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Vesna Wells: Investing in a property manager

Monday, February 15, 2016

 


Having bought the first investment property there may be a tendency to do things the good old fashioned DIY Kiwi way. Maybe a bit of painting or other DIY, finding a tenant by advertising the property, conducting an initial inspection, being familiar enough with the legislation throughout the whole process to be safe (tenancy application, tenancy agreement, bonds, what landlord and tenant obligations are) collecting the rent, checking that the rent has been paid, routine inspections, dealing with emergencies, maintenance, daily rent reconciliations, monthly reconciliations, disputes, mediations, and the list goes on.

As investors, it is very easy to think we can do everything ourselves and in the process lose sight of the big picture. Smart investors see their time as a cost and that delegating the daily management of their investment property to a specialist is not only tax deductible but takes away some of the risk. In this regard, most insurance companies require inspections to take place as outlined under their policies. If one of them is missed as a result of the investor just being too busy and an issue occurred, there could be a disagreement regarding a claim.

Smart investors have realised that their time is best utilised at what they specialise in. Their time is better spent looking for the next opportunity or if a property has been purchased with some blue-sky factor such a sub-divisible section; working the numbers and possibly developing the site.

How many DIY investors have actually calculated the cost of their time in property management? Consider $550 per week property with a professional property management company whom charge, for example, 8.5% plus GST on all rents collected. That’s $2431 per year the investor pays before any tax deductions. Property management is a 365 day, 24 hour role. If something goes wrong, there is someone available to take action while you are on holiday or at work, spending time with your family or building your wealth. There are 8760 hours in a year. $2431/8760 equates to 28 cents an hour (before deductions). Consider as an investor, whether your time is worth more than that?

Having visited many offices around the country whom are valued customers of Realestate.co.nz, it is privilege to see great property management in action. In general, a property management company should be able to provide the following:

  • Good systems and processes to tenant the property; ensuring it is advertised with great marketing photos and a clear, well worded advertisement that markets the property at the right market rent. Realestate.co.nz is dedicated to property and with twenty or so photos of the property enabling the tenant to gain enough information to want to view the property together with a well-written ad highlighting the property’s features and where possible utilising video marketing, will provide a great opportunity for consumer engagement.
  • Market statistics on the rental value of your investment; these include MBIE statistics, review of the market your investment home is located in, its features and condition, its specific location and have the ability to provide general advice of what market rent may achieve. The market can behave differently depending on region and the time of the year. This time of year being January, February and March typically tend to be the busier months with demand for rental properties being reasonably high.
  • Ensuring a well-drafted Tenancy Agreement is used.
  • Manage the relationship between the tenant and the landlord and doing it well and always fairly. Property managers provide “arm’s length” relationship that takes the emotional aspects out of managing a property.
  • Ensure that rent is paid on time and in accordance with the Tenancy Agreement. Deal with any unpaid rent in accordance with the Residential Tenancies Act 1986 and its amendments – always following due process.
  • Conducting regular maintenance inspections (including a comprehensive initial inspection and a bond inspection at the end of the tenancy).
  • Ensuring maintenance is highlighted to the investor proactively where possible. Property managers are not building inspectors – they can only advise on what they see and what is obvious but it is important that where an issue is noted to have the insight to advise where an expert might be needed.
  • Skills and abilities to deal with breaches of the Residential Tenancies Act 1986 and its amendments. Maintaining a comprehensive knowledge of legislation and providing guidance and advice to ensure compliance. Being a representative of the landlord in any mediation or a Tenancy Tribunal hearing.
  • Information and great communication. Keeping the investor informed throughout the year particularly with the tenanting and application processes with owner reports, emails, text messages and telephone calls. Having a communication style that suits the investor.
  • Paying the collected rent to the investor minus commissions, disbursements and any other costs e.g. maintenance costs. This should be done without fail at least once a month or more frequently if required to suit the investor’s mortgage arrangements.
  • Ensuring good business processes are followed including operating professional property management and accounting software and having an audit of financial processes (and good businesses are continually reviewing their business practices and documentation). Having good systems, a supportive educative and training programme and a people centric culture in what is a difficult and busy role will retain great people thereby decreasing turn over rate of professional property management team members. Smart business operators walk the talk when it comes to caring and investing in their people who will in turn invest their loyalty and energy into the company and its customers.
  • Investing in their own learning and provide opportunities for the investor to learn more too. Have professional membership e.g. be members of the Real Estate Institute of New Zealand and be accredited either in their own accord or as part of an agency and continue to invest in their own learning through continuing professional development. 
At 28 cents an hour do yourself a favour in 2016 by finding a great property manager to be part of your advisory team and free up your valuable time to develop an existing investment opportunity or find the next one.

 

 

Vesna Wells

Vesna Wells is the National Specialist of Property Management at realestate.co.nz.  

 

 
 

This article was first published on Linkedin in January 2016 and is reproduced with the author's permission. 

 

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