Category Archives: Profiling

Investing in a property manager

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, understanding the legislation throughout the whole process (tenancy application, tenancy agreement, bonds, what each other’s obligations are etc etc), collecting the rent, checking that the rent has been paid, inspections, dealing with emergencies, maintenance, daily reconciliations, monthly reconciliations, disputes, mediations, and the list goes on.

As investors, it is very easy to think we can do everything and in the process lose sight of the big picture.  Smart investors see that their time is actually a cost, that delegating the daily management of a property to a specialist is not only tax deductible with good legal and accounting structures but takes away some of the risk of doing things themselves.  For example, some insurance companies require inspections to take place as outlined under the policy.  If one of them is missed, and an issue occurs, there could be a disagreement regarding a claim. Be sure to check your policy.

Smart investors have realised that their time is best utilised at what they are specialists in  –  focusing on the big picture of expanding their portfolio.   Time could be better spent looking for the next opportunity or if a property has been purchased with some  blue sky factor such a sub-divisable section, doing the numbers and possibly developing it.

How many DIY investors have actually calculated the cost of their time by being a property manager? Here is an example.

A $450 per week property that is with a professional property management company whom charge, for example,  8.5% plus GST on all rents collected.  That’s $1989 per year the investor pays before deductions.  Property management is a 24 hour service – if something goes wrong, there is someone at the end of the line to take action while you are sleeping or on holiday or at work or spending time with your family.  There are 8760 hours in a year.  $1989/8760 is 23c an hour.  Is your time worth more than that?

Having visited many offices around the country it is great to see so many great property managers and many well run property management companies.  There is passion and enthusiasm for what is a very difficult role – one where you are continuously dealing with issues, and are on call 24/7.

In general, a property manager looking after your property should take care of the following matters:

  • have good systems and processes to tenant the property – ensuring it is advertised with good photos at the right market rent and that checks are carried out on the preferred applicants.  Sometimes the market speaks differently and it can be a bit of guess work but a good property manager will review MBIE statistics, the market your investment home is located in, its features and condition,  its specific location and provide general advice to you of what the market might pay.
  • ensure a well drafted Tenancy Agreement is in place.
  • manage the relationship between the tenant and the landlord as your agent.  Known as an “arm’s length” relationship that takes emotional aspects out of managing a property but doesn’t abdicate your responsibility as a landlord.
  • 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- following due process.
  • conduct regular inspections (including a comprehensive initial inspection and a bond inspection at the end of the tenancy).
  • ensure maintenance is highlighted to you as it arises and when it comes up in the inspections.  Property managers are not building inspectors – they can only advise on what they see and is obvious.
  • work with you to be proactive with your property rather than reactive e.g. arrange maintenance quotes for you.
  • deal with any breaches of the Residential Tenancies Act 1986 and its amendments.
  • maintain a comprehensive knowledge of legislation and provide guidance and advice to you to ensure compliance.  Represent you in mediation or in the Tenancy Tribunal.
  • be able to advise on market rent for your property.
  • keep you informed and have good communication that suits your style – whether by phone, email, both, letter writing etc.
  • pay your rent to you minus commissions, disbursements and any other costs e.g. maintenance at least once a month.
  • ensure good business processes are followed – having your property with a professional company should mean that they are operating professional management software, have audit or accounting review of financial process, have good systems and people – all designed to mitigate risk and offer protection to you as the consumer of services.

It seems to make sense to consider the services of a property management company who have good systems, processes and of course, great passionate people to look after your investment portfolio.