Tenants Feeling Misled? The True Costs Of Self Managing Landlords
Some tenants are feeling misled by landlords who are trying to maximise their profit by hiring a real estate agent only to advertise their property, preferring to self manage from there on.
As a landlord, there’s nothing wrong with trying to maximise your profit depending of course on how you do it. You may feel that you can manage the property yourself and some landlords are very good at this. However, there can be drawbacks that are overlooked when thinking of saving money this way.
Being a landlord myself, I find myself asking questions such as;
- How can I save money on real estate agent fees?
- Do I just pay agent to advertise and sign up the tenant myself?
- I know enough about property management to collect the rent and manage my tenants, should I do it myself?
- Do I want to deal with the hassle or is the agent worth it?
- What is my goal, what do I want to achieve here?
These are great questions to ask yourself as an investor and everybody responds differently based on individual goals and what we are willing to learn and do.
Let’s start to think like a tenant
I came across a conversation on an online forum the other day which sparked me to write this article about a tenant feeling misled by the agent and the landlord. This particular tenant wanted a property with pets allowed for which they had been searching for some time. They found a property advertised by a real estate agent, and applied for the property thinking that their prayers had been answered.
They went through a lengthy process of negotiating with the agent to get their medium-sized dogs approved and informed their current landlord that they were moving.
Then there dream started to fall apart
They then discovered that the landlord just used the agent to advertise, after which the landlord preferred to manage the property herself. Well, this did not go down well, as the tenants had an unfortunate experience dealing directly with their previous landlord. This got the tenant worried, thinking that the pets clause was going to be abused.
The tenant continued on to say that if they had known that the landlord was self-managing the property, they would have never applied for the property.
The agent explained that once all was finalised that they no longer had a relationship with the landlord.
On hearing this from the agent, the tenant became extremely apprehensive and scrutinised the contract line by line for more clauses and issues. They found one stating that they are to “maintain and service all appliances”. The tenants said in the forum “We have 7 days to ensure everything is working after that we maintain them, pay for service and repairs and they will only be covered by landlord if an act of god damages them. So what happens if one fails? It can’t be repaired? I ain’t paying for a brand new Smeg dishwasher.”
“Kind of feel like I’m strapped to a barrel and forgot the lube.” the tenant said.
In reality, there is no such clause that exists, but the point I’m making is that once a tenant gets emotional, and starts to misinterpret clauses, they can jump to conclusions and this can make it almost impossible to sign a tenant up to a lease.
So what’s the problem for us landlords?
As a general consensus we have noticed that tenants are very wary dealing with a landlord and can feel like they need to tiptoe around the landlord. Although, this can be a good thing for us landlords as we are able to keep a close eye on our investment, it can have the reverse effect on tenants as they can feel uneasy in their home. This can lead to high tenant turnover, which over the life of the investment can blow out the savings you hope to achieve.
Here are some examples of why you will get high tenant turnover;
- Some tenants want to avoid conflict and feel as though they cannot request repairs and maintenance. Sometimes they would rather show their frustration to an agent (third party) than risk the relationship of the landlord and a hard time at home.
- Tenants can feel like they won’t get a fair deal.
- They don’t want to feel stalked by the owner waiting for them to slip up.
- They think they’re going to be harassed about every little thing.
- They can feel like there is nobody to complain to and regulations wont be followed.
Landlord Proximity to Rented Property
Something else that needs consideration by landlords is that they need to be living in close proximity to their rented property in order to self-manage effectively. You need to be available to the tenant on a fairly regular basis and living locally will mean you have local knowledge of tradespeople or handymen for any maintenance issues that arise. Being unavailable to provide hands on solutions can be exasperating for both the landlord and tenant and can lead to higher tenant turnovers.
The Tenant roundabout
You are probably well aware of the daily cost of an unleased property. Finding tenants and signing them up into a lease agreement can be your biggest cost when it comes to your investment property. As a landlord, you have to take into account that:
High tenant turnover are some landlords’ biggest hidden costs.
This is one of the major reasons why landlords hire agents. You can just imagine what it can cost you if you had to release your property 3 times a year. For some it can be $3000 worth of potential savings over the entire year. That could be your profits for the whole year. Let’s not forget about what your precious time is worth if you’re doing this yourself.
How to get off the tenant roundabout
To make tenants comfortable with dealing directly with a landlord they need to feel like they have been treated fairly and that they can bring up any of their concerns without persecution.
They want to deal with somebody that is professional, although not necessarily an agent but this is sometimes why they are more comfortable with an agent.
An example of this professionalism could be supplying tenants a CTTT fact sheet when they sign up their lease. This can put you in good standing, showing them that you follow rules and processes.
Tenants feel more comfortable with systems and processes. This makes them feel that you are objective/fair when it comes to running a property rather than emotional and unfair.
