S2E31 - What Does A Property Manager Actually Do? FTPI Explained

[00:00:00] Imti: Property managers explained. We've got 15 minutes to make it make sense. So let's jump into it. Buying your first investment property is a massive decision, but that's only part of the journey. After that, you actually have to manage the thing. And for first timers, this decision can actually be the thing that makes or breaks their investment journey.

And it raises some really common questions around property managers. What do they actually do? What are you paying for? Could you self-manage, like the guy on Reddit says that you can, what happens when things go wrong and how much authority does a property manager actually have? As well as that, as a landlord, what still falls onto your realm of responsibility? By the end of this, you should have the answer to all of those questions and understand an end to end of what a property manager does and how they help you on your investment journey. So let's start at the start. Skye, what does a property manager actually do

[00:01:03] Skye: In its core form, most people believe that a property manager collects rent. That is so not even what it's about. A good property manager will identify risk before it happens. They will protect your investment

[00:01:15] Pete: mm-hmm.

[00:01:16] Skye: As opposed to collecting rent ticking boxes, not caring about the outcome, it's around managing risk.

[00:01:24] Imti: Mm-hmm. So a property manager's almost like a risk manager for your investment property?

[00:01:28] Skye: Yes.

[00:01:28] Imti: Within that, what is someone paying a property manager to do? Like what are the tasks involved? You mentioned collecting rent, which is obviously the first thing that everyone thinks of, but it is a lot deeper than that, right?

[00:01:40] Skye: Yep. Yeah. So if we take it from the start, it's marketing and leasing the property.

[00:01:44] Imti: Mm-hmm.

[00:01:45] Skye: And so you want a short vacancy period because vacant homes cost money. So it's about doing that process well. Then you've got the good tenant and most people don't think past the tenant part of it. You've got routine inspections. Now again, you can receive a routine inspection report, but how do you know it's good? There's things that we should be looking for. And even at the start of the tenancy, the entry condition report, which documents what that property looks like when that tenant moves in, can be very expensive when the tenant leaves, if that's not done properly.

[00:02:15] Pete: Mm-hmm.

[00:02:15] Skye: And then if things go wrong, if you've got a property manager there who understands the legislation and can handle that, you're going to be much better placed than if you had someone who didn't understand the legislation or you tried to do it yourself. It's all around what goes wrong. And having a property manager who's been there, done it, seen it all

[00:02:33] Imti: mm-hmm.

[00:02:34] Skye: a much easier process.

[00:02:36] Imti: Yeah.

[00:02:36] Skye: than not having it,

[00:02:37] Imti: so it's a lot deeper than just collecting rent.

[00:02:40] Skye: Absolutely. But that's what it seems that they all do on the surface until you dig deeper.

[00:02:45] Imti: Mm-hmm. I know we had some questions that we wanted to cover off. Pete, do you wanna kick us off?

[00:02:50] Pete: The first one's always cost, right? So how much does a property manager cost? And I think we've already touched on it, but what's actually involved?

[00:02:56] Skye: Mm. 99% of the time people say, what's the management fee? And that is just such a small part of the equation. But allowing 10% as a cost point and before you all get alarmed, that's not the management fee. I'm saying allow that for the various things that could happen.

[00:03:13] Imti: Mm-hmm. So for someone listening to this, can you break down what is a management fee?

[00:03:17] Skye: Management fee is really just the base rate.

[00:03:20] Imti: Mm-hmm.

[00:03:20] Skye: And is really just nearly 50, 60% of what fees you could actually be getting charged. There's a letting fee at the start of the tenancy. Typically you'll see a renewal fee at the end of the tenancy. There could be monthly admin fees, there can be certain file admin fees.

Like there's so many different fees 'cause it's really just discretionary of what the agency chooses to charge. And you can really get caught out if you are only focusing on that management fee because it's actually just such a small part of the equation. What that covers though, is your day-to-day management.

There may be out of scope fees that can apply depending on what's happening with the tenancy.

[00:03:57] Imti: Mm-hmm. And so how's that put to someone though? So for example, if someone sees a buyer's agent, the buyer's agent will quote them a dollar amount. How does a management fee work? Is it a dollar, is it a percentage? How does it work?

[00:04:10] Skye: It's usually a percentage on the rent.

[00:04:13] Imti: Mm-hmm.

[00:04:13] Skye: I have also had flat fees.

[00:04:16] Imti: Mm-hmm.

[00:04:16] Skye: So it might be X dollars amount per week depending on what that rental amount is.

[00:04:21] Imti: Mm-hmm.

