DIY or letting agent? The options for managing your rental property

If you’re wondering whether to manage your own rental property or work with a letting agent, it’s wise to weigh up the pros and cons. Make sure you’ve got enough information to make an informed decision, so you know exactly what you’re getting in to.

If you've decided to buy an investment property, one of the next big steps is deciding how you're going to manage it. Hiring a property manager to take care of all the administrative issues is one option, but you might decide to manage the property yourself, to save on management fees.

Management fees are based on a percentage of the gross weekly rent (anywhere between 5-12%), plus other costs such as advertising the property and preparing the tenancy agreement. This can make management fees the most significant cost of owning a rental property, after home loan repayments.

So, before you decide which option is right for you, make sure you consider the benefits – and the potential downsides – of both approaches.

The benefits of managing your rental property yourself

• You have better visibility over how your property is being taken care of and can stay abreast of any problems or issues that arise.
• You could save significant money by not paying a professional to manage the property.
• You’re closer to the decision-making process, so have more capacity to vet tenants.

If you decide to manage the property yourself, the biggest benefit is that you save money – the percentage of weekly rental income that you’d spend on management fees can certainly add up.

You can also handpick the tenants. Getting the right tenant into your property can be the difference between a great experience and a terrible one.

When considering which option to take, it's important to understand your responsibilities as a property manager.

As you might expect, these include collecting and lodging a rental bond with your state or territory's governing body – and asking for the first rental payment in advance before handing over the keys.

You'll also need to:

• disclose important information about the property – such as whether the area is prone to flooding or fire.
• provide a standard residential property agreement, which includes the term of the lease, terms for future rental increases and the number of property inspections each year.
• provide a condition report.
• keep a rent payment record.
• chase late rent payments.
• respond quickly to calls for repairs and any problems with utility connections, plumbing, appliances, fittings or fixtures.

“Managing your own property does require a lot of work,” says Peter van der Westhuyzen, an executive director in Macquarie’s personal banking business. “However having the right tenants can make the difference between it running smoothly and causing you headaches.”

“Seek references from employers and previous landlords, and research your prospective tenants carefully too – social media is a great place to start,” suggests van der Westhuyzen.

If you do decide to manage the property yourself, van der Westhuyzen offers this advice.

“Keep your relationship with your tenants very professional – keep good paperwork. If you do that well it can make dealing with any disagreements a lot easier.

“You also need to make sure that you understand your rights and the tenant's rights very clearly, up front and stay firm on what's outlined in your tenancy agreement.

“For example, you need to lodge and refund your bonds properly. You need to provide your tenants with the property as it is outlined in the tenancy agreement, you need to commit to and properly honour your maintenance responsibilities.

“There's a lot that is really non-negotiable. You need to understand what is expected of you, and it needs to get done correctly.”

The benefits of getting a letting agent to manage your rental property

• It’s relatively hassle-free.
• There’s someone else to deal with any issues or disputes.
• The agent takes care of finding tenants and legalities.

In essence, having a property agent managing the property for you means pretty much everything is taken care of for you – for a price.

A licensed agent will carry out the following tasks:

• rental appraisal
• marketing the property
• interviewing prospective tenants and checking their credentials
• completing condition reports
• ensuring both rent and bond are paid in full
• resolving problems and complaints
• organising repairs and maintenance
• dealing with problem tenants and attending tribunals if necessary
• paying council rates and water bills on your behalf (if you ask them to)

“Working with a letting agent can save you a lot of time and stress,” says van der Westhuyzen.

“They deal with everything, including any disputes or disagreements. They can advise you on market rates, and you know your costs, in terms of time and money, will be fairly consistent.”

The good news is, the cost of professional property management can be offset as a cost of owning a property, which will help if you're negatively gearing.

When you offset costs such as property management fees, home loan interest and capital depreciation against your rental income, you'll produce a 'book loss', which you can offset against your income and, in turn, reduce the amount of tax you pay. Of course, that does mean the property is costing you more than you're earning through it – so make sure you're in a position to cover that shortfall, especially if interest rates rise.

Finding the right agent to manage your rental property

So how do you find the right property manager? Talk with a few different agents and ask about the level of service they offer, including reports and accounting. You should also ask for references from other investment property owners.

You'll usually pay a property manager a fee based on a percentage of the rent – but this varies and is usually negotiable. Make sure your agency agreement is signed by both yourself and the agent and clearly lists the services provided under the fee.

Deciding whether or not to manage your rental property yourself

So, should you delegate to a property manager, or do it yourself? If you do choose to go the DIY route, make sure you're aware of your rights and responsibilities before letting the property to your first tenants and be prepared to dedicate some time to the job.

Also make sure you consider landlord insurance, especially if you're looking at renting the property on more of a short-term basis.

If you're well informed and prepared to handle any potential disputes, you could save on management fees – and make your rental that much more profitable.

Knowing what's involved, you may decide to hand it over to a professional, and at least you can potentially claim the cost as a tax deduