Avoiding Property Management Pitfalls

Most experienced investors understand that even a few weeks’ annual vacancy usually means a lower net income than if the property had been rented at 95 percent of market value for the whole year. So if maximising income from rental property investment comes from keeping their properties occupied, why do some landlords expect to rent their properties for 110% of market value?

The answer to this question no doubt varies but such landlords sacrifice weeks of rent and create dissatisfied tenants who move on when they find a better value option, thereby creating a cycle of higher turnover and greater vacancy.

Furthermore, investors whose properties are good value get more enquiry and can afford to be more selective when deciding who will rent their property. Being selective means checking references (these days references are even available for pets!) but beware of taking into account irrelevant criteria such as dress style, marital arrangements and other personal choice issues. The bottom line criterion is: Does their history indicate that they would be able to pay $x per week for y weeks?

If a property stays empty because the rent is too high, owners can get desperate enough to overlook a tenant’s patchy references; in the effort to get the highest income, they make themselves more likely to get less because poor references could mean greater likelihood of getting behind with the rent. An informative agent should provide a market update when tenants vacate to ensure they are receiving fair market rent and an optimum return on investment.

New investors can avoid a lot of common errors by making use of the expertise of their managing agent. Many novice investors don’t think of asking their managing agent’s advice until something goes wrong. Investors who do their homework and tell their agent up front what their needs are find it much easier to keep abreast of what’s happening and avoid confusion.

Most experienced investors ask their agent to provide a monthly statement of all income and expenses with monies banked directly into the owner’s account. In addition to receiving quarterly inspection reports inclusive of updated photos from their agent, owners should carry out an internal inspection of the property themselves once every two years in order to visualise its state of wear and tear when maintenance and repairs are discussed.

Most investors say it takes three to six months to get to know a managing agent and their way of working. Until then it is best to require all expense items to be referred to the owner (other than emergencies) prior to the agent spending any money. After the initial period, set a limit on the amount the agent can spend (usually about the equivalent of one week’s rent) without reference to the owner.

Naturally, as with any contractual arrangement, investors should always have their agreement with their agent evidenced in writing.