Is engaging a Property Manager Worth it?

Are the fees property managers charge justifiable and deserved, or are there ways to cut back in this area of your portfolio?

We flick through the figures to find out in this article

For many with a portfolio of property in their possession, a property manager is a veritable lifesaver, tending to the day-to-day needs of the tenant so that you can get on with your day job.

But have you ever really considered exactly what a property manager does, and checked how much they’re charging you for it?

One of our readers has.

API subscriber Peter wrote in to describe a property manager, expressing his surprise at one prospective manager’s inclusion of a lease renewal fee (of one week’s rent).

“This is a fee I have never come across before and one I think is rather extreme,” he wrote. “Effectively this adds about two per cent to the standard management fee (and twice that if leases are renewed every six months).”

Luckily for Peter, he found himself a property manager that charges only the “standard” management fees…but what does “standard” include, exactly?

The fact is, it can differ wildly, from state to state and even suburb to suburb.

Tim Godden, director of Property Management Concierge, hears plenty of complaints from investors about managers and fees, including the very one Peter pinpointed.

“A common complaint regarding fees is the inclusion of a lease renewal fee to be paid by the owner when a lease is renewed by a tenant or a lease preparation fee charged along with a letting fee,” he says.

“We’ve also had agents advise their management fee is x per cent with one week’s rent letting fee and a $5 monthly admin fee; then when the owner receives the management agreement, there are numerous other fees included.

“It’s very important for the property owner to study the management agreement to ensure the fees they were quoted are listed as described,” he adds.

Most of the time, Godden believes, you get what you pay for.

“Most agency fees are negotiable to a point,” he says.  “Often an agency is willing to negotiate its management fee to an extent or may offer to remove individual fees from the fee structure.

“Fees such as a leasing fee that’s charged every time a tenant signs a new lease or an end-of-financial -year (EOFY) statement fee are often removed by the agency to gain a management.”

Negotiations

When it comes to what you end up paying your property manager, it’s essentially down to sensible negotiations.

And you shouldn’t go in too hard.

As Real Estate Institute of New South Wales president Malcolm Gunning says, “If the landlord pushes the fee down too far, you’re often not going to get the service”.

Godden agrees: “It’s important to remember that often an agency charging extremely low management fees can result in the owner receiving a below-standard level of service, as the agency may not have the income to employ the number of staff required to provide a great level of service.”

Gunning points out the value of a good Property Manager, and the significance of that value when assessing the cost factor.

“Property Managers generally, within our industry, are the most hardworking and the most reliable,” he says.

“It’s an area that’s dominated by women, who tend to do a better job than men – you know, problem-solve, multi-task, and they’re also not frightened to put [a tenant or landlord] in their place.

“You can’t pay peanuts and have the property manager do a whole range of things,” he adds.

There’s no doubt that costs for Property Management fees vary throughout the country, but ballpark figures are nevertheless handy to know.

Flat fees can range from seven per cent up to about 15 per cent in some places.

A letting fee is normally one to two week’s rent, while admin fees can be about $5 a month and lease renewal fees vary from a set figure to about a week’s rent.

Mediation and tribunal fees – when a Property Manager might attend a Civil and Administrative Tribunal on a client’s behalf – will often incur fees of about $99 an hour.

“The above fees are pretty much standard with all agencies and almost all fees attract 10 per cent GST,” he says.

“There are, however, different blends and recipes. Investors should be wary of low percentage management fees as often there’ll be hidden costs for tasks normally included in other fee schedules.”

There are also some additional costs, such as advertising fees of around $100-250 (though this can vary from agency to agency and EOFY statement fees of between $10 and $30 per year.

Distance can play a part

“Our office is in Surry Hills,” Gunning says.

“We manage properties within 500 metres, so the Property Manager walks to see them. But if they’re in, say, rural Queensland, or in Rockhampton, for example, you’ve got travelling time.

“You might have to travel an hour to go and look at the property… it’s all to do with the time. Rural Australia tends to pay higher property management fees because of the travel time and those sorts of things.  The city tends to pay lower managing fees because of the proximity and volume of the handle, and the amount of time required.”

Western Australia, too, tops the list for highest fees, according to Godden.

“In our experience, management fees in Western Australia are greater than the eastern states and I’m still yet to determine why this is the case,” he says.

Gunning believes it’s simply because everything way out west is pricier.

“I think WA is dearer in all real estate services, and I think it really is a bit to do with the culture of that state,” he says.

“They tend to be more expensive because they are isolated, and I think there’s probably not as much competition, so it’s a bit of a captive audience over there.

“But the three eastern seaboard cities of Melbourne, Sydney and Brisbane are similar.”

