Should I Self-Manage my Property?
Have you recently bought a rental property and are wondering whether to employ a property manager, or whether you’ll manage it yourself?
It is important to be aware of the work involved with managing an investment property, as well as the basic legal requirements, and informed as to how a property manager can help manage this for you.
What are the Risks of a Self-Managed Property?
When determining whether or not to self-manage a property, weighing the pros and cons is vital. You may be ready to own and manage a property or you’re simply thinking about it – either way, knowing the risks involved is a good place to start. One of the major reasons why landlords choose to go with property managers is because of their expertise and connections.
As a landlord choosing to self-manage, the onus is on you. From finding tenants to making sure that all legal obligations are followed, the ball is in your court.
Landlords who hire a property manager, while being informed of issues, don’t have to single handedly manage situations. That is why, when deciding to self-manage or not, it’s important to calculate the risks involved.
Here are the top 5 risks of self-managing a property:
1. Sourcing tenants
Professional property managers are afforded access to databases which sees them able to look at a large pool of tenants. On top of that, property managers have access to thorough screening means, which can weed out applicants that are simply not suitable for the property right off the bat.
While a private landlord can place ads in the local newspaper and online, the prospective pool of tenants is smaller, therefore the potential to find the right tenant is also smaller.
2. Placing the right tenants
Many tenants who look for private ads that don’t involve a real estate agent generally don’t have the best rental history. Because these prospective tenants understand the rental process, they opt for private listings to avoid background checks that could turn up unsavoury information.
As most private landlords are not privy to the same information as property managers, they have to take applicants on their word because they usually cannot access information that may prove otherwise.
Additionally, with private landlords, in most cases self-managing a property won’t be their only job. As such, they simply do not have the time to comb through references and applications checking for inconsistencies or information that turns up red flags.
Without access to the most accurate information, private landlords are forced to make decisions based on instinct, and this can prove costly down the track if the wrong tenants are chosen and the rent goes unpaid or the condition of the property drastically decreases.
3. Insufficient documentation
A private landlord might forgo formalities
in favour of keeping the relationship between themselves and their tenant friendly. Because the landlord will be managing the property, they feel the need to keep their contact with all tenants friendly to avoid any awkwardness over power dynamics.
As such, this blurring of the boundaries between tenant / landlord / friends results in private landlords either not using a legally enforceable contract or using an incorrect lease document because of inexperience.
When a landlord feels that they can trust the tenant, things fall through the cracks and documents such as inventory lists or sign-out sheets for keys are often left untouched. While this may not seem like an issue in the beginning, if something was to go wrong, the landlord has no one to blame but themselves for not protecting themselves with the right documentation.
4. Failing to protect your asset and its income
Knowing the laws is one aspect of protecting your asset, while taking thorough written condition reports as well as lots of photos is another way to protect both the asset and its income.
By taking steps to ensure that the property is in good working condition, as well as documenting both visually and verbally what the property looked like before the tenant moved in, the risk of disputes down the line lessens.
Most private landlords however do not go to this extent, and some even forego their right to inspect the property. Thus, in the event of damage it will be the landlord’s responsibility to cover the associated expenses because there is no proof that the tenants didn’t inherit the damage when they moved in.
5. Higher than expected expenses
Buying the right property in the right location
will determine how profitable the investment will be. It is important to remember that as an investor, you aren’t buying the home of your dreams. That being said, you still need to purchase a property that people will want to live in.
Buying an investment property that is dilapidated but in a good area will have you spending exorbitant amounts on maintenance and upgrades in order to make the house livable. This is a risk because, after spending all of that money on an upgrade, a tenant may not fall in love with the property until months down the track, as one example. Then you are in a situation where the investment property is actually costing you money rather than being a money earner.
In this scenario, a property manager could have been of assistance by advising on properties and locations to buy in, as well as devising a prospective expenses document so that there were no surprises when the renovations bill arrived.
The Final Word
At the end of the day, choosing whether or not to self-manage an investment property is simply down to personal preference. However, when deciding, investment owners should take into consideration the risks involved and of course the legal implications of self-managing.
If the idea of self-managing your property keeps you up at night, the team of professionals at LJ Hooker
are here to help. Their property management team are readily equipped and available to manage the rental process from start to finish.