When you purchase an investment property, you would expect that retaining this property should be a reasonably hassle-free experience where you can gradually watch your nest-egg grow…that is, until things go horribly wrong.
Most of the time, any issues that arise will just be ‘speed bumps’ on the way to increasing your wealth but anyone that has had serious issues can tell you that it isn’t always a bed of roses.
Many of the times that things go horribly wrong, an effective Property Manager should have been able to foresee a problem before it has even occurred.
In today’s next instalment of the “Biggest Mistakes That Landlords Make” when choosing a Property Manager, you’ll see what I mean…
- Selling the Rent Roll – Some of you may know that your rental is worth a significant asset to the real estate agency that manages your property. A sales related business is worth very little when a real estate Principal or owner decided to sell (as the staff could all work out the very next day) but the rent roll can be worth plenty. On average, a single managed property could equate to a value of $2000 – $3000 if it is sold to another party. When you consider that some medium sized real estate companies may have a rent roll of 200-300 properties, you can see that it can be tempting for an owner to cash in and sell the rent roll to another party. But for you – the landlord, the question is… If this happens, who is then managing your property? You might have a very good Property Manager but the new company could be useless…and whilst you can cancel and change Property Managers by providing relevant notice, you might not realize how negligent the new real estate agency has been until it’s too late. Some real estate agency owners consistently build up their rent roll and sell them…then build it up again and sell it again. So how do you minimise the risk of engaging a Property Manager that might be very good but then being passed on to another company that could be very ordinary? There’s nothing wrong with asking the real estate agency if they’ve sold a rent roll in recent times. Whilst this might not have a bearing on what the future may hold, it may provide a snapshot of what the owner’s intentions are as time progresses.
- Routine Inspections – This might be an obvious mistake but you’d be amazed how many times a serious issue can arise after a Property Manager is supposed to conduct regular routine inspections and fails to notice issues within the home that could have been rectified if they were addressed early. Over the years, we’ve seen some really serious issues that ended up costing the property owner $30,000 – $40,000 (and it wasn’t covered by insurance) when a diligent property manager should have noticed small issues that could have been fixed for a fraction of that cost. We’ve even seen tenants that have noticed these sorts of issues and reported them to the Property Manager…but the Property Manager hasn’t done anything about them. Major issues include termites, serious water leaks, structural movement within a property or even damage that might have been done to the property by a tenant that has gone unnoticed and deteriorated over time. So how could this happen? First, you’d be surprised how many Property Managers will tell you that they’ll conduct quarterly routine inspections but fail to follow through on this. A good Property Manager will be able to provide you with an online report that will have a web link to the photos that have been taken when they inspected your property – make sure you keep tabs on the dates to make sure that they do attend regularly and have carefully viewed your property. Finally, if there are different Property Managers that regularly inspect your property, it will be hard for them to notice any deterioration in condition so make sure you take note of the person that’s conducting the inspection.
- Entry & Exit Condition Reports – If there’s ever damage to a property or a dispute about how the tenant has left the property, the exit condition report will be compared to the entry condition report that was prepared before the tenants moved into the property. You’d be amazed how many times we’ve heard of a Property Manager simply losing the Entry condition report and as such, leaving the Property Owner in a very vulnerable position. Otherwise, the Entry Condition report may have been rushed when the Property Manager prepared it and any issues that arise are not able to be upheld through legal action because this report simply wasn’t detailed enough. So how detailed should an entry condition be? I just looked over one of the reports that our Senior Property Manager prepared and there were more than 1100 photos of the property on file. Likewise, on the other end, we’ve seen Property Managers rush through an Exit Condition Report and hand back the Bond to the tenant when the property was left in an atrocious condition. We’ve just sold a property that was tenanted, and the tenant vacated the property a few days before it settled. The buyers came through the property to have a final look (a pre-settlement inspection) and refused to settle because of the appalling state that it was in. We contacted the Managing Agent that had confirmed that they had already released the Bond back to the tenants, so the property owner didn’t have a leg to stand on. When the owner asked to see the Exit Condition Report, the Property Manager became defensive and we suspect that these Property Managers were busy and thought that they could get away without actually conducting an Exit inspection since they weren’t going to be managing the property anymore.
Next week, we’ll delve a little deeper into this topic and offer you more traps to avoid when selecting a Property Manager.
Until then…Happy Renting, Happy Listing and Happy Selling.