The true costs of self managing landlords

Some ten­ants are feel­ing misled by land­lords who are try­ing to max­im­ise their profit by hir­ing a real estate agent only to advert­ise their prop­erty, pre­fer­ring to self man­age from there on.

As a land­lord, there’s noth­ing wrong with try­ing to max­im­ise your profit depend­ing of course on how you do it. You may feel that you can man­age the prop­erty your­self and some land­lords are very good at this.

How­ever, there can be draw­backs that are over­looked when think­ing of sav­ing money this way.

Being a land­lord myself, I find myself ask­ing ques­tions such as;

How can I save money on real estate agent fees?

Do I just pay agent to advert­ise and sign up the ten­ant myself?

I know enough about prop­erty man­age­ment to col­lect the rent and man­age my ten­ants, should I do it myself?

Do I want to deal with the hassle or is the agent worth it?

What is my goal, what do I want to achieve here?

These are great ques­tions to ask your­self as an investor and every­body responds dif­fer­ently based on indi­vidual goals and what we are will­ing to learn and do.

Let’s start to think like a tenant

I came across a con­ver­sa­tion on an online forum the other day which sparked me to write this art­icle about a ten­ant feel­ing misled by the agent and the land­lord.

This par­tic­u­lar ten­ant wanted a prop­erty with pets allowed for which they had been search­ing for some time. They found a prop­erty advert­ised by a real estate agent, and applied for the prop­erty think­ing that their pray­ers had been answered.

They went through a lengthy pro­cess of nego­ti­at­ing with the agent to get their medium-sized dogs approved and informed their cur­rent land­lord that they were moving.

Then there dream star­ted to fall apart

They then dis­covered that the land­lord just used the agent to advert­ise, after which the land­lord pre­ferred to man­age the prop­erty her­self.

Well, this did not go down well, as the ten­ants had an unfor­tu­nate exper­i­ence deal­ing dir­ectly with their pre­vi­ous land­lord. This got the ten­ant wor­ried, think­ing that the pets clause was going to be abused.Tenants feeling misled by rental agent or landlord

The ten­ant con­tin­ued on to say that if they had known that the land­lord was self-managing the prop­erty, they would have never applied for the property.Tenants feeling misled by rental agent or landlord

The agent explained that once all was final­ised that they no longer had a rela­tion­ship with the landlord.

On hear­ing this from the agent, the ten­ant became extremely appre­hens­ive and scru­tin­ised the con­tract line by line for more clauses and issues. They found one stat­ing that they are to “main­tain and ser­vice all appli­ances”.

The ten­ants said in the forum “We have 7 days to ensure everything is work­ing after that we main­tain them, pay for ser­vice and repairs and they will only be covered by land­lord if an act of god dam­ages them. So what hap­pens if one fails? It can’t be repaired? I ain’t pay­ing for a brand new Smeg dishwasher.”

“Kind of feel like I’m strapped to a bar­rel and for­got the lube.” the ten­ant said.

In real­ity, there is no such clause that exists, but the point I’m mak­ing is that once a ten­ant gets emo­tional, and starts to mis­in­ter­pret clauses, they can jump to con­clu­sions and this can make it almost impossible to sign a ten­ant up to a lease.

So what’s the prob­lem for us landlords?

As a gen­eral con­sensus we have noticed that ten­ants are very wary deal­ing with a land­lord and can feel like they need to tip­toe around the land­lord.

Although, this can be a good thing for us land­lords as we are able to keep a close eye on our invest­ment, it can have the reverse effect on ten­ants as they can feel uneasy in their home.

This can lead to high ten­ant turnover, which over the life of the invest­ment can blow out the sav­ings you hope to achieve.

Here are some examples of why you will get high ten­ant turnover;

Some ten­ants want to avoid con­flict and feel as though they can­not request repairs and main­ten­ance. Some­times they would rather show their frus­tra­tion to an agent (third party) than risk the rela­tion­ship of the land­lord and a hard time at home.

Ten­ants can feel like they won’t get a fair deal.

They don’t want to feel stalked by the owner wait­ing for them to slip up.

They think they’re going to be har­assed about every little thing.

They can feel like there is nobody to com­plain to and reg­u­la­tions wont be followed.

The Ten­ant roundabout

You are prob­ably well aware of the daily cost of an unleased prop­erty. Find­ing ten­ants and sign­ing them up into a lease agree­ment can be your biggest cost when it comes to your invest­ment prop­erty. As a land­lord, you have to take into account that:

High ten­ant turnover are some land­lords’ biggest hid­den costs. Tenant roundabout, lead to high tenant turnover

This is one of the major reas­ons why land­lords hire agents. You can just ima­gine what it can cost you if you had to release your prop­erty 3 times a year.

