25 July, 2014 / Category: Blog
There’s an old saying that ‘the more you learn, the more you realise what you don’t know’, and while I don’t know who coined it, I do know that it applies perfectly to the world of real estate. Indeed, it must ring truest of all for the weary investors out there facing the challenges of DIY property management; a veritable minefield of unprecented costs, complicated processes and obscure obligations.
When it comes to ensuring your investment property serves you as it should, it rarely pays to go it alone. And thankfully, you won’t have to. Enter the Property Manager, an incredibly useful, knowledgeable professional, equipped with the resources and expertise to run your investment property like the wealth-creating business it was meant to be.
You get what you pay for:
While the cost of property management services will vary from firm to firm, and state to state, one thing is certain: property management fees are always reflective of the quality and scope of services provided; an unwavering example of the oft-trotted ‘you get what you pay for’ analogy. A comprehensive, all-encompassing property management service from a quality firm will indeed cost you more than what I consider to be a point-defying, surface-scratcher of a job from a lower quality firm or less experienced member of staff.
When it comes to sizing up firms and their fees, even the most analogy-fatigued amongst us can agree that comparing apples with oranges is likely to result in a sticky mess for you and your portfolio. The only way to ensure transparency, ease of comparison (and that you’re actually getting what you pay for) is to approach your shortlisted firms and request an itemised breakdown of the services they offer. While it could be a whole new blog in itself (stay tuned!), the firms you’ve got your eye on should be able to demonstrate the following:
Their years of experience in your local market
The number of properties they’re currently managing
The type of office infrastructure i.e. what support do they have?
Their advertising recommendations and options (are they selling your property, or their brand?!)
Their vacancy rates
Their arrears rates
The average length of their tenancies
The quality of their routine inspection reports
There are different types of fees a Property Manager will charge, most commonly including management fees, letting fees and a host of ancillary fees. The structure of property management fees does vary, so pay attention to exactly what services your fees are tacked onto, how and when they’re collected and of course, whether they’re justified!
In Australia you’ll find that the majority of property managers will stay true to the industry standard of around 7.7% of your rental return in management fees, including GST. Infolio’s property management community survey confirmed that most reputable agents would shake hands and get down to business for a fair and reasonable 6.6% of your rental return, in addition to other ancillary charges.
The same survey also showed that a few property managers out there charge as little as 5.5% (including GST), which doesn’t sit particularly well with me. As the primary ‘profit centre’ for most property managers, the management fee is based on the number and scope of services provided. Experience tells me that a figure as low as 5.5% would offer a property management company little to no profit margin – meaning lower wages for employees, who wouldn’t be inclined to stick around too long, let alone feel much of an incentive to perform their services to the required degree! Indeed, many property managers take on an exorbitant number of clients in order to encourage growth, but when service inevitably falls short it’s their clients who are left to pick up the peanut shells.
Letting (or ‘Leasing’) fees
In addition to a management fee, property managers charge a letting fee of around 3.3% (including GST) of a property’s gross average rental value. This is equal to/reflective of approximately 2 weeks’ worth of rental returns on your property.
This fee compensates your property manager for the temporal and financial costs incurred by securing top-notch, financially-fit tenants for your property. As such, this fee is commonly inclusive of –
Finding and sourcing the best tenant
Standing and conducting open inspections
Preparing legal binding leas agreements
Details condition reports
Ancillaries: ‘The Other’ Fees:
Whether they’re tacked onto management fees or listed separately, keep an eye out for the following ancillaries:
Advertising/Marketing Fees – cover the costs of advertising your property online and, if a premier/executive property, costs associated with print and promotional materials.
Vacancy fees – A few property managers out there charge a monthly vacancy fee. Others expect to collect the full monthly property management fee (even when there is no rent coming in). Readers might be interested to know that Infolio boasts a less than 1% vacancy rate.
Set-up Fees- This fee is for the time invested in setting-up a new account. Naturally it pays to note whether this fee is applicable per unit or per property -and whether there’s any further leeway if the property isn’t occupied.
Reserve fund fee- These funds are used to pay day-to-day operating expenses, making sure that services are performed promptly and bills are paid in a timely manner.
Maintenance fee – Compensates property managers for their time and efforts in liaising with tenants and contractors/repairmen to ensure your property is kept in top nick.
Eviction fee – This fee covers the administrative costs of serving notices, dealing with attorneys, and making court appearances.
Unpaid invoice fees – A minor service charge that is added to all unpaid invoices that are past their due date.
Bill payment fee – Some property managers can make owner payments such as mortgage, insurance, home owners’ association dues, etc. This fee compensates for this service.
Re-letting fee – When time comes for an existing tenant to renew or extend their lease, many property managers will charge a re-letting fee, to cover the costs of negotiating any increases in rent with existing tenants and drawing up a new agreement accordingly. This fee, typically equivalent of one week’s worth of rental returns, has proven to add up significantly over time, particularly in a market where many Australians are renting long-term rather than buying.
Statement fee – Statement fees compensate your property manager for issuing monthly expenditure statements.
All things considered, perhaps I’d best retitle my blog to ‘Costs of not engaging a Property Manager’. After all, when it comes to combing through the finer details of the costs of enlisting a property manager’s services, it pays to look at the broader picture. It really is more a question of ‘what am I saving?’ If you’re stepping up to the investment property plate, you might be interested to know that Infolio will only charge you the following fees:
Monthly statement fee
One-off advertising costs/fee on initial letting/s
If you’d like to know more about our property management services and how they can maximize returns on your investment, get in touch with Infolio today. We’d be happy to sweat the small stuff for you.
Director of Infolio