ManagementFees

Management Fees and What Do They Cover Exactly.  

Like body corporate this is another component of buying units, that becomes a sticking point with most people. The fees do seem very high when you don’t understand exactly where your gross income is going. So usually you have 3 options with letting out your investment property. You can either rent it out yourself, permanently rent it out or have it in the holiday letting pool. Now, depending on what you want your unit for, all have their good and bad points.   

Self-managing your investment property, why pay someone when I can do it?   

If all your answer is to this is to save on paying all those fees, then I would warn you against it. Now if you have the time, are hands-on, have done this before and are familiar with all the laws. Self-managing will work for you and money in your pocket is better than someone else. If you don’t know the first thing about property management, are time poor and really don’t want to get involved with the property, get someone to look after it for you. I’ve done property management and also on-site holiday letting and let me tell you it’s not easy. A great deal of time is taken up finding tenants, making sure tenants and guests are happy and when things break down, trying to organize tradesmen, tenants and informing the owners, takes a lot of time and energy.   

Property management requires someone to:

Find and choose suitable tenants also thoroughly screening them.

Keeping up to date with all tenancy laws, these are constantly changing and something you have to stay on top of.

Maintain the property and organise repairs when needed, including the handling of tenant complaints.

Find suitable daytime and after hours tradespeople eg. plumber, electrician.

Conduct regular property inspections and complete condition report on entry, exit and at inspections.

Handle all monetary transactions including rent payments and receipt and lodgement of rental bonds.

Be able to deal with problematic and malicious tenants and those who pay late or refuse to pay.

Review and renegotiate rental amounts.

Produce rental receipts for monies paid.

So as you can see, a lot does go into property management.

I will stress if you don’t have the time or don’t think that you will keep on top of this, hire a property manager. Your insurance will be more without one as well.   

Permanent rental the good and the bad-   

If you are bad at budgeting, like the security of knowing how much is money is going to come in and are not going to want to utilize the unit yourself, this option is for you. While the overall return may be less than holiday letting, also you will not be able to use the apartment when you want to for holidays. If this option sounds like it would befit you, then I would advise having it unfurnished and start your 12 months leases out at around the summer time. There are a few reasons for this, one is once tenants move all their furniture into a unit they are more likely to stay. Unless something, like they have to move towns or the property really, does not their needs.

The other reason is that in the middle of winter, there are more apartments to rent, this is due to split letting options. This is where you will have a tenant in place for 6 or so months and then have the property in the holiday pool over the busy months. This option will suit you if you are wanting to use the property yourself sometimes. While split-letting options do bring your return down, having the option to use the property a few weeks here and there is a great.   

Holiday letting the good and the bad-   

One thing that turns people off holiday letting is the fees involved. They do seem very high when you look at around 40-50% of the gross income the property will receive goes on running costs. Now when you break it down to what that covers you can see how much is done.  

Services include-

Linen hire and cleaning

Cleaning of the property each time someone checks out

Advertising on all the top websites for holidays

Small maintenance fixes

Pest control

Phone and TV services

Credit card fees

Management fees for looking after the apartment

Letting fees for each time someone uses the apartment   

Usually, your returns are better in the holiday pool than any other option and you can utilize the apartment yourself. The downside is that some weeks you will receive the best return ever and then others hardly anything. Some managers will offer a guaranteed return, which works out less than what you would make in the holiday pool. You know what you will get each week and the option to use the property for a couple of weeks during the year. The only drawback is that you can’t pick when you want to use the property and that when the returns are really good you won’t make any extra money.

The fees explained a little more.  

Property management fees for rentals are split into two main categories: management fees and letting fees. Management fees generally cover things like regular maintenance, routine checks and printing and mailing of statements to tenants. Letting fees cover the costs of finding tenants for your property, including advertising and conducting prospective tenants through your property. The fees are around 5 to 8 percent for permanent and 10-13% for holiday letting, of the gross rental collected.   

The actual fee, you pay can depend on a number of factors including your location and how many properties are being managed on your behalf. Some property management companies charge additional fees for conducting inspections, completing reports, mailing statements, placing advertisements etc. This usually happens when either the management or letting fee percentage is a bit lower.   

Always find out how much you are going to get charged for ALL services as a low fee may be hidden with many additional fees that will be added on. A property manager may also organize to pay on your behalf for a small fee: your council and water rates, body corporate and insurance fees. This can be beneficial if you are not the best with paying bills on time and keeping track of your bills. This will be added to your end of year statements from your manager, so it makes it easy for you.   

In the end buy what suits you now, make sure you check over the buildings CMS (community management scheme) to make sure you have the option of either holiday letting, permanent or living in there yourself one day. Some buildings don’t allow holiday letting, you can get around this, but usually, it’s something that I would avoid buying it if you want to holiday let. There are buildings that are zoned only for short-term letting of 90 days or less at a time, so make sure you don’t buy into one of these if your end goal is to one day live in the property.   

My advice is to make sure you check all the buildings body corporate rules before making a decision on the unit. I do hope this helps with some of the questions that you may have if you do have any questions or comments feel free to send them to me.

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Until next time as always, do your research before putting pen to paper.

Happy investing and have fun.

Penski 🙂

Thank you for taking the time to read this post, I would love to hear about your experiences with your property managers contact me below.

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About penski

I invest in things and just enjoy my life as much as possible. It is not hard to do when you live in Surfers Paradise on the Gold Coast either. Real Estate, Music and Social Media are my passions and it's what I do to keep out of trouble.

3 responses »

  1. […] Buying apartments the good the bad and things to think about. Part 3 (penskiupdate.wordpress.com) […]

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  2. Michael says:

    I think a lot of new investors forget about the importance of property management and doing their due diligence. I’ve had friends just go with the very first company they talked to who are paying 2x more than what I would consider to be an “average” price. Thanks for sharing your thoughts…
    Regards,
    Mike (Michael)

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