[00:04:21] Skye: It's generally all reflective of the rent though. So a $400 a week property is going to be different than a $1,200 a week property.

We simply can't charge 8% at 400 and 8% at 1200. We just wouldn't, it's too competitive of a space.

Mm-hmm.

[00:04:36] Imti: So what would be the rough ballpark in terms of management fees in the market?

[00:04:42] Skye: I think in Adelaide it's 7 to 8%.

[00:04:44] Imti: Mm-hmm. And you would have anywhere from, let's say five at the low end to maybe like nine at the high end.

[00:04:50] Skye: Yeah. Correct.

[00:04:52] Imti: You probably just touched on them, but I wanna highlight it. Most people only talk about management fees, right? They'll focus on the 5%, the 6% percent.

[00:05:00] Skye: So focused. Yep.

[00:05:02] Imti: What are some of the hidden fees that someone might be caught out with when it comes down to property management in particular?

[00:05:09] Skye: I think the monthly admin fee is a big one. I was saying before that I saw one the other day at $24 a month, and that doesn't sound too bad, but then you add in your management fee and other random fees and suddenly that's adding up pretty quickly. And I think a lot of people don't actually cost this out over the year and see what it's costing. So I don't know about random fees, but what does this actually look like if everything's going smooth and what does it look like if we have a break lease and the tenant leaves? Then how does that change my numbers? People don't take that into account ever.

[00:05:43] Imti: Yeah. And I think it would be fair to say that fee is one of the things that a lot of people will base their decision on.

[00:05:50] Skye: Mm-hmm.

[00:05:51] Imti: But it would be the wrong thing to prioritise a lot of the time, right?

[00:05:54] Skye: You also get what you pay for.

[00:05:56] Imti: Mm-hmm.

[00:05:57] Skye: So yes, people focus on fees because they think that all property managers are the same. And that's probably the biggest mistake to just, yes, you need to be aware of your fees, but also that's not the only thing you should use to make your decision.

[00:06:10] Pete: Yeah. And what about when problems escalate? Where does the property manager come into that?

[00:06:14] Skye: In terms of, we've got a tendency in place.

[00:06:17] Pete: Yeah.

[00:06:17] Skye: And something's coming up.

[00:06:18] Pete: Let's say they're not paying rent or there's damage to the property.

[00:06:20] Skye: Mm-hmm.

[00:06:21] Pete: what happens there?

[00:06:22] Skye: Well, generally, the landlord would be notified through that, but that's where your property manager really does earn the money.

[00:06:28] Pete: Yeah.

[00:06:29] Skye: And that's where it's peaks and troughs. And so most people go, oh, you just sit back and collect rent. Yeah. But okay, what about all the hours you didn't see? Essentially a property manager is doing things so you don't have to worry about it. And that's where it can be hard to prove value sometimes because they're taking care of all those things that you would otherwise be bothered with.

[00:06:45] Imti: What about legally? Do you need to have a property manager or can people self-manage?

[00:06:50] Skye: Of course they can, but should they? Just like we said in another episode, just because you can do something doesn't mean you should.

[00:06:57] Imti: Mm-hmm. What are the biggest risks for someone who's thinking of self-managing a property?

[00:07:02] Skye: There's so many. The biggest risk, I think, is because you don't have that removal from the situation. Let's say for example, they fall into arrears. How are you gonna manage that conversation? Then they give you a whole sob story. Are you gonna get sucked into that? And

[00:07:18] Pete: I have.

[00:07:19] Skye: Yeah.

[00:07:19] Pete: That happened to me.

[00:07:20] Skye: Yeah.

[00:07:20] Pete: During COVID

[00:07:21] Skye: and it is, it's very hard to turn a blind eye to that. But as a property manager, simple, pay your rent. I don't care what's happening,

[00:07:29] Pete: No emotion.

[00:07:30] Skye: I have a job to do. There is absolutely nothing tying me to it. And it's very easy for me to fob it off. I can be sympathetic, but it's very simple for me to go, well, yeah, I'm sorry, your auntie's sister's dog died, but rent's gotta be paid. It's a little bit of a different conversation. So other things that can go wrong is you could be breaching multiple counts of legislation and you're not even aware of it. That's a big one. And I've seen a few private landlords end up with compensation claims because they weren't doing things right because they attempted to manage themselves. So those numbers can be really big, 20 to 30k. Quite easily.

[00:08:05] Imti: Mm-hmm.

[00:08:06] Skye: That you have to pay the tenant.

[00:08:07] Imti: And what usually causes that to happen? What do they miss? What goes wrong?

