The power of leverage
There are those investors who insist on doing everything themselves, including the property management. Their grand plan is usually to save some dollars and potentially avoid any future tenant damage and pitfalls. Then there are those investors who use the power of leverage, which is all about taking advantage of other people’s skill sets for financial gain.
Blogger: Zoran Solano, Hot Property Specialists
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These investors rely on the expertise of property managers to look after their property asset.
In my experience as a buyers’ agent, I find it’s the latter investor who adopts the power of leverage strategy that ends up in a more powerful financial position – faster.
Recently I met an older gent who owned a property at Woolloongabba. He was an ‘old school’ property investor who had purchased within his local area because that's the area he knew. Since the 1980s he’d purchased approximately eight properties within a stone’s throw of each other.
Other than putting all his eggs in one basket, this gent elected to self-manage the properties, because he could pretty much walk to each of them. After asking him why he owner-managed, I discovered he no longer trusted real estate agents after an experience many years ago when a tenant left one of his properties in poor condition, which led to cleaning costs and vacancy.
I thought this was ironic considering I was standing at a property he had vacant for two years because the outgoing tenants left it in disarray under his management.
The gent said it took him over a year just to clean the home. He scrubbed the bathtub for over eight hours. Something told me he didn’t understand the power of leverage. It's not his fault he has been burnt before however it is his fault that he didn’t get some assistance. He could’ve saved time and money if he had the right advice and cleaning help.
So lets do some maths. The property could’ve been professionally cleaned inside and out for around $1000. This would normally allow for two professional cleaners for around 10 hours or two days. And lets say they needed a small skip bin for the rubbish as well, $300.
Then a repaint inside, which was needed for a couple of the rooms, $2500 for this exercise. So the owner is down $3800 and has incurred three weeks vacancy at most.
The property in its clean condition would rent for around $550 per week. So, 49 weeks x $550 = $26,950 (year of rental including three-week vacancy).
Instead the owner does the work himself. Let’s assume it cost $600 in painted and cleaning products and he took two years to complete the job. So a $3200 saving actually cost him around $50,000. Annual rent x 2 – vacancy = $53,900.
Considering the tax benefits of claiming that maintenance and upkeep, the choice to undertake the work himself looks worse and worse.
The kicker here is he mentioned that another one of his properties is in just the same rundown condition and he is just getting started on it.
We can't be superman and do it all, we need a team of honest professionals to help us maximise our investments and make the property work for us not make us work for the property.
About Zoran Solano
Zoran Solano is the office manager and senior buyers’ agent at Hot Property Specialists Buyers Agency. With five years under his belt as buyers’ agent, this young gun is recognised as one of Brisbane's leading agents in buyer representation.
Known for his independence and keen eye Zoran is the competitive edge buyers need when purchasing homes or investment properties.
Zoran is also an active member of the Real Estate Buyers Agent Association (REBAA), an organisation that upholds legal and ethical buyers’ agent practice.
For more information please call 07 3847 9430 or find "hot property specialists" on facebook.
