Property Hub - Investment Insights & Inspiration - Get Invested: Bushy Martin on selecting a property manager

Starting point is 00:00:00 It's really important to pick the right agency, you know, don't go for the cheapest agency either. Make sure that you've got one that's trained, continually trained and up to date on systems. Landlords need to understand as much as, you know, tenants are a protected species, that means it's more important to have the right agency working for you. Welcome to the Get Invested podcast, where we share great conversations with experts from all walks of life to uncover their secret know-how and where they invest their time, their skills, and their money

Starting point is 00:00:35 and the benefits that this has created. You see, the truth is that everyone invests. Every minute of every day, we're investing our time, our skills, our energy, and our money in something. Some of us are investing consciously, some unconsciously, sometimes for good, sometimes for bad, and sometimes for no impact. get invested will help you to start living by design not by default i'm going to help you to

Starting point is 00:01:01 make it happen not let it happen you'll hear the top tips on how you can live with conscious intent so that you can live more work less and leave a living legacy by investing now listen to the show to discover the top tips on how to get started make the most of your investment journey and ultimately to be living your dream not someone else's more episodes can be found on iTunes or at bussymartin.com.au forward slash getinvested. Thanks for listening. And now let's get invested. Hi, Freedom Fighters. How do you find a great property manager or know if you've got a good one? And why do I ask you this? Because the person who will have the longest relationship with you and your investment property will be your property manager and their quality

Starting point is 00:01:53 will make or break your experience as a property investor. Get a bad one and it can be a nightmare. Get a great one and it'll be smooth sailing. So you need to make sure you get a really great one and I mean not just good but great. Last week I focused on the pros and cons of self-managing versus professionally managing your investment property, inspired by my conversations with Dennis Youssef of Inspired Growth Training. And you'll really enjoy the second half of his great conversation in the upcoming episode, where he deep dives into the details of property management. So to further set the scene, how do you go about finding a great property manager as opposed to just an average one? Or knowing whether your current property manager is good,

Starting point is 00:02:40 great or otherwise. Because the unfortunate reality is that the average life of a property manager in many real estate offices is just six months in many states around the country. They can be a bit like revolving doors, which can be a real headache when someone new is managing your property a couple of times every year. Now why is this? Because many property managers, particularly those attached to real estate sales offices, are generally overworked and underpaid, trying to manage way too many properties without any real support. This is one of the main reasons that my awesome wife Sonia and I started our own property management business many years ago, because we were unsatisfied with the quality of property

Starting point is 00:03:26 management on our own properties and didn't actually believe we could do a better job. now if i knew now what i knew way back then i probably wouldn't have done it because quite honestly property management is one of the hardest jobs around because you're always dealing with and trying to solve problems there's quite often a lot of conflict between tenants and landlords you have to be on call 24 7 for tenant issues you're generally the meat in the sandwich and the legal risks and ramifications of adhering to the ever more restrictive and prohibitive tenancy legislation is growing by the day. Being the go-between, the tenant and the landlord is a real balancing act, and it takes someone who actually enjoys conflict, is great at

Starting point is 00:04:10 multitasking, has awesome people skills, is a good negotiator and problem solver, and is extremely resilient to be able to survive and thrive in this challenging, never-ending environment. As an example, when Sonia and I first started our property management business. Sonia went away for a week to an interstate conference so I agreed to sit in the chair while she was away and I thought this can't be that hard and as a construction hardened project manager I thought it was going to be a piece of cake. How wrong I was. The first day in I was up to over 100 new tasks to complete and I was answering abusive calls from unhappy tenants on a number of properties that we'd inherited from a property

Starting point is 00:04:54 manager who had left the industry. As soon as Sonia got back, I handed it all back to her and told her it was all hers. So as a result of this, I have a massive respect for the skills and expertise of property managers who endure and thrive in this type of challenging environment. And as a result of Sonia's success in building from the ground up a formidable, dedicated, award-winning specialist property management business, employing a team of six managing well over 400 properties for nearly 12 years and then subsequently selling it so we could join forces to further empower know-how, her property management expertise is now employed to help our property investors screen and engage the best property manager where their property