Know your stuff
It is very important to know the residential tenancies act of 2010 and to run your property dealings according to this or you could end up paying the tenant back your hard earned cash.
A common example;
We have landlords making the tenants pay for their water usage. This is a great strategy to help increase the yield on your property but this has to be done properly.
However, on the flipside, we have seen many landlords having to pay back the tenants their water usage. There was a case in which a landlord had a granny flat she was renting out and had split the water bill with them. That seems fair right? This owner did not have the water separately metered, there was no water-saving devices fitted, no water efficiency Certificate and charged the tenant exactly half the bill along with the service charges.
This went on for years until the tenant and the landlord had a falling out. The tenant found out that he had been illegally charged the water and took the landlord to the CTTT. The landlord then had to pay back the tenant over $2000. This could easily have been avoided if the landlord was aware of the regulations in this matter.
If you do go ahead with self-management of your property, you need to ensure that you have water tight Tenancy agreement. You need to have researched your information from the Department of Fairtrading about your obligations under the Privacy Act and Residential Tenancy Act.
Self-Managed Landlords Victim of Drug Rings
There’s been recent warning about gangs using rentals to manufacture drugs are more likely to seek out landlords who manage their own property. Tenants running drug labs target self-managed landlords as they are less likely to do regular inspections and can end up causing severe damages to properties.
There might be damage to the house because they may have modified the electricity or water supply, but a safety inspection needs to be carried out on the property because toxic chemicals can seep into paintwork and carpets. Also, drug syndicates will frequently take off without warning
Experts say this is less likely to happen if you have a good property manager. For more about this see this article about Self-managed landlords targeted by drug rings.
Did you know
That the ATO will accept your statements when it comes to rental income for investment property classification, however some lenders wont.
This can be a key issue if you are looking to buy more investment property because if they do not see cash flow statements from a registered real estate agent, some lenders will not accept your property as an investment property. This can have a significant impact on your borrowing capacity because they do not class it as an investment but as a liability when it comes to borrowing.
Financial advantages to having an agency manage your property
The total sum of management fees may summate to $24/week on an average rental of $400/week at a 6 per cent fee payable to an agency. Also in most cases, the management fees paid to the agency are refundable under taxable claims.
Fees for advertising rental properties are not charged by most agencies Also agencies are linked to the main enquiry portals meaning they can very quickly find new tenants for your property.
Most agencies usually have a team of tradespeople that can conduct repair work for reasonable costs. Speedy and efficient maintenance will mean satisfied tenants willing to stay in property for longer periods of time.
The true cost of being a self-managing landlord
Things you have to do yourself
Your Time Spent
|Tenant filtering||40mins||Advertising the property professionally (Agent).|
|Tenant negotiation||30mins||Save Contract fees.|
|Outgoing tenant inspection||40mins||Save on not paying for “bad tenant database” check.|
|Outgoing tenant inspection admin||30mins|
|Signing up the tenant and explain clauses and details of the residential tenancies act of 2010 (more negotiation)||45mins|
|Following up with non payment of rent||20mins|
|Admin of account statement cash flow management||30mins|
|Accounting statements for ATO||30mins|
|Property inspections admin||30mins|
|Attending tenancy CTTT hearings||45mins|
|CTTT Admin preparation||30mins|
|Organising, managing and negotiating quotes/repairs||3hours|
|Time in your head space worrying about the tenant||1 hour. Endless for some people|
Potential time spent per week2 hours
Save $12 a week on not paying a real estate agent (tax deductible).
*These are averages taken from 5 property managers including scenarios of bad and well managed properties/tenants (includes drive time).
I am not trying to just sell our services, as everybody’s situation is different. I just want to assist you in making a better and more educated decision on whether or not to self-manage your property. If you are willing to gain the knowledge, negotiate, and spend the hours, then I wish you all the best and we hope to have helped you in some way.
What we find is that some landlords spend dollars to save cents and don’t account for what their time is worth in wages, not to mention the space it takes up in your head to manage your property.
If you would like us to advertise your property, negotiate, filter out the bad tenants, and sign up your tenants with contracts then give us a call for a no obligation free chat. If nothing else you’ll come away with more knowledge on how to better manage your property.
About Jhai Mitchell
Jhai is an award winning Internet Marketing Real Estate Agent for Elders Toongabbie and Kings Langley. After running his own internet marketing business he has now set his own sites for the real estate industry. He observed that 90% of real estate agents did not know how to market themselves online. Jhai is now fixed on one goal. To teach real estate agents that they can market online so much better than they currently are.
Since then he has been consistently quoted in the Sydney Morning Herald and Real Estate Business online. He is a regular guest blogger on TheHomePage.com.au, sharing his expertise of marketing aspects for the Real Estate Industry. His biggest passions are his wife, martial arts, dogs and most of all property.