For some it can be $3000 worth of poten­tial sav­ings over the entire year. That could be your profits for the whole year. Let’s not for­get about what your pre­cious time is worth if you’re doing this yourself.

How to get off the ten­ant roundabout

[sam id=37 codes=’true’]To make ten­ants com­fort­able with deal­ing dir­ectly with a land­lord they need to feel like they have been treated fairly and that they can bring up any of their con­cerns without per­se­cu­tion.

They want to deal with some­body that is pro­fes­sional, although not neces­sar­ily an agent but this is some­times why they are more com­fort­able with an agent.

An example of this pro­fes­sion­al­ism could be sup­ply­ing ten­ants a CTTTT fact sheet when they sign up their lease. This can put you in good stand­ing, show­ing them that you fol­low rules and pro­cesses.

Ten­ants feel more com­fort­able with sys­tems and pro­cesses. This makes them feel that you are objective/fair when it comes to run­ning a prop­erty rather than emo­tional and unfair.

Know your stuff

It is very import­ant to know the res­id­en­tial ten­an­cies act of 2010 and to run your prop­erty deal­ings accord­ing to this or you could end up pay­ing the ten­ant back your hard earned cash.

A com­mon example;

We have land­lords mak­ing the ten­ants pay for their water usage. This is a great strategy to help increase the yield on your prop­erty but this has to be done properly.

How­ever, on the flip­side, we have seen many land­lords hav­ing to pay back the ten­ants their water usage. There was a case in which a land­lord had a granny flat she was rent­ing out and had split the water bill with them.

That seems fair right? This owner did not have the water sep­ar­ately metered, there was no water-saving devices fit­ted, no water effi­ciency Cer­ti­fic­ate and charged the ten­ant exactly half the bill along with the ser­vice charges.Saving money and losing money somewhere else – pick pocketed –

This went on for years until the ten­ant and the land­lord had a fall­ing out. The ten­ant found out that he had been illeg­ally charged the water and took the land­lord to the CTTT.

The land­lord then had to pay back the ten­ant over $2000. This could eas­ily have been avoided if the land­lord was aware of the reg­u­la­tions in this matter.

Did you know

That the ATO will accept your state­ments when it comes to rental income for invest­ment prop­erty clas­si­fic­a­tion, how­ever some lenders wont.

This can be a key issue if you are look­ing to buy more invest­ment prop­erty because if they do not see cash flow state­ments from a registered real estate agent, some lenders will not accept your prop­erty as an invest­ment prop­erty.

This can have a sig­ni­fic­ant impact on your bor­row­ing capa­city because they do not class it as an invest­ment but as a liab­il­ity when it comes to borrowing.

*These are aver­ages taken from 5 prop­erty man­agers includ­ing scen­arios of bad and well man­aged properties/tenants (includes drive time).

I am not try­ing to just sell our ser­vices, as everybody’s situ­ation is dif­fer­ent. I just want to assist you in mak­ing a bet­ter and more edu­cated decision on whether or not to self-manage your prop­erty.

If you are will­ing to gain the know­ledge, nego­ti­ate, and spend the hours, then I wish you all the best and we hope to have helped you in some way.

What we find is some land­lords spend dol­lars to save cents and don’t account for what their time is worth in wages, not to men­tion the space it takes up in your head to man­age your property.

If you would like us to advert­ise your prop­erty, nego­ti­ate, fil­ter out the bad ten­ants, and sign up your ten­ants with con­tracts then give us a call for a no oblig­a­tion free chat.

If noth­ing else you’ll come away with more know­ledge on how to bet­ter man­age your property.



Want more of this type of information?


Jhai Mitchell

About

Jhai is the Internet Marketing Business Development Manager for Elders Toongabbie and Kings Langley. He has been consistently quoted in the Sydney Morning Herald and Real Estate Business online. Visit his blog at www.realestatesevenhillsnews.com.au


'The true costs of self managing landlords' have 9 comments

  1. June 30, 2014 @ 8:35 pm Danny

    I disagree with most of the above. I have 4 rental properties and have been self managing since 1986. My tenants are generally relieved they are dealing with the landlord and not the agent because they feel they in touch with the owner of the property, not a third person. Many have had bad experiences with agents. I do not have a high turnover of tenants because I make sure that they are happy. You cannot generalize that they feel “stalked by the owner waiting for them to slip up”. Any smart landlord would not stalk his / her tenants. My tenants know I am approachable and I encourage them to tell me about repairs. They are not “avoiding conflict”, they are doing me a service when they advise me of necessary repairs. Yes this does take time and effort but that personal touch is one of the reasons I hold onto my tenants. While I understand you may be wanting to drum up business you need to be more balanced in your article.