Starting point is 00:05:34 is located. So to help you better understand the intimacies of property management and to know what questions you need to ask and what the answers actually mean, today I'm going to download Sonia's guiding principles and rules of thumb along with the questions that she asked potential property managers in order to select the best one. So what distinguishes a great property manager from the pack? I'll start by saying what it isn't. It's not the rate or percentage of the weekly rent they charge you to manage the property which unfortunately is where it usually starts and stops for many investors and this is the worst basis to select a property manager as you always

Starting point is 00:06:14 get what you don't pay for. Or alternatively, many investors fall for the mistake of engaging the property manager attached to the real estate office who sold you the property. And I'll tell you why shortly. Or they're attracted to well-known real estate brands thinking familiarity and a known name are equated with quality. But this is often also a mistake because it doesn't matter what name or colour is on the door. It's the quality and expertise of the individual managing your property and their level of support that determines how good they are and how good your property investment experience will be on this journey. So as usual, the devil is in the hidden detail when it comes to property manager selection. And it's an entire integrated suite of things

Starting point is 00:07:04 that make the difference. From structure to support to systems right down to individual skill and experience. So let's start by unpacking the key property management principles and rules of thumb that you need to be aware of. The first thing to look for is a dedicated and specialist property management business where property management is their only business. As I've already mentioned, don't make the mistake of gauging a property manager that is attached to a real estate sales office as the property managers are often treated by the sales principals as the poor cousin. So the property management team are often under-resourced and under-supported so you don't get the same level of service. In addition, many sales-based offices are more

Starting point is 00:07:51 focused on selling properties under management than managing them so there's an in-built conflict of interest here. At the very least, make sure that the office has a dedicated hands-on property management principle whose primary and only focus is property management. So principle number one is to focus on dedicated specialist property management only businesses. The second guiding principle is to make sure the property management office has the right structure. As property investors, we often think of property managers as all being the same. But inside each office, there are different types of structure and systems or different management systems, and the three main ones are task, portfolio, and pod management, with

Starting point is 00:08:39 some hybrids of these structures also being adopted. So within the property management industry, these three main approaches to office structure result in very different landlord experiences and vary in both the quality and cost of the property management experience. So let's start by breaking down what task, pod and portfolio actually mean. At one end of the spectrum are task-based property management offices. Task-based property management sees the office separating the various roles within the business with different people specialising in each component across leasing, entry routines and

Starting point is 00:09:16 exit condition inspection reporting, maintenance and repairs, lease renewals, trust accounting, rental arrears, administration, etc. So, as the name suggests, this model is purely task-related. One person looks after leasing, another after maintenance, someone else is responsible for finances, and so on. Now, while this may assist in reducing the office costs through specialisation, the major downside of task-based offices is that communication with you as the landlord can be broken up and staggered

Starting point is 00:09:49 and can create a structure where the right hand doesn't really know what the left hand is doing, and a finger-pointing who-blames-who for mistakes or misses occurs, with a landlord not knowing who to talk to, no one taking total responsibility, and things can often fall through the cracks. Issues can also take long to resolve if the buck gets passed around between the various task managers. At the other end of the spectrum are portfolio-based property management officers. Portfolio-based management is when each property manager is appointed a number of closely related

Starting point is 00:10:24 managements that may be based on locational proximity, property type, landlord type or other, and they complete all end-to-end tasks associated with these properties. So in portfolio-based offices, each property manager manages all aspects of their portfolio. As the number of properties under management grows, each property manager may add an administrative assistant, often referred to as a property management coordinator or PMC. In these cases, the PMC may manage the portfolio's non-dollar productive internal and admin-based tasks, while the property manager manages dollar productive landlord and tenancy-facing activities. the major advantage here is that it means that you as a property owner the tenant and the contractors will generally only deal with one person who is intimately aware of exactly what is going on with your property and this is great as long as the property manager is not trying to

Starting point is 00:11:22 manage too many properties and doesn't leave the business the third type of property management structure which has seen a growing trend in recent times is for property management officers to operate in what's called a pod-based approach, which lies somewhere in between the task and the portfolio extremes. Pod-based systems see two or three property managers working together as a team. Pod is industry code and is short for Profit Optimisation Distribution Zones that adopts a team approach to property management and can include a senior portfolio manager supported by one to two para-property managers and a property management coordinator who's responsible for the supporting the admin task while minimising salary costs of the office. This may involve one person dedicated

Starting point is 00:12:07 to inspections who knows exactly what they're looking for and perhaps has the time to be more thorough, a property manager who is the main contact and will be managing the day-to-day maintenance and rental income, and a letting agent who will be matching tenants to properties. The critical thing here is that each team member needs to know what the others are doing and have done to avoid property owner and tenant frustrations. Again, effective work coordination and communication along with personal accountability can become an issue in pod-based offices where things fall through the cracks and landlords are never sure of who to talk to about what. And finally, there are hybrid office structures that blend a mixture of task portfolio and pod-based

Starting point is 00:12:49 approaches. So as a landlord, you need to decide exactly what it is you're looking for in a property manager, whether you want one person only to deal with, whether communication and customer service is high on your priority list, or if low fees and efficiency are more what you're looking for. You need to have your core needs and expectations very clear before looking to engage a property manager in order to avoid disappointment down the track. Now, in our personal experience as both owners of a property management business and as active investors, we've found that a portfolio-based approach with a separate leasing manager and

Starting point is 00:13:24 admin support is the best to ensure the quality of the experience as we find it's far easier for the investor to have one point of contact with a property manager who intimately understands the full ins and outs of your investment property. This hybrid portfolio approach enables the time-consuming task of leasing a property with tenant opens, screening and placing tenants to be handled by a dedicated leasing manager who then hands the property on to the portfolio property managers who are then responsible for managing all aspects of the property and are the one point of contact for landlords and tenants, and therefore have more ownership, understanding and accountability for your property.

Starting point is 00:14:04 So you need to focus on dedicated specialist property management businesses who operate on a portfolio basis. The next guiding principle revolves around the proximity of the property management office to your property. When we owned our property management business, we would only manage properties within 20 minutes drive of the office. Why is this important? Because if your property manager is spending a lot of time in their car driving miles between properties, then they're not spending as much time actually managing the property.

Starting point is 00:14:34 Likewise, if the property manager is not local to your property, then urgent call-outs to attend to tenant issues can be troublesome and delayed, and the property manager may not have an intimate knowledge of the area close to your property in terms of access to good local tradespeople, etc. Now, since the advent of COVID and a bigger reliance on property managers potentially working remotely from home, you just need to ascertain who is actually managing your property and how close do they live and work to your investment property.

Starting point is 00:15:05 So, close property manager to your property proximity supports the use of local trades and services, building loyalty and often offering better rates, ease of accessing the property at any time, be that an impromptu show-through for a prospective tenant through to an emergency property need, as they're just a stone's throw away. The next consideration relates to the number of properties under management.

Starting point is 00:15:31 As a rule of thumb, a good portfolio property manager looking after properties within 20 minutes of their location can safely manage somewhere between 80 up to a maximum of 120 properties and still provide a consistent quality surface. Beyond this, they're generally spread too thin. Other important considerations include the property manager's leasing approach in terms of how and where your property is advertised

Starting point is 00:15:58 and whether they take professional photos, use drone footage and prepare 3D virtual tools of your property to display the property at its best can attract the largest pool of quality tenants. You also need to find out who and when are the opening viewings for tenants conducted so that you can assess the frequency. And get clear on what their tenant application process, reference and employment checking and turnaround times are, as it is often the quick or the dead when it comes to securing

Starting point is 00:16:28 good tenants. Tenant applications usually need to be processed in one to two business days. However, this is subject to tenant references responding in a timely manner, of course. You also need to ensure that they provide you with full copies of tenant applications, reference and employment checks, and their recommendations in writing, not just verbally over the phone. You also need to be across how many similar properties they have listed, and the average vacancy days of property is on the market until lease start date.

Starting point is 00:17:00 For good property management officers, this is generally no more than 14, up to a maximum of 21 days although this can be location and season specific depending on the time of the year and the status of the market. It's super important to note here that when you ask an agent what is the average days on market they will normally give you the number of days they advertise the property but it's important to emphasize that you need to know from the first day of advertising to the actual day the tenant moves in. Also confirm what is their percentage of rent arrears, which is a fancy way of finding out how many of their tenants are late in paying their rent. A great property management office will have less than 1% rent arrears

Starting point is 00:17:44 and it definitely needs to be below 5% as anything above this is a warning sign that you're likely to have to wait to get your rental payment, which could play havoc with your cash flow if you're relying on this to make loan repayments on the property. You also need to know what, if any, property management software platforms the property management office uses to improve efficiency, communication and workflow. Most reputable property management agencies will utilise one of the following five industry-specific software platforms. REST, Console, PropertyMe, PropertyTree or IRE, which is Inspect Real Estate. Having Having said that, there are a plethora of software options around, so it's important

Starting point is 00:18:31 to focus on the PM software functionality. Because the right software should do the following five things. Firstly, it should increase efficiency. This enables the property manager to manage the property, not administer the paperwork. So think automated tasks, reminders, daily receipting of rent, etc. Secondly, it should automate workflow, which ensures important property management activities aren't forgotten. So think timely rent payments and maintenance being attended to in a timely manner.

Starting point is 00:19:04 Thirdly, the system should create clever communication. Things like automated emails, letters and SMS messages for time-pertinent tasks, like lease expiries, overdue rent and reminders to authorise maintenance. Fourthly, the platform should manage trust account monies, which produces accurate monthly statements showing income and costs and produces an annual statement for your accountant, which reduces your accounting costs. And finally, the software should be cloud-based,

Starting point is 00:19:37 providing a balance of working from the home office or in the workplace. You also need to know how often they conduct routine property inspections during the tenancy and how do they document and communicate this to you. The regularity of inspections is now dictated by the relevant residential tenancy legislation at each state which is every six months at the most in Victoria, three months in New South Wales and Queensland and can be once every four weeks in South Australia. But wherever possible it's good to have routine inspections every three to four months as a lot can happen to the condition of property beyond this if it's left too long. The next area you need clarification on is the

Starting point is 00:20:20 property management officer's approach to maintenance responses and quotes. Now this is the biggest bugbear for tenants. So software automation and reminders are key to progress maintenance. Most states have legislation around when a maintenance item needs to be actioned and or remedied. Immediate needs like plumbing leaks, electrical safety issues and security related matters, for example key locks not working, need to be fixed within one business day. While less urgent needs in the same area need to be addressed within seven days with bigger ticket items like replacement of air conditioning requiring quotes and then lead time. So this could be 14 to 30 days minimum. And if you're an existing or potential investor you need to know that tenants can apply

Starting point is 00:21:04 for rent compensation for the weeks they are without a service that they're paying for. By way of example, a tribunal may deem that $20 per week for a dishwasher that is not working is fair in compensation, while an air conditioner in the tropics might get $50 a week discount. All of this is subject to tribunal determination unless your property manager is able to reach a mutual agreement on what that weekly compensation value is. Now, I could go into much more detail on this and many more considerations, but these are the key aspects to watch out for at the office level. And if you aren't getting immediate

Starting point is 00:21:45 and finite answers to these questions, then this is a red flag that they aren't on top of their business and you need to be wary about engaging them. Next, you need to drill down to find out the details about who will actually be managing your property. Who are they? How long have they been a property manager? And how long have they been managing properties in this particular office. Longevity and stability are the key here. So anything less than six months is a major worry and anything over two years in the office is preferred. And it's an extra bonus if your property manager is also a property investor themselves, as they have skin in the game and can emphasise with what's important to you as one of their landlords. And finally,

Starting point is 00:22:31 you need to consider value versus cost. Your focus should not be about rate. You need to focus on reliability. Don't get caught up on arguing the toss between a really good property manager who charges an 11% fee versus an average operator who charges the standard 6 to 8.8%. In most cases, the difference between the two amounts to only the cost of about a cup of coffee a week. and if you're prepared to put your most valuable asset at risk for this amount, you probably shouldn't be investing in property at all. So this is our whirlwind Reader's Digest summary of what it takes to identify a great property manager.

Starting point is 00:23:11 To sum up the perfect property manager profile, the property manager who is actually managing your property will be a property investor themselves who has been managing properties for the office for more than two years and has been in the industry for over three years minimum. They operate on an end-to-end portfolio basis, managing no more than 120 properties all within 20 minutes of their office location, supported by a proprietary cloud-based property management software system like REST, Console, and PropertyTree, with three to four documented routine inspections

Starting point is 00:23:46 a year. Property leasing is handled separately by a dedicated leasing manager. They operate in an office that has less than 5% rent arrears. Tenant applications are processed within 24 hours and the average vacancy days is a maximum of 14 from advertising through to tenant occupation. And the office is a dedicated and specialist property management business that excludes property sales.

