The true costs of self managing landlords

Some ten­ants are feel­ing misled by land­lords who are try­ing to max­im­ise their profit by hir­ing a real estate agent only to advert­ise their prop­erty, pre­fer­ring to self man­age from there on.

As a land­lord, there’s noth­ing wrong with try­ing to max­im­ise your profit depend­ing of course on how you do it. You may feel that you can man­age the prop­erty your­self and some land­lords are very good at this.

How­ever, there can be draw­backs that are over­looked when think­ing of sav­ing money this way.

Being a land­lord myself, I find myself ask­ing ques­tions such as;

How can I save money on real estate agent fees?

Do I just pay agent to advert­ise and sign up the ten­ant myself?

I know enough about prop­erty man­age­ment to col­lect the rent and man­age my ten­ants, should I do it myself?

Do I want to deal with the hassle or is the agent worth it?

What is my goal, what do I want to achieve here?

These are great ques­tions to ask your­self as an investor and every­body responds dif­fer­ently based on indi­vidual goals and what we are will­ing to learn and do.

Let’s start to think like a tenant

I came across a con­ver­sa­tion on an online forum the other day which sparked me to write this art­icle about a ten­ant feel­ing misled by the agent and the land­lord.

This par­tic­u­lar ten­ant wanted a prop­erty with pets allowed for which they had been search­ing for some time. They found a prop­erty advert­ised by a real estate agent, and applied for the prop­erty think­ing that their pray­ers had been answered.

They went through a lengthy pro­cess of nego­ti­at­ing with the agent to get their medium-sized dogs approved and informed their cur­rent land­lord that they were moving.

Then there dream star­ted to fall apart

They then dis­covered that the land­lord just used the agent to advert­ise, after which the land­lord pre­ferred to man­age the prop­erty her­self.

Well, this did not go down well, as the ten­ants had an unfor­tu­nate exper­i­ence deal­ing dir­ectly with their pre­vi­ous land­lord. This got the ten­ant wor­ried, think­ing that the pets clause was going to be abused.Tenants feeling misled by rental agent or landlord

The ten­ant con­tin­ued on to say that if they had known that the land­lord was self-managing the prop­erty, they would have never applied for the property.

The agent explained that once all was final­ised that they no longer had a rela­tion­ship with the landlord.

On hear­ing this from the agent, the ten­ant became extremely appre­hens­ive and scru­tin­ised the con­tract line by line for more clauses and issues. They found one stat­ing that they are to “main­tain and ser­vice all appli­ances”.

The ten­ants said in the forum “We have 7 days to ensure everything is work­ing after that we main­tain them, pay for ser­vice and repairs and they will only be covered by land­lord if an act of god dam­ages them. So what hap­pens if one fails? It can’t be repaired? I ain’t pay­ing for a brand new Smeg dishwasher.”

“Kind of feel like I’m strapped to a bar­rel and for­got the lube.” the ten­ant said.

In real­ity, there is no such clause that exists, but the point I’m mak­ing is that once a ten­ant gets emo­tional, and starts to mis­in­ter­pret clauses, they can jump to con­clu­sions and this can make it almost impossible to sign a ten­ant up to a lease.

So what’s the prob­lem for us landlords?

As a gen­eral con­sensus we have noticed that ten­ants are very wary deal­ing with a land­lord and can feel like they need to tip­toe around the land­lord.

Although, this can be a good thing for us land­lords as we are able to keep a close eye on our invest­ment, it can have the reverse effect on ten­ants as they can feel uneasy in their home.

This can lead to high ten­ant turnover, which over the life of the invest­ment can blow out the sav­ings you hope to achieve.

Here are some examples of why you will get high ten­ant turnover;

Some ten­ants want to avoid con­flict and feel as though they can­not request repairs and main­ten­ance. Some­times they would rather show their frus­tra­tion to an agent (third party) than risk the rela­tion­ship of the land­lord and a hard time at home.

Ten­ants can feel like they won’t get a fair deal.

They don’t want to feel stalked by the owner wait­ing for them to slip up.

They think they’re going to be har­assed about every little thing.

