Property investing is not a single-person game, so I want to stress the importance of having a good team around any property investor.
To read about the importance of mortgage brokers, conveyancers and solicitors, and building & pest inspectors, click here.
1. Buyer’s agent (BA)
Role: to recommend which property to purchase.
A BA is a vital team member as they do the hard yard of asset/property selection and recommendation.
A good BA can help you by:
- discussing with you to help you understand your budget, time frame and ultimate investment goal
- conducting research for suitable candidate properties within the suburbs that fit your price range
- reviewing options and present recommendations
- acting on your behalf in the negotiation and contract process, until settlement is completed
- providing investment education throughout the process
To those investors who do not have time, energy or whatever reason, a BA is your vital player to the team.
They are the messiahs to investors who would like to invest but have no idea on where and how to start. They have a unique position in the team, where their expertise, negotiation skills, as well as their connections with local agents in making a good investment deal happen.
Like conveyancers/solicitors, BAs are also state-based. A BA qualified to recommend properties in Queensland may not necessary have the licence to be able to recommend properties in Victoria, so it’s important to confirm with the BA on what area they can and can’t recommend.
On top of that, it’s also important to understand a BA’s niche area within a state.
Take Sydney, for example. A BA can, in principle, recommend any property across Sydney and NSW. However, it’s impossible to know all NSW suburbs thoroughly, so each of the BAs will have a different niche area where they are very familiar with and know the suburb inside out.
It is therefore paramount that during the initial engagement, you confirm with the BA you are working with that they know the target suburbs inside out. Usually the deal they present will be a good indication of whether they are a claimed suburb expert or not.
BA fees are not cheap; this can range from a couple thousands of dollars to a percentage of the purchase price.
However, as Phil Tarrant from Smart Property Investment repeatedly claims, BAs do this every day, so they are geared with all the ammunition in finding a better deal than you and I can discover. And, if a BA can negotiate and present a deal which potentially saves you thousands of dollars, then it simply means the BA’s fees are covered.
Like brokers, a good BA understands that for a good, long-lasting client relationship, it is important that he/she understands what the client is ultimately trying to achieve via investing. The recommended property will then fit into the long-term investing landscape and be able to assist the client in achieving the ultimate investment goal.
In this context, a good BA will always be outcome-driven because they can deliver beyond client’s expectation, hence can win over client’s trust and referral.
2. Property manager (PM)
Role: Once property is settled, a PM will look for tenants and manage day-to-day issues of an investment property on behalf of the investor.
A PM ranges in their capabilities and character. Some will essentially “do their job to manage”, while others will go way out of their comfort zone just to add value.
A good PM will be able to help you by:
- having in-depth understanding of building expertise and handyman skills
- being able to manage difficult conversations with tenant/landlord as required
- having excellent communication skills – concise and precise to the point
- doing more than just collecting rent. Be proactive and provide guidance to landlord (and tenant as required) to ensure best mutual outcome for both
Handyman skills are an advantage for PMs, but not a must have.
My personal experience is if they do have the handyman skills and are willing to do pre-purchase inspection for you, then it’ll be easy to arrive at an estimated repair cost required prior to getting a tenant into the place.
This has been very handy for my Queensland purchases as I would be able to arrive quickly at the optimal offer price based on the pre-purchase feedback once the PM has carried out the inspection.
If contract has been reviewed and green light is given, then I can commence negotiation straight away and beat other competitors.
Having the handyman skills also means that a PM can fix things quickly during routine inspection. Sometimes a quick fix could save you a trip!
Due to the nature of the role, PM selection is absolutely critical.
They will be looking after the property for you – I’ve heard lots of horror stories where management was not done properly and the owner had to step in and take over management themselves.
A PM is someone that you need to be able to entrust to manage your property day-to-day and solve problems on your behalf. Their role is more than just collecting rent, perform routine inspections and escalate issues.
If this is all they are doing, then it’s probably time to switch to someone else.
Having good communication skills is also one of the most important elements in choosing any PM.
Is his/her communication style easy to understand? Is it concise and to the point? How would they handle difficult conversations? These are all the things that an investor needs to consider and be comfortable with before taking up a PM service.
Fundamentally, there needs to be a trust relationship established between PM and the investor, so it comes down to how quickly the PM can establish a rapport and whether they can consistently deliver the outcome to anyone’s expectation.
PM fees can also vary greatly, and my suggestion is always don’t go for the cheapest. Choose PMs based on a proven record of delivering results.
The best way to choose a PM is to seek recommendation from fellow investors and also where possible, do interviews with the PM directly so you can understand who you will be dealing with moving forward. Sometimes there are personality clashes and no matter how good a PM is, you will not be able to work with them.
Be open, be honest and let them know your expectation so that they know what ticks your boxes and can deliver to your standard.
Role: To provide support and advice regarding tax and asset protection.
I have to admit I haven’t used accountants as much as I should be, so this is probably my weakest role out of them all. In my opinion, a solid accountant can help you by:
- providing advice on IP tax minimisation and deductions; what you can claim and what you cannot during tax time, and what can be claimed upfront or need to be depreciated. How long to keep receipts, etc. Below are some common deductions:
- Interest incurred on an investment loan
- Insurance incurred for the IP
- Property management fees/charges for the IP
- Council, water rates, strata fees incurred for the IP
*Note that new laws have recently come out to disallow claiming of travel expenses in relation to your IP
- providing advice on asset protection via structures such as trusts, companies and SMSF
- providing advice on capital gain/loss at the point of selling an IP
- ensuring year end compliance reporting with ATO
I’m sure there are more, but as I haven’t used an accountant much myself I can’t comment too much. But off top of my head, if I have any questions in relation to what I can and cannot claim, the amount of depreciation that I can claim for an IP, and if I want to discuss about setting up asset protection, then accountants are the ones to go to.
However, as the portfolio grows it may not be a bad idea to outsource IP tax returns to your trusted accountant.
They are the trusted member of the team to handle any tax-related questions during selling (also to avoid making any potential mistakes in your tax return!)
As you can see, each team member plays a vital role in ensuring the success of an investor’s property journey.
About the Blogger
David Shih is a Sydney-based investor who have built and amassed a property portfolio across NSW and QLD. David has a real passion in helping others with property investing, personal development and believes having the right mindset and optimism is absolute paramount to the success of everything in life. David is sharing all his tips, lessons and experiences in his blog which can be found at mypropertystories.wordpress.com. He is happy to talk property anytime via Facebook, Google+, Twitter (@diyshih) or via the blog.