I have been faced with the fee objection once or twice (probably thousands of times) over the years. It is generally the first question most investors ask when looking for a property manager.
It is understandable that investors are concerned with the outgoings, after all, the return on investment must be sustainable long term, and it needs to be an asset, not a liability.
The thing is, selecting a property manager is not like comparing interest rates, where we understand that the rates are controlled by the Reserve Bank to a certain degree. We also know we can negotiate with the bank if they don’t “come to the party”. The difference is, there is a very important service behind property management. Unless you are an investor who has experienced poor property management service, it is likely that we all appear much the same. The glossy brochures, print media, video marketing and websites suggest that the service provided or promised are essentially the same. So in this case, the only decision the investor needs to make is who will offer the best deal on fees.
While it may appear this way, it is generally not the case and the small difference in percentage fees will become irrelevant in the scheme of things.
Don’t worry, I am not going to rattle on about how we (@home) provide “better service” than the rest because let’s face it, everyone will promise that.
What I can do, is demonstrate how we (@home Property) add value to our clients with the very best risk management processes, systems, and resources available to get the best results and return a higher yield from the investment. When you are considering the costs you should consider ALL costs, I refer to this as “the gap” between fees and true cost.
- Management fees – the cost of professional management
- Outgoings - maintenance, accounting, land tax, rates, water etc.
- The cost of poor management (choosing the wrong agent) - Poor tenant selection, vacancy management, undetected maintenance or damage, reactive management rather than proactive management, poor attention to detail, lack of knowledge (legislation requirements), poor systems, high staff turnover, poor record keeping and poor negotiation skills.
You should then consider how the income can vary. Just because an agent quotes the highest rent doesn't always mean you will achieve a higher return. You should consider the annual income rather than the weekly rent quoted.
Ask yourself and/or the agent these questions;
- Has the property manager demonstrated that the rent quoted is achievable, based on comparable results?
- How long are you prepared to have the property vacant at the highest end of the market and what is the annual cost of extended vacancy compared to a 5% adjustment in the weekly rent over 12 months?
- What is the proposed marketing strategy to achieve the best annual return/yield?
- How will they market the property to achieve maximum exposure? Do they have a large network/database of quality potential tenants?
- How do they qualify potential tenants in order to find the best possible tenant?
- What risk management procedures does the agency have in place in the event something goes wrong? How knowledgeable are they, what experience is behind the business and the team? Can the results be demonstrated?
- Can they demonstrate better than average statistics? for example; what is the current average vacancy rate, letting period (days on market), rent arrears for the office.
- What do others say about the agency? Look them up and check out the client feedback. Are they professionals and will they represent you well?
- Does the property manager/agent come across as a good negotiator? Remembering that if they are firm with you, they will do the same when they represent you. If they are quick to allow you to out negotiate them, how well will they manage the demands of your tenant?
In summary, remember to consider the “gaps”. I have seen far too many investors make the mistake of choosing an agent based on fees alone and it rarely provides the outcome they were hoping for.