Do I really need to use a property manager?

As a property investor, you might be thinking:“Do I really need to hire a property manager?”

This is a good question and one we get asked all the time here at Opes Partners.

In fact, many property investors think: “Should I just self manage my investment property … rather than use a property manager. After all, it’s another expense.”

In this article, you’ll get an unbiased view of the reasons to use a property manager and the reasons not to use a property manager.

Because while about 40% of property investors do use a property manager, according to Sharon Cullwick of the NZ Property Investors’ Federation, there are many who don’t.

So, going through the pros of both means you can decide the right option for you. Let’s start with the reasons to use a property manager.

Do you have a question or comment about property managers? Feel free to leave your thoughts in the comment section at the end of the page.

Reasons to use a property manager

#1 A property manager will find you the right tenant

A property manager will help you find the right tenant, and make sure it’s a good tenant. This means they will pay the rent on time and look after your property.

Property managers have experience in weeding the good tenants from the bad. But more importantly, a good property manager will run background checks on the tenant (which many private landlords don’t do).

This includes: credit and employment checks, references and references.

For instance, they will check regular payments like power and mobile phone bills. If a tenant is regularly late on their power bill, there is a good chance they will regularly be behind on your rent as well.

And to be clear: a good property manager will use a credit check system for this rather than asking the tenants for this information directly.

They will also check references from other property managers, as well as the tenant’s employer to double check the information given by the tenant is accurate.

From our experience many property investors who don’t use a property manager don’t actually do these checks. Or at least, not in the same nitty-gritty detail.

#2 – A Property manager will follow increasingly complex laws

The Residential Tenancies Act (RTA) has become increasingly more complex.

For example:

• A fixed-term tenancy is no longer only for a fixed term; it now rolls over into periodic

• You can no longer evict tenants without a valid reason

• On top of that, your property also has to meet the Healthy Homes Standards

Property investors who aren’t up-to-date with these changes (and everything that was already in the RTA) can find themselves in some sticky situations.

For instance, if you fail to provide valid reasons to end a tenancy, or your property doesn’t have a valid Healthy Homes Certificate, then your tenant can take you to the Tenancy Tribunal.

So, both to manage any potential run-ins with the Tenancy Tribunal (and to make sure you don’t have to go there) it can pay to have an expert on your side.

This is because a property manager who looks after 80+ properties will have a lot of experience working with the legal rules.

#3 – Property managers save investors a lot of time

There’s no way around it – being a property manager takes up a lot more time than you might think.

For instance, it takes time to do property inspections, ensuring the rent is collected, and those midnight, weekend and holiday calls from the tenants sorting property issues – like hot water problems, leaky taps or tenants locking themselves out.

This means if the gas goes off in the oven on Christmas Day you’re going to get the call.

If the hot water dies on a weekend, you’re going to get called.

Or, if you (are like me) and lock yourself inside your bedroom at 11pm with a child in the next room … you are going to get many calls.

Most property investors already work full time, so it can be difficult to manage a 9-5 and a property as well.

In this instance, it can save you so much time to hand over the responsibility to a property manager, who can devote all their focus to ensuring your investment is well looked after.

#4 – Property managers will make sure inspections are regularly done (this is important)

Property inspections must be conducted every 3 months, otherwise your insurance is void (in most instances).

That means if your house burns down (or something bad happens to it), your insurance company may not pay out if you haven’t been doing your property inspections.

One issue we find with self-managing property investors is they don’t always do the inspection thoroughly and, in many cases, not at all.

For instance, it’s not enough to do a kerbside drive-by and assume everything is all good. You need to go into the house, look at the property, and keep good records.

A good property manager is going to do the inspection properly, every 3 months as required. They will take photos and keep a record of the state of the property.

Then, if there is damage, you can prove when the damage occurred and you’ll be able to collect insurance, if the worst should happen.

#5 – Good property managers will regularly increase the rent

Increasing your rent to market level is part and parcel of owning investment properties. That’s because the cost of holding onto your investment tends to increase over time.

Between rates, insurance, and those pesky changes to the interest deductibility law – property investors regularly boost rents to keep properties as viable assets.

But some investors fear that increasing the rent will cause their good tenants to move into another property.

A less experienced landlord might think: “Why – for the sake of $20 a week – should I risk losing my quiet ‘tea-sipping’ tenants for a rowdy bunch of 20-somethings setting fire to couches outside on the front lawn?”

