What is property management?

Rental properties require a lot of work to maintain and manage. Property maintenance, chasing up rent or looking for new tenants are only a few of the hundreds of tasks required to manage a property. Many owners will instead choose to engage a property manager to take care of these tasks.

Property management services are a popular alternative to self-managing and the Real Estate Institute of Australia estimates that 77.3% of property owners outsource the management of their properties.

But what exactly does property management involve, and why is it a better option?

What is property management?

A property management firm takes on all the day-to-day tasks involved with running a rental property. Property management companies allow landlords to outsource their daily duties and responsibilities to a property management professional, saving time and effort while ensuring the property is well looked after.

Some of these duties and responsibilities include:

• Liaising with tenants to collect rent, chase up arrears, and deal with any disputes with neighbours or other tenants
• Finding tenants when a property has a vacancy to fill and vetting them to make sure they’re suitable
• Handling the advertising and marketing of a property when it enters the rental market
• Negotiating and drafting up lease agreements and getting tenants to sign them
• Carrying out routine inspections to ensure the property stays in good condition, and handling maintenance work when necessary
• Dealing with bad tenants like those who don’t pay rent on time or cause damage to the property
• Ensuring compliance with property laws and landlord-tenant law

By handling so many vital tasks property managers remove a lot of the stress and time involved in managing a rental property.

How many different types of property managers are there?

Property managers are sometimes also known as tenancy managers or even simply as agents. Whatever their title, they can be split into the two broad categories of residential and commercial property managers.

Residential property management covers residential tenancies in buildings such as houses, flats and apartments. Commercial property management handles the running of commercial properties like industrial buildings, offices and retail units. These may come with slightly different responsibilities, but overall they work on the same principle of handling the day-to-day duties associated with the property on behalf of the owner.

In addition there are two more important distinctions – property managers that operate within a real estate agency and property managers within a specialist property management business.

Property managers that operate within a real estate agency work within a team that is made up of real estate agents and property managers. Real estate agents work across property sales whilst property managers manage the agency’s rental portfolio.

In a specialist property management business the entire team is comprised of property managers of different experience and seniority. The entire portfolio is made up of rental properties.

Systems and technology within a specialist property management business can be more established and streamlined due to property management being their core business. In real estate agencies the level of system and technology integration can vary agency to agency.

How much does a property manager cost?

There are a number of fees associated with hiring a property manager, the main ones being management fees and letting fees.

Management fees are associated with the day-to-day management of a property and cover property manager activities. Examples include collecting rent, chasing up arrears, carrying out property inspections and liaising with tenants and trades people to deal with maintenance issues.

Letting fees relate to filling vacancies. These fees cover advertising costs, the time spent processing applications, vetting potential tenants, drafting, negotiating and ensuring the signing of tenancy agreements.

Management fees are the most significant cost out of the two of these. Average property management fees vary by state, but are usually between 5 and 12% of the weekly rental income on an ongoing basis. Letting fees are also based on rental income but are only needed when finding new tenants.

On top of this, there may also be other one-off fees to pay. In some cases, owners might have to pay for lease renewal fees. Or if disputes arise with tenants, owners may end up having to pay legal costs for any resulting tribunal. Sometimes owners might also have to pay maintenance costs — while property managers will organise maintenance work for owners, they don’t cover the cost of the work themselves.

A final note on costs, some property managers charge a flat fee rather than a percentage-based rate for their services. This can be especially appealing for high-value property owners, since flat fees are likely to work out cheaper than handing over a proportion of their rental income each week for a property management fee.

What are the benefits of hiring a property manager?

Property managers make things a lot easier than self-managing properties as an owner. Owners won’t have to deal with any of the stress of chasing up a late rent payment or organising maintenance work. This is ideal for investment property owners with other time commitments like work or family.

Another advantage is that property managers are likely to be much more highly trained and knowledgeable than owners are when it comes to the property market, property investing and real estate news. They will be knowledgeable on all the local property management laws and regulations, making compliance a lot easier, and they’ll know how best to market a property when it comes to filling vacancies.

What’s more they can also help to increase the rental value of the property. This could be through a rental appraisal to increase the rental rate to match the state of the local market, or by suggesting renovations and improvements which could add value to the property and make it more appealing to renters.

Property managers are also likely to be better networked than owners are in the real estate market. They’ll be able to market the property with the benefit of a reliable brand name attached to it to find a prospective tenant quicker when there’s a vacancy. Furthermore, they’re likely to have a wealth of contacts within various different trades making maintenance work much easier to organise.

Finally, property management estate agents act as an easily accessible liaison with tenants. This can lead to more satisfied tenants and longer tenancies as a result, avoiding vacancies to keep the rental income consistent.

Should owners self-manage their rental property?

Despite these benefits, some property owners do decide to go it alone and self-manage their property. This has its own benefits, such as avoiding property management fees and being able to keep all of their rental income.

Owners will have to deal with bad tenants, late rent, emergency maintenance and even possible evictions by themselves, which can be stressful work. They’ll also be liable for compliance with property and tenancy laws, which could be problematic if they make any mistakes.

What to look for in a property manager?

A property manager can make life a lot easier but it’s important to hire someone who is up to the task.

A good property manager can take the stress out of leasing a property and keep the tenant happy. But a bad one could make things worse than if an owner were to self-manage. Research is important before hiring a property manager to find out what qualifications they have.

Formal qualifications aren’t necessarily required to become a property manager depending on the state, but if a property manager does have qualifications then it’s a good first sign. Property management licensing is also important as some states require that property managers hold a land agent’s registration or similar licence.

Another way for an owner to pick a property management agency is to ask any other rental property owners in their network and get recommendations from them. A property management business offering low fees might be appealing initially but could be a sign of less effective property managers attempting to undercut more well-established real estate agents and property management services.

Once owners have a few options in mind, it’s important to talk to each property manager and ask plenty of questions to learn more about their services and the approach they take. They should outline their process for selecting tenants, how they intend to deliver value for money, what fees they charge, and how they plan to help review rental rates.

Owners can also find out how many other properties an agency manages and what time allocation they give to each of their clients. This will give owners an idea of how much time they’ll allocate to a property.

If a property’s manager’s service is not meeting expectations, owners can switch. Switching property managers is simple and the agency taking over the management quite often manages this process for the owner.