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What’s Wrong with Property Management?

Let’s talk about looking after your investment, and indulge me as I share my frustration: it’s hard to get a decent property manager.

Many property management companies operate with too few staff who look after too many properties and who do so with too little training. It’s a recipe for unsatisfactory service, for both the landlord and the tenant.

Here is the problem: the easiest way in which property management companies can increase their profits is to increase the number of properties each manager has to run – and unfortunately, many do, to unreasonable levels.

In Perth, the average rent is $565 a week, and a normal commission fee for a property manager is 9%. Thus, if an operator allocates an extra 20 properties to their property managers, they stand to earn an additional $52,884 a year per each property manager. And this is before additional leasing or inspection fees. You can see why this is tempting for a business owner.

A property manager who looks after no more than about a 100 properties, especially if they operate with the help of a local or off shore admin assistant, can be expected to do a great job – but I’ve seen property manager trying to manage 160 properties. The reality is, they can’t do it properly. There are not enough hours in the day for one person to stay on top of challenges associated with 120, 130 or 160 properties, let alone be in any way proactive in preventing issues. Many property managers I speak to are so overloaded, and so stressed, they are at a level that they want to leace the industry.

In addition, a lot of property managers are not provided with satisfactory level of training needed to do their job well. For example, when inspecting a rental property I noticed that the wire going to the earthing stake was disconnected and had been for many years.  The net result the RCD’s might not work, putting the tenant and the landlord at risk.  This should be picked up by a competent property manager during regular inspections.

Often, property managers lack understanding of basic electrical safety, fair costs for trades, or how to deal with aggressive owners or tenants (of which there certainly are plenty). All these factors contribute to a high turn over of property mangers, lack of continuity of care, and your investment not being looked after to the level you expect.

So, how can you tell if your property management company is overloading their staff?

Well, you can start by asking them about their case load, but they might not always want to be upfront. Here are some other warning signs:

  • High churn of staff. A change in property manager every 3-4 years is normal. I’m aware of one agency that had a 50% staff churn which is not acceptable.
  • Slow response time. You should be able to get hold of your property manger quickly, and certainly not wait a week for them to respond to an email query.
  • Lack of proactive action. Are you seeing your property manager acting ahead of the curve, for example by approaching you to discuss a lease extension months out from the renewal date, or are they waiting till the last minute, or simply fail to let you know?
  • Continuity of care. Is the same person usually doing your property inspections? Constant change in who inspects your house means that important things often get missed.
  • Training. Can your property mangers easily respond to questions about changing legislation or provide evidence of any ongoing professional development?

What to do if you are not happy

It is best to protect yourself by picking a property management company that does not insist on a three year (or longer) contract. My theory is, a good company will be confident that you are going to be happy enough with their service after a year and will want to stick with them for longer, and so they will not be hell bent on locking you into long agreements.

However, if you do find yourself stuck with a dud, your first step should be to talk to the owner of the business and explain why you are not happy. Set boundaries with regards to your expectations and give them a chance to rectify – but alongside all this, document, document, document. Begin doing so when the smallest issue occurs, right at the beginning. We all tend to be forgiving at the start, but often it is a pattern of small issues that becomes a mountain.

If your concerns are not addressed, you may consider breaking your agreement. In most cases, this is likely to mean that you are going to be up for 50% of the remaining management fee. However, if you have sufficient documentation that the property manager is not holding up their end of the contractual bargain, this puts you in good negotiating position to reduce or forgo the contract break fee– or, otherwise, it serves as evidence if you end up going via the State Appeals Tribunal.

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