This is a question pondered by many property investors. Ultimately the answer is determined by your own skill set and available time. Below are some pros and cons to help you make your decision.
Advantages of using a property manager
Your investment becomes a lot more passive
You are hands off and don’t receive inconvenient calls to let you know that something needs repairing. You don’t have to worry about tenants giving notice and needing to be replaced. You don’t have to chase up missed rent payments, or do property inspections. You can go on holiday and all of these things are taken care of for you.
A good property manager will charge market rent
An experienced, active property manager will know the market rent for your property and will have no qualms setting the rent to market rate. Some landlords (myself included!) don’t like to increase their rents for fear of losing a good tenant. It’s an uncomfortable thing for a landlord to do because you know that increasing the rent puts pressure on your tenant’s finances. Any human with empathy feels pain at doing this. A property manager is a lot less emotional about it. They will find a new tenant if the existing one leaves. Many even charge a letting fee, so they make money if there is a tenant changeover.
Privacy and lack of relationship between tenant and investor
You don’t get to know your tenant because all inspections are done by the property manager. Your tenant will not know who you are, or your address. You don’t know the kids’ names, or the name of the tenants’ dog! You won’t know if your tenant loses their job or their relationship breaks down. There is no potential for you to be soft on your tenant because you don’t know them.
Management fees are tax deductible
If your property is providing positive cash flow and you are managing it yourself, then you pay tax on that income even though you have given up your time to manage the property yourself. If you pay a property manager, you get your time back and the fees are tax deductible against the rental income, and the property makes less profit.
Disadvantages of using a property manager
Property managers charge around 8% (of the rental) + GST. This is a significant cost and one of the main reasons that my husband and I don’t use one. As well as the 8% + GST, property managers also charge for inspections. These can be upwards of $35 + GST. This might mean that you choose not to have your property inspected as often as you should and could lead to higher wear and tear and costly maintenance.
Loss of control
This is probably the biggest reason that hubby and I don’t use a property manager. I suppose we don’t trust that someone else will look after our investment/s as well as we would ourselves. The quality of property managers varies widely. There are some very good ones and just as many (or more) very bad ones!
The risk associated with a bad property manager
The potential risks are huge! You’re not just throwing money away on a bad property manager, but you’re also putting your investment at risk of poor quality tenants resulting in huge maintenance and repair bills. It is a huge risk! Make sure you thoroughly check any potential property manager very carefully. Choosing a property manager is a bigger risk than choosing a tenant. You are giving the property manager permission to choose who rents your property. That’s a huge responsibility and you need to make sure that they will get it right.
Don’t use a property manager who charges letting fees! I believe there is a conflict of interest if the property manager is supposed to be finding you a quality long-term tenant and yet they make money every time there is a tenant changeover. The letting fee also puts off many good tenants who simply don’t have the extra money (1 week’s rent + GST) as well as bond and rent in advance; or great tenants who do have the money but refuse to pay the fee! (That was us when we arrived in Auckland from Christchurch!). You don’t want to limit your tenant market, so don’t hire a property manager who charges a letting fee.
Frequency of payment
It used to be that property managers would take rent from your tenants every week or fortnight, but they would only pay it to you, the investor, monthly – minus their management fee. Assuming you have debt on the property, the cost of not receiving the rent as it comes in from your tenant is the interest you are paying on the debt. It appears that modern property managers have worked this out now and some will pay owners weekly.
So, the verdict? If you have a property that is generating plenty of cash flow (enough to still fund your lifestyle even after the management fee) and you can find yourself a very good property manager who doesn’t charge a letting fee and will pay you weekly, then perhaps it is worth considering the use of a property manager.
For most new investors, property managers are a luxury that you can’t afford – pay off the loan on the property first! It is also very good for you to experience being a landlord before you blindly hand that task over to someone else. If you can’t choose a reliable tenant, then you can’t choose a reliable property manager either!