They can feel like there is nobody to com­plain to and reg­u­la­tions wont be followed.

The Ten­ant roundabout

You are prob­ably well aware of the daily cost of an unleased prop­erty. Find­ing ten­ants and sign­ing them up into a lease agree­ment can be your biggest cost when it comes to your invest­ment prop­erty. As a land­lord, you have to take into account that:

High ten­ant turnover are some land­lords’ biggest hid­den costs. Tenant roundabout, lead to high tenant turnover

This is one of the major reas­ons why land­lords hire agents. You can just ima­gine what it can cost you if you had to release your prop­erty 3 times a year.

For some it can be $3000 worth of poten­tial sav­ings over the entire year. That could be your profits for the whole year. Let’s not for­get about what your pre­cious time is worth if you’re doing this yourself.

How to get off the ten­ant roundabout

To make ten­ants com­fort­able with deal­ing dir­ectly with a land­lord they need to feel like they have been treated fairly and that they can bring up any of their con­cerns without per­se­cu­tion.

They want to deal with some­body that is pro­fes­sional, although not neces­sar­ily an agent but this is some­times why they are more com­fort­able with an agent.

An example of this pro­fes­sion­al­ism could be sup­ply­ing ten­ants a CTTTT fact sheet when they sign up their lease. This can put you in good stand­ing, show­ing them that you fol­low rules and pro­cesses.

Ten­ants feel more com­fort­able with sys­tems and pro­cesses. This makes them feel that you are objective/fair when it comes to run­ning a prop­erty rather than emo­tional and unfair.

Know your stuff

It is very import­ant to know the res­id­en­tial ten­an­cies act of 2010 and to run your prop­erty deal­ings accord­ing to this or you could end up pay­ing the ten­ant back your hard earned cash.

A com­mon example;

We have land­lords mak­ing the ten­ants pay for their water usage. This is a great strategy to help increase the yield on your prop­erty but this has to be done properly.

How­ever, on the flip­side, we have seen many land­lords hav­ing to pay back the ten­ants their water usage. There was a case in which a land­lord had a granny flat she was rent­ing out and had split the water bill with them.

That seems fair right? This owner did not have the water sep­ar­ately metered, there was no water-saving devices fit­ted, no water effi­ciency Cer­ti­fic­ate and charged the ten­ant exactly half the bill along with the ser­vice charges.Saving money and losing money somewhere else — pick pocketed –

This went on for years until the ten­ant and the land­lord had a fall­ing out. The ten­ant found out that he had been illeg­ally charged the water and took the land­lord to the CTTT.

The land­lord then had to pay back the ten­ant over $2000. This could eas­ily have been avoided if the land­lord was aware of the reg­u­la­tions in this matter.

Did you know

That the ATO will accept your state­ments when it comes to rental income for invest­ment prop­erty clas­si­fic­a­tion, how­ever some lenders wont.

This can be a key issue if you are look­ing to buy more invest­ment prop­erty because if they do not see cash flow state­ments from a registered real estate agent, some lenders will not accept your prop­erty as an invest­ment prop­erty.

This can have a sig­ni­fic­ant impact on your bor­row­ing capa­city because they do not class it as an invest­ment but as a liab­il­ity when it comes to borrowing.

*These are aver­ages taken from 5 prop­erty man­agers includ­ing scen­arios of bad and well man­aged properties/tenants (includes drive time).

I am not try­ing to just sell our ser­vices, as everybody’s situ­ation is dif­fer­ent. I just want to assist you in mak­ing a bet­ter and more edu­cated decision on whether or not to self-manage your prop­erty.

If you are will­ing to gain the know­ledge, nego­ti­ate, and spend the hours, then I wish you all the best and we hope to have helped you in some way.

What we find is some land­lords spend dol­lars to save cents and don’t account for what their time is worth in wages, not to men­tion the space it takes up in your head to man­age your property.

If you would like us to advert­ise your prop­erty, nego­ti­ate, fil­ter out the bad ten­ants, and sign up your ten­ants with con­tracts then give us a call for a no oblig­a­tion free chat.

If noth­ing else you’ll come away with more know­ledge on how to bet­ter man­age your property.