    Reply

    • June 30, 2014 @ 9:24 pm Michael Yardney

      Thanks for the response to Jhai’s article Danny

      Well done – you are the exception – I have also found that self managing landlords cost themselves much much more than they save.

      Reply

    • July 1, 2014 @ 8:54 am Anne Kelly

      I also agree that this was a poor article. As a self mangling landlord I was very keen to read and learn and was disappointed with the article. It was not an objective article at all. The scenario depicted was not a good one to illustrate valid points. To be objective just about anyone, with a sound knowledge of the legislation, correct processes and a professional manner could manage their own when all is going well but when there are difficult tenants and things start to go horrible wrong it is much easier for agents. So the gamble is -do I take the risk that this tenancy will go well or do I go with an agent “just in case”, I personally have had some bad experiences but when I crunched the numbers weighing up what I would have spent on fees versus my losses, for me I was still in front. It would not necessarily be so for everyone. The other side to the argument not mentioned in the article is that many landlords have paid their fees and not received regular inspections, or reports. The sheer number of properties being managed by many, mostly young females, with little knowledge of maintenance issues , in itself negates a good service. At the end of the day it is a personal decision based on personal goals and the service being provided in the area. An article such as the one above did not address real issues or present both sides.

      Reply

      • July 1, 2014 @ 9:55 am Michael Yardney

        Anne

        Thanks for your comments. I chose to publish this article because I’ve found that most self managing landlords get themselves into lots of troubles. I have heard so many horror stories.

        Well done for being such an educated landlord

        Reply

      • July 1, 2014 @ 11:08 am Jhai Mitchell

        Anne Kelly said “anyone, with a sound knowledge of the legislation, correct processes and a professional manner could manage their own when all is going well” yes, when all is going well.

        What I have observed is that even when all is going well the average landlord does not have “sound knowledge of the legislation, correct processes and a professional manner”. I have seen many times landlords make small things a big issue that costs them lots of time, money, and tenant turnover.

        “The gamble”

        This is what I wanted to get across…. Do you take “The gamble” with your most valuable asset? Do you spent the time creating the “sound knowledge of the legislation, correct processes and a professional manner”? Well it’s up to you and I wanted to make that a bit clearer. It’s not as easy as most people think, they devalue us agents until there is an issue.

        Not many landlords crunch the numbers and weigh it up what they would have spent on fees versus the losses. Many do not calculate their time and stress until there in too deep.

        “Many landlords have paid their fees and not received regular inspections, or reports”. Agreed we pick up many properties from bad agents, it only makes it harder to fix these issues. It makes us sad to see some people in our industry not do their job right, this breeds more distrust in an already untrusted profession.

        I’ll end with your comment Anne Kelly “At the end of the day it is a personal decision based on personal goals and the service”

        Reply

      • July 1, 2014 @ 8:46 pm Danny

        Well said Anne. More balance please, less I know better than you.

        Reply

    • July 1, 2014 @ 11:07 am Jhai Mitchell

      What sparked this article was a forum conversation http://forums.whirlpool.net.au/forum-replies.cfm?t=2264720 that was not included in this article. It was based on uneducated landlords not willing to learn how manage a property correctly. I’m so glad both Danny and Anne Kelly are the exception.

      In my experience most landlord don’t have the same philosophy about making tenants happy
      “Any smart landlord would not stalk his / her tenants” Danny said, the sad thing is this what some landlords do (yes, I did dramatise it a bit).

      I have some landlords drive past their property every day on their way to work. They call us on a regular basis to make tenants cut the grass, stop parking on the lawn, get rid of that dog or the mother-in-law (not kidding), and the list goes on.

      One of the biggest time eaters is repairs, you just don’t realise how much time this can take when there is an issue. The majority of landlords don’t want to spend money on their property even though there tax deductible, I think this is crazy!

      Danny is it sounds like you are doing all the right things, keep it up and hold on tight to those tenants as the rental market is down.

      Reply

  2. August 19, 2014 @ 7:39 pm Erin Marr

    I’m a property manager in NSW and have no issues with self managing landlords. However they need to have 3 essential areas covered: 1. Do they have the time to self manage a property (it’s not always a set and forget situation), 2. Do they really want to self manage a property or are they only looking for $ savings. 3. Do they have the knowledge to correctly manage a property themselves. If you can honestly say yes to these 3 questions you will do well self managing.
    I have a couple of situations with managements where an owner has reduced fees because they do all the hands on management but we look after the collection of rent and payment of invoices (council rates, water rates, maintenance invoices). This saves them time when dealing with their tax return but also solves the problem with not have a licensed real estate statement at the end of the month to prove rental income.
    I’ve seen some terrific landlord/tenant relationships, but i’ve also seen a fair few negative ones. The negative ones generally come down to the landlord lacking one of the 3 essential self managing landlord qualities listed above.

    Reply


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