And then there’s the question: “If I raise my rent … how much should I increase it by?”

A property manager can regularly keep tabs on the market rent in the area to ensure your property is charging the right amount of rent.

There’s also a financial incentive for property managers to make sure you are getting as much as you can for the property, so they are on the pulse.

Whereas some private landlords don’t keep up with rental increases, and their investment returns suffer because of that.

#6 – Property managers will save you stress

Finally, one of the most stressful things a property manager has to do is dealing with your tenants.

Why? Because they will be the first on the list to get called if anything happens, and this doesn’t always fall neatly between business hours.

On top of this, some times tenants (and landlords) can get emotional about the house they are renting. This has the potential to cause conflict.

If you don’t have a property manager, then you are signing yourself up for the stress of the job.

Whereas some times property investors want a property manager to keep their tenants at arms length so they don’t get drawn into stressful conflict.

This means the investor is able to concentrate on building a portfolio, rather than fielding calls from tenants.

But, using a property manager isn’t the right fit for everyone

There are some investors who choose to self-manage. So let’s go through the reasons some investors decide to self-manage.

Reasons to self-manage your property and not use a property manager

Here are the three reasons some property investors choose not to use a property manager.

#1 – If you like and want to meet the tenants

There are some property investors out there who love and value a personal relationship with their tenants.

For example, Landlord of the Year Natasha says she prides herself on self-managing her 10 properties, while working a full-time job, because it’s important to have that personal relationship with tenants.

In her mind the open communication translates to happier tenants who stay longer, look after the home better, and let her know about issues sooner.

On top of all that she takes pride in giving people a warm, dry home to live in.

#2 – Cost

If you self-manage your property you can save up to $4k on fees and charges.

This number is pretty broad because property managers do come with additional fees, but just “how much” you pay depends on the type of property manager you use.

Generally speaking, there are three main costs/fees a property manager might charge:

• Management Fee (a percentage of the rent collected, which usually sits around the 7-10% + GST

• Tenant Sourcing Fee (formally known as a “letting fee”, usually 1 week’s rent + GST, but some times a fixed price, like $500 + GST)

• Extra charges (inspection fee e.g. $50; organising maintenance fee (usually a percentage on top of any maintenance costs, e.g. 10%); smoke alarm and Healthy Homes inspection from $149 + GST, dependent on house size; meth testing starts at $189 + GST)

So, if you’re home is renting out at $550 a week you can expect to pay between $38.50 and $55 a week for management fees ($2000 - $2860 annually) and up to $1000 for other fees and charges.

Now, there are some people out there who will say: “Take my money! I do not want to ever speak to my tenant … ever”.

But there are others who will see that as a valuable saving, and worth the extra hassle.

#3 – Trust

Finally, there are some people out there who simply don’t trust a property manager to adequately manage and look after their property.

And that’s OK. It’s a valuable asset, after all.

Particularly if you prefer to be very hands-on with property maintenance, rather than hiring staff.

What should I look for in a property manager?

A property manager is likely to be someone you, as an investor, is going to have a relationship with for many years.

So, while you can choose whichever property manager you like, ideally you want someone you click with and not just someone who can do the job well.

If you are looking for a recommendation, here are our top picks.

Or, if you are planning on going it alone, here are some questions to ask:

• Have you thought about how the bond will be lodged?

• Are you familiar with what needs to be checked every 3 months?

• Tenants sometimes cause damage, are you familiar with Tenancy Tribunal procedure?

• Do you know how to get a Healthy Homes certificate prior to renting the property out?

• Are you going to make your own marketing material?

• Are you familiar with the Body Corp/Residents Association rules?

So, should I choose a property manager?

The key message here is that being a successful property manager is time intensive, legally complicated, and comes with its fair share of aggro and risks.

So, in some instances you may be best served to hand the responsibilities over to a professional with the time and experience to look after your investment.

However, this hands-off option comes at an annual cost.

On the flip side, if you prefer to save a few grand each year you can, of course, self-manage your own properly so long as you are well informed of your obligations and the role in front of you.

Equally, if you are signing up your aunt and uncle from down south, make sure they are well schooled to the task at hand before handing the keys over to them.

Write your questions or thoughts in the comments section below.