Kathryn Massey and Jenni Wood, co-chairs of the REIWA Property Managers’ Network, on the other hand, put it down to “the strictest and most complex Residential Tenancies Act in the country,”.

“WA property managers must undergo rigorous training and ongoing compulsory professional development to maintain competency and keep abreast of the legislative complexity,” they say.

“If fees in WA are higher than those experienced on the eastern seaboard, it’s probably a reflection of the elevated level of professionalism and due diligence required by state law.”

Whatever the truth, it does seem that costs may be slightly higher over on the left of our great island, but the fact remains that various factors contribute to pricing systems for PMs, not least of which are the systems used.

“Some agencies will offer a ‘let only’ service, whereby they find a tenant and then hand over to the landlord for ongoing management – normally charging between one and two weeks’ rent as the fee,” Blake says.

“Another service sometimes offered is rent collection service only, and this would usually be at the lower end of the management fee spectrum as it only involves receipting and disbursing of rent.”

Even the structure of property managing within an agency itself can be vastly different from company to company.

“Some agencies will have a support team around a property manager including a leasing manager, admin support, trust accountant, etc.

This should mean more efficiency but at a great cost to the business and then the investor,” he says.

“Common structures are portfolios – where one person is responsible for a group of properties and all main tasks associated, or task-based — where one person could be responsible for each particular Property Management task, such as routine inspections.

“If a property manager’s portfolio is task-based, they’re being supported by a leasing manager, admin assistant, trust accountant, new business manager and, in some larger agencies, a routine inspection officer.

“With this support team… the work’s spread out among a number of employees.

“The important question for the investor is what support team the property manager has and how many properties is the team as a whole managing?”

Gunning, too, describes a system of support within the office of being hugely beneficial to investors.

“In the larger offices, there’s a division, the property management division, which runs autonomously to the sale operation,” he says, “so you’ve got a very well developed property management system, which would have a PM and a letting clerk, who sits below that.

“So, you’ve got more than one Property Manager in the division looking after your property. You may have a senior Property Manager who runs and looks after the portfolio, but some of the other tasks may be handled by an assistant. That assistant might work crossing over two or three Property Managers.”

It’s these different structures that make it difficult to put a figure on what a reasonable size for a Property Manager’s portfolio is, but there’s no doubt that a PM with too much on his or her plate will be stressed.

“If your Property Manager’s always stressed and running around, you’d want to know why,” Gunning says.

“Often they may be handling too many properties.”

Another concern, he says, is that maturity and experience are important elements in a PM.

“Unfortunately, in some (often small) offices, the Property Manager tends to be the youngest and least experienced in the office.

“Some small offices don’t treat property management as a key part of their business. Sales tends to be the bigger fee producer sometimes, so the mid-range, larger offices tend to have specialised property management offices.”

Godden agrees that numbers are difficult to tally, but investors should still ask the questions.

“The property management systems, procedures and software have evolved, allowing property managers to be responsible for more properties than before with the assistance of technology or additional task-specific, employees,” he says.

“It’s important for a property owner to ask not only how many properties one Property Manager is responsible for but also what assistance they have.

If an agency’s purely portfolio-based and the Property Manager doesn’t have any assistance from other employees, they should be able to manage up to 150 properties.

“A Property Manager with an assistant should be able to manage up to 250-300 properties.

“Many of the complaints from investors/owners can be a result of a Property Managers being overloaded,” Godden says.

“Complaints include not returning phone calls, routine inspections not being completed when required, tenancy renewals not being priority and rental increase opportunities missed.”

One way of trying to work out the numbers is to ask your potential Property Manager the staff-to-property ratio across the whole office.

While certain expectations are perfectly reasonable, Gunning says some landlords’ expectations are simply unrealistic.

What you expect from your Property Manager, and what they can effectively do, are some of the things to iron out when negotiating that management agreement.

One thing that all are agreed on is that no two landlords are the same.

“Every landlord’s strategy for owning investment properties is different and some of the extra services may not be important to one but may be essential to others,” Blake says.

“I think it’s about choosing the right property manager and one that doesn’t charge for services that should be included in fee structures.”

Massey and Wood also feel that no fees can really be ‘unnecessary”.

“When a service is provided, the clients expect a fee to be attached to that service.

If a landlord doesn’t want a particular duty carried out, for example routine inspections, then of course that fee won’t be applicable.

“However, an all-encompassing service is what most landlords desire,” they add.

Editor’s Note: This article was written by Angela Young and initially published in Australian Property Investor Magazine in 2016.  If was also been published on Property Update with their permission but we’ve republished it today for the benefit of our many new readers as the information is just as relevant today as it was then.