Managing your own property will save you money – but is it worth it?
If you've made the decision to buy an investment property, the next key step is deciding how you're going to manage it. Hiring a property manager to take care of all the administration is one option, but you might also decide to manage the property yourself to save on management fees.
Given these are based on a percentage of the gross weekly rent (usually between five to 12 per cent), plus other costs such as advertising the property and preparing the tenancy agreement, they can certainly add up.
But before you make the decision to manage things yourself, make sure you have the time to look after all of the ongoing maintenance and administration.
Are you up to the challenge?
Before you make your decision, it's important to understand your responsibilities as a property manager. As you might expect, these include collecting and lodging a rental bond with your state or territory's governing body – and asking for the first rental payment in advance before handing over the key. You'll also need to:
- disclose important information about the property – such as whether the area is prone to flooding or fire
- provide a standard residential property agreement, which includes the term of the lease, terms for future rental increases and the number of property inspections each year
- provide a condition report.
Your responsibilities don't end there – in fact, they're just beginning. Other ongoing tasks include:
- keeping a rent payment record
- chasing late rent payments
- responding quickly to calls for repairs and any problems with utility connections, plumbing, appliances, fittings or fixtures.
If you decide you are too busy or simply lack experience in managing a property, you might be better off renting your property through an agent.
So how do you find the right one? Talk with a few different agents and ask about the level of service they offer, including reports and accounting. You should also ask for references from other investment property owners.
A licensed agent will carry out the following tasks:
- rental appraisal
- marketing the property
- interviewing prospective tenants and checking their credentials
- completing condition reports
- ensuring rent and bond are paid in full
- resolving problems and complaints
- organising repairs and maintenance
- dealing with problem tenants and attending tribunals if necessary
- paying council rates and water bills on your behalf (if you ask them to).
The good news is, the cost of professional property management can be offset as a cost of owning a property, which will help if you're negatively gearing the property.
When you offset costs such as property management fees, home loan interest and capital depreciation against your rental income, you'll produce a 'book loss', which you can offset against your income and, in turn, reduce the amount of tax you pay. Of course, that does mean the property is costing you more than you're earning through it – so make sure you're in a position to cover that shortfall, especially if interest rates rise.
The cost of professional property management can be offset as a cost of owning a property
Price of the professionals
You'll usually pay a property manager a fee based on a percentage of the rent – but this varies and is usually negotiable. Make sure your agency agreement is signed by both yourself and the agent and clearly lists the services provided under the fee.
You should also consider getting landlord insurance for your investment property. This is especially true if you're looking at renting the property on short terms.
So should you delegate to a property manager, or do it yourself? If you do choose to go the DIY route, make sure you're aware of your rights and responsibilities before letting the property to your first tenants, and be prepared to dedicate some time to the job.
If you're well informed and prepared to handle any potential disputes, you could save on management fees – and make your rental that much more profitable. Knowing what's involved, you may decide to hand it over to a professional, and at least you can potentially claim the cost as a tax deduction.
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