Starting point is 00:24:12 So now that you have a better understanding of what to look for and what's important in selecting a property manager, let me share with you the questions that Sonia now asks all property management officers that she interviews when we're screening the best property manager in locations that our investors are purchasing properties in. Let's start with the overall business details. And here's the questions.

Starting point is 00:24:35 Who are they and how long have they been in business? To warm things up, ask them their thoughts on the local tenant demographic in the area, around where you have bought a property or you're looking to buy. Next, you need to understand their structure. Ask, are you a property management only business or are you attached to a sales office? Is property management a dedicated business unit? How is the office structured?

Starting point is 00:25:00 Is it pod, task or portfolio? Is leasing separated? How many do you have on your team and what are their roles? How long has the existing team been in place? How many properties does the office manage? How many properties does each property manager manage? What is the percentage of properties managed in the suburb or area where your property is located? What's the proximity of the office to your property?

Starting point is 00:25:29 Who will personally manage all aspects of my property? How long have they been with the business? How many years have they been in property management? Are they a property investor themselves? Next we turn to listing and leasing. What's your listing process? How are leasing inquiries and viewings handled? What's the current number of properties that are up for lease now

Starting point is 00:25:52 or on your rentals available list? What are the average days on market from advertising through to actual lease start date? What property leasing and management software do you use? Who shows potential tenants through our investment property? How do you provide a prompt appointment setting service for tenants? What's your philosophy and approach on marketing your rental property? How are prospective tenant applications processed?

Starting point is 00:26:19 What's your guaranteed turnaround time for processing an application? Will you provide me with a full copy of the tenant application and references? Will I be consulted before you approve a tenant application? Next, we turn to day-to-day management questions. what property management system do you use what's your process for dealing with rent arrears what's your average percentage of rent arrears what's your process for repairs and maintenance at what price point do you believe a quote is warranted are all repairs and maintenance and service providers licensed now this is important to protect your landlord insurance if a claim's

Starting point is 00:27:02 mate? How often will you inspect our property? What reports can I expect? When do you pay my monies into our bank account? How often will you communicate with me and in what form? If I leave a message for you, in what time frame can I expect a return call? What support systems do you have in place if my property manager is sick or is on leave? And finally, we turn to their fee structure. What's your percentage management fee? What additional fees do you charge? Is there a letting fee when new tenants move in? Now, this is generally one to two weeks rent.

Starting point is 00:27:41 Is there a lease renewal fee for lease extensions? How often am I charged this? Do you charge a monthly statement fee? Is there a cost for end of financial year reports? Do you charge for inspections? Are there any maintenance fees? what's the cost to prepare and attend tribunal hearings? And lastly, are there any other fees?

Starting point is 00:28:05 Now, that's a wrap for all things property management in selecting a great property manager. And of course, if this all sounds way too hard and too time-consuming, feel free to reach out to Sonia at hello at knowhowproperty.com.au that's H-E-L-L-O at knowhowproperty.com.au and for a small fee for surface investment,

Starting point is 00:28:29 Sonia and her team can do all of this for you to ensure your most expensive asset is protected and maintained by engaging a great property manager. It'll be the best thing that you do for yourself over and above actually securing the property. So there you have it, your instant and intimate guide to the world of property management selection.

Starting point is 00:28:50 And for more deep dives on the importance of all things property management, look out for my great conversations on both Realty Talk and Get Invested with Dennis Youssef for Inspired Growth Training that's more food for thought have a great week remember to always get invested in your future

Starting point is 00:29:08 and I look forward to sharing more investment gold with you again soon to get a summary of all this investment gold in the show notes just email me on hello at khgroup.com That's H-E-L-L-O at khgroup.com.au or check us out at www.bushymartin.com.au

Starting point is 00:29:32 forward slash Get Invested. I look forward to joining you next week for another episode of the Get Invested podcast. So thanks for listening. And as always, dream as if you live forever and live as if you die tomorrow. Thank you.

Property Hub - Investment Insights & Inspiration - Get Invested: Bushy Martin on selecting a property manager

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