[00:08:11] Skye: It sounds simplistic, but legislation.

[00:08:13] Imti: Mm-hmm.

[00:08:13] Skye: They don't understand what's required. Probably the other one is the landlord not fulfilling their parts of the obligation. It is a two-way street. There are things that you simply have to do as a landlord and if they don't know they need to do it or they know and they choose not to, that's where they come under difficulty.

[00:08:29] Pete: What, what about tenant selection?

[00:08:30] Skye: Yeah,

[00:08:30] Pete: That's, that would be a big one.

[00:08:32] Skye: That is a big one actually. Thank you

[00:08:33] Pete: yeah.

[00:08:34] Skye: for pointing that out. Because if you have someone who does tenant selection day in, day out and you don't do it, you are like, oh yeah, I liked Sally. She seemed lovely.

[00:08:44] Imti: She offered the most amount of money.

[00:08:45] Skye: Or even, but I did the reference checks, but you don't know the detail which property manager goes to on reference checks. So on paper, yeah, sure. It looked okay. But what we might do is some deeper searching through Cotality RP data. We do deeper search. And does Jenny even own that property? Jenny's just actually Sally's best friend. It's all bogus.

[00:09:05] Imti: Mm-hmm.

[00:09:06] Skye: The private landlord took that on face value.

[00:09:08] Imti: Mm. Collecting rent aside, which again, as much as everyone will associate property manager with rent collection.

[00:09:15] Skye: Mm.

[00:09:15] Imti: What would be the top three things in terms of value that a good property manager could give to a first time investor?

[00:09:23] Skye: Particularly a first time investor. A good property manager you want to assume is experienced. So if things go wrong, they're advising you on how to handle that.

[00:09:32] Imti: Mm-hmm.

[00:09:33] Skye: cause you'll only learn something once, right? If you were to say self-manage, you'd learn a mistake, you're not gonna do that again. Whereas when you have a property manager, they've seen all the mistakes.

[00:09:42] Imti: Mm-hmm.

[00:09:42] Skye: So they're gonna advise you on that beforehand. It still comes back to risk management. They're going to be able to see where the risks are for you as a landlord and ensure that the investment is performing as an investment. That's something that if you were to self-manage, you might keep the rent low, not understanding the greater impacts that that's gonna have.

[00:10:04] Imti: Mm-hmm.

[00:10:04] Skye: If you don't increase rents.

[00:10:07] Imti: And what would be the third thing that would just give a first time investor peace of mind with having a good PM on their side?

[00:10:14] Pete: I've got one if you don't

[00:10:15] Skye: Yeah. No, I'm stuck.

[00:10:17] Pete: the go to sleep factor. For me, I know when I was a first time investor, I could go to sleep at night knowing it was handled.

Or, if there was an issue, I'd get a phone call. I'd know my rent was getting deposited into my account. And then if it was a maintenance issue, I'd get a call or an email.

[00:10:31] Skye: Mm.

[00:10:31] Pete: If I needed a new tenant, I'd get a call. Yep. Hey, we need to advertise again. That, kind of just mental clarity and be able to go to sleep and not worry at night

[00:10:38] Skye: because it's not just a mental load, right? It's also

[00:10:41] Pete: time.

[00:10:42] Skye: Yeah. The time it actually takes to do these things.

[00:10:44] Pete: Yeah.

[00:10:44] Imti: Mm-hmm. So what I'm hearing is that it's a lot of the things that you won't see.

[00:10:50] Skye: Yeah.

[00:10:51] Imti: Dictate a really good property manager.

[00:10:53] Skye: Yeah.

[00:10:53] Imti: It's almost the stuff that you don't hear about.

[00:10:56] Skye: No news is good news, really. Yeah.

[00:10:57] Imti: Mm-hmm.

[00:10:58] Skye: Mm.

[00:10:59] Imti: And that is probably the key piece that a lot of people need to understand when it comes down to what a property manager does.

[00:11:04] Skye: Mm.

[00:11:05] Imti: Yes, they will collect rent, but actually they'll make sure the right tenant's there.

[00:11:10] Skye: Mm.

[00:11:10] Imti: They'll make sure everything's getting done legally, correctly. They take the massive headache off your shoulders, the right one will anyway.

[00:11:17] Skye: Yes.

[00:11:18] Imti: To bring us home, if we were to boil it down to one thing for a first time investor, when it comes down to what a property manager does, what would you say that is?

[00:11:28] Skye: They're a problem solver. They solve the problem so you don't have to.

[00:11:32] Imti: Cool. And I think that's us done with property management in under 15.