what we found, was very minimal.
The owners were now clear they would never be returning to live in the home so I suggested they give serious consideration to the pros and cons of keeping it in their investment portfolio or selling the property.
While an owner can become emotionally attached to a home that has served them well as a family home, once it is no longer their principal place of residence, it is time to asses if it actually makes a good investment property.
Some do and some just don’t.
After consulting their accountant and discussing the pros and cons of holding this high maintenance property, the decision was made to sell.
The lack of maintenance resulted in significant work needing to be done to bring the property up to a standard that would maximise a positive sale outcome.
The issues outlined above illustrate some of the serious considerations that can be faced by property investors, and exacerbated if you are located remotely.
While it can be expected that most property managers will look after your property, in this case it appears when the owner was “out of sight and out of mind” the managers were less significantly less diligent.
Following are seven tips and suggestions to connect you with your property manager to ensure a more positive outcome than these clients experienced.
1. Do not become just a "property address" to your manager. Have regular email and phone contact (at least once every 6–8 weeks) with them and let them know you by name and know you are interested and involved in the state of your investment.
2. Insist on photographs after each inspection and look at them closely. Generally photos flatter, so look carefully and ask questions if concerned. Look for potential maintenance that may be required and discuss with the manager as they may have overlooked it.
3. Read your financial summary and note what you have paid for. Be aware of the regular maintenance expense items to ensure they are coming out of the rent; pool, roof, garden maintenance etc. If you don't see them on your statement, question why they are not.
4. Ensure statutory and other regular charges have been taken out. I recommend you authorise your PM to pay on your behalf the regular outgoing charges which include rates, body corporate and insurance charges. This allows for all expenses to be contained on the one end of year financial statement, transfers responsibly to the managing agent and makes financial preparation at tax time easier to do.
5. Enter critical dates in your calendar so you know when rent reviews, leases expire, pest inspections etc. fall due. This can easily be done on a property management spreadsheet. This may sound like you are doing the work you are paying your manager to do, however once it is established this is a very small amount of work to do to manage a significant growth asset and a significant investment in your financial future.
6. Respond to correspondence in a timely manner. Read the monthly statement, body corporate notices and AGM papers even if you are unable to attend. Stay informed about your investment, your future is dependent on it so be aware. Follow up when you get notified of repairs or damage required.
7. Keep abreast of local rental statistics and yields so you are aware what to expect at lease renewals. Be prepared to negotiate to keep tenants, even reduce the rent if the markets call for it. Do the math $10–$20 per week drop in rent is often much less painful than a week or many more with no rent and the cost to the management company when a new tenant is found.
For those of you wondering, my client’s situation ended well for them as they achieved a price significantly above their initial expectation thanks to Sydney’s buoyant property market.
In summary, understand that property investment is for the long term, that it is not entirely "hands free" and the more you put in the more you get out. If you discover you are not happy with your property manager after voicing your concerns as they crop up, find another one and be clear about your expectations in writing from the outset.
About Julie Beck
Based in Canberra, Julie has been actively working in the property arena for over 12 years in diverse roles ranging from Shopping Center Manager and Commercial Property Manager to a qualified Investment Property Buyers’ Agent with a focus and expertise in the Brisbane market. Her experience in such mixed roles has given her a unique and broad property experience where she has identified opportunities within niche areas in the residential and commercial markets and developed services to meet those needs. Julie is a qualified property investment adviser (QPIA) accredited by PIPA, a licensed Real Estate agent in ACT and Queensland. Julie is a board member of REIACT.
For more information visit www.hatchproperty.com.au