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One cheap fee, $24k in arrears: The hidden cost for thrifty investors
For investors wanting to preserve their cash flow, the cost of choosing property managers based on lower fees, rather than value, can be a massive price to pay. This is why you should avoid that mistake:
As interest rates rise and the holding costs increase, landlords may be tempted to cut expenses by choosing a property manager with lower fees.
However, according to Cara Bergmann, director of Cara Bergmann Properties, a cheaper rate can prove costly if it comes at the expense of communication, oversight and accountability.
On the PMX podcast, she said choosing a property manager based on fees, rather than value would leave landlords exposed.
Bergmann warned that investors often got what they paid for when it came to property managers, and urged them to seek out services that aligned with their strategy.
Cheaper doesn’t always pay
Bergmann described a recent situation where an investor chose a property manager who only charged 5.5 per cent in fees, despite her efforts to secure the business.
The property manager took only half a week’s rent as a bond instead of two and did not sufficiently ensure rent was paid.
The landlord, who had been overseas, returned to find the tenant $24,000 in arrears.
“He did not know he was in arrears - there was no breach notice,” she said.
Bergmann said the investor took the matter to the Queensland Civil and Administrative Tribunal (QCAT), lost his case, and then asked her to take over the property.
Bergmann said the matter showed it was often more beneficial to seek value for money rather than low prices, although services had to be proportionate.
However, despite warning investors not to focus solely on a lower price, Bergmann said cheaper commissions didn’t always mean poor service.
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“It just means that predominantly, the guys that are offering the low rates don't have the same support base,” she said.
How to search for value in PMs
Rather than focussing on fees, Bergmann encouraged owners to choose their property managers based on their hands-on experience, services and capabilities.
She said investors ultimately needed professionals who understood their goals and had the time to build a relationship with their client, ensuring landlords could receive the best advice possible on their property.
Additionally, Bergmann said that when seeking value, investors should make sure their fees were proportionate to the day-to-day duties the property manager carried out, particularly whether tasks were performed directly or outsourced.
“If you're doing everything and you're not outsourcing the smoke alarm companies, and you’re not only doing your six-month inspections, then you’re worth more,” she said.
“Our property managers are the ones that are on the ground – they’re the ones that deal with the owners.”
Despite hands-on management being crucial for investors, Bergmann also said agencies needed to be supported by effective systems.
She said investors should look for offices with processes in place to manage trust accounting, audits, and compliance, helping ensure their properties are managed properly while letting property managers focus on service.
“That alleviates the work on property managers a lot, and they can dedicate their service to the property management business world.”
She said investors should be cautious of agency models such as ‘pods’ and executive business units (EBUs), where multiple staff members manage a portfolio or client, leaving investors feeling disconnected from their property manager.
“I think if you don't know your client, you've got a bigger chance of losing a client,” she said.
Bergmann acknowledged that even a property manager providing a high level of service could make mistakes, but said accountability was key.
“Am I going to make mistakes at times? Yes. But I'm going to know them and be involved in fixing them,” she said.
Listen to the full episode here.
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