I have been faced with the fee objection once or twice (probably thousands of times) over the years. Generally, the first questions most investors ask..."How much rent can you get?" and "how much do you charge?". There are so many more important questions to ask and the main question is "How will you manage my investment in order to deliver the best return and remove the hassle?".
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, Property Management requires a very important service behind the fee. Sometimes, unless you are an investor who has experienced poor property management service, it's likely that we all appear much the same from the outside. The glossy brochures, print media, video marketing, social media and website might suggest that the services provided or promised are essentially the same. In this case, the only decision you need to make is who will offer the best deal on management fees.
While it may appear this simple, it is generally not the case and the small difference in percentage fees will become irrelevant in the scheme of things, in fact, the cheapest agent will usually cost you a whole lot more.
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 too. What can do, if you are considering a property manager or looking to change property managers, is have a conversation with you in order to demonstrate how we deliver value to our clients with the very best risk management processes, communication systems, and resources available to get the best results and return a higher yield from the investment. I can talk to you about how we deliver a client experience that is unmatched by any competitor and we have proof in the number of testimonials/reviews we can provide. We can show you how we put more money in your pocket and that is the 'bottom line'.
When you are considering the costs, you need to consider ALL costs, I refer to this as “the gap” between fees and actual 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. Ultimately, high risk.
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 return, 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 has the business been in operation? Do they have adequate resources to sustain the service they promise if for some reason they have staff shortages? This is particularly important in Covid times!
- 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? Remeber the golden rule - every week vacant costs you 2% of your annual income.
- What is the proposed marketing strategy to achieve the best and proven results?
- 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, and 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), and 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? Remember 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 “gap between cost and value”. I have seen far too many investors make the mistake of choosing an agent based on fees and rent quoted alone and it rarely provides the outcome they were hoping for.
Managing Director @home Property and Launceston Property Investor Advocate, multi-award-winning property manager, industry influencer, top 50 Elite Agent in Australia, and industry consultant.