Patrick Bright – EPS Property Search – Property Management
Lisa: Patrick has written 3 books on real estate so Patrick knows a lot about real estate and his books are on the best sellers list as well.
Patrick: Thank you Lisa, well, I have brought along my list of notes to make sure I run through all the good points when selecting a property manager and what you should get from your property manager and I will run through those with you.
First thing I would say is hire an experienced property manager; it sounds obvious, but a lot of people aren’t very experienced in property management. As it’s your most valuable asset, make sure you hire an experienced property manager. A lot of agencies run with juniors because of the cost of the salaries and the wages. Inexperienced people and juniors have to learn – just not on my property!
Be careful of an office where you are reliant solely on one person. There are a lot of boutique agencies out there running property management. Boutique is good, but micro-boutique is not so good. If you have only got one property manager there and something goes wrong and they’re off sick or they are away or they leave, there is no continuity of information and history of what’s going on with the property. The management, the owners, the tenant, it’s pretty important, so having at least two property managers in an office would be pretty important to pick.
The same goes with the big ones. You can also go the other way; when agencies get too big, then people get lost and your management can just be a number. So, from my experience, having somewhere between two to six property managers for an agency is probably a good number. You’ve still got some personalised service, they know who you are and your historical information isn’t lost if one person leaves.
Regular rent reviews – it’s very important that that’s done. I’ll give you a quick story; actually it was only a couple of weeks ago. We bought a property down in Cremorne Point. It’s in Milsons Road, it’s an apartment building (I won’t give the apartment number for privacy reasons). We purchased the property for $1.8million,
It’s a three bedroom apartment, two bathrooms, with knock-out views of the Harbour as you’d expect for that money, and two parking spaces. I went in there with the agent and asked the agent what the property was rented for, and he said “I don’t know’” – not really good to start with. So I asked the tenant who was there and they said “We are paying $750 a week”. I nearly fell over, because that property probably should have been around maybe the $1250 or maybe even the $1300 to $1400 mark with that kind of value and view.
I then asked them how long they had been paying that, and they said “about the 4½ years that we have been here”. They had never had a rent review, in 4½ years! In fact I asked them when the last time the property manager had inspected the apartment was and he said “We haven’t seen them since we moved in”.
How much money has the owner lost? Well, you think about that, $750 when it should have been no less than $1250, that’s $500 a week; you are talking about $25,000 a year under rented. So that’s a lot of money, which brings me to my next point. Inspections: make sure your property manager is doing property inspections. The only way you are going to know is if they send you a copy of the property inspection report that they actually did. So it’s important to get that done and have them booked in.
A great way to pick a property manager is to mystery shop them; I think it’s great that people do that. The reason I got that idea is because it has happened to us. The people who mystery shopped us turned around and said “We’d like you to manage our property.” We said “Didn’t you apply to be a tenant?” They said “Yes, we were just checking out what you were like.” So I think that’s a great idea.
We have had a few clients do that (property owners) over the years, which I think is a great idea. I think that if we haven’t earned the business, then we shouldn’t have it. These guys, they went through the whole process. So if they treat your tenants well, they are going to treat your property just as well, so it’s important to have a relationship. It’s not all about respecting the landlord and not worrying about the tenant, there are a lot of professional people that rent and we have found out over the years that a lot of our tenants have investment properties. They are just choosing to rent because it suits their lifestyle at the time and then later we have picked up their management. When we found that out, we wrote to our tenants and said does anyone have a management you would like us to look after? And we have actually picked up business from that, so it’s a good way to do it – treat your tenants well.
Is your property manager an investor? This isn’t critical, but I think it’s important though. Find out if the property manager who is looking after your property actually owns property as well and do they rent it out. Because that way, they will have a bit of empathy with you and a bit more of a detailed understanding of what is required and what you expect. So I think that is a good thing to have, they’ll have a much better understanding.
Financial reporting: you should be able to get your financial reports monthly, or annually whatever you prefer. Some owners want it monthly, some just prefer it quarterly or annually, so make sure they are prepared to give you the information when you need it.
Can they assist with renovation? We are a bit unique as we do that. It’s not critical, but if you want to add value to your property, it’s good to have a property manager that actually does renovations. We do a lot of project management renovations so I’ll give you an example: we just did up a one bedroom apartment for a client. We spent $50,000 gutting it and doing it all up. The rent before we got the property was $350 a week rent and after the renovation, the rent went up $520 a week.
If you think about that from an investment point of view, that’s an extra, let’s just say $150 a week (it’s a bit more than that, but let’s say $150 a week) and that’s $7,500 a year. Remember, it’s a $50,000 outlay, so if you borrowed that $50,000 at 7%, that’s $3,500 a year in interest, yet you’re getting an extra $7,500 a year in rent. So your $4,000 better in cash flow and the property’s asset value has jumped, we know, by more than $100,000 by doing that renovation.
So, for an outlay of $50,000 you have increased the cash flow by about $4,000 a year; it could be a really good idea to do that to your property. So if you are sitting out there with a property that’s tired, it’s worth having a look at renovating it and adding value and increasing your rent return.
I guess the other thing that people will talk about is fees. What do you pay a property manager? They vary, some of them are quite flexible and some of them will negotiate on fees just to get the business. Like anything you get what you pay for.
If you are choosing a sales agent to sell your property, or a buyer’s agent to buy a property or a property manager, you know in any industry you are going to get some flexibility. Just be careful of people that are happy to give away part of their income, they would probably be just as happy to give away part of yours renting a property out.
As one owner said to me, we recently got a new management in Cammeray. He was renting that property out for $1,000 a week, we looked at it, and he wasn’t happy with his property manager so he called us in. He hadn’t given it to us at this point, and I said I think we can get $1,100 a week for you. Not knowing that he had been renting it for $1,000, he said “Really? I have only been renting it for $1,000”. So I said “Well, I reckon we could – if we can’t I’ll hand you the management back and not worry about taking the management on”. He said he’d give us a go, so he gave it to us and we did.
He turned around and said to me “Pat, I was paying the other property management 6% of the rent collected and I am paying you 7%, but it’s an extra $10 to you of the $1,100 a week, but I have $90 a week more in my pocket”. So, he said “I’m happy to give you a little extra as I am getting $90 more than the other one”.
You are going to get what you pay for in any industry; pick the person you are most comfortable with. Someone that you think will do a good job, and care about your property and manage it. That would be the number one thing of picking a property manager, someone you are comfortable with. Referral is a good way to go to.
So they’re my tips with selecting a property manager and making sure that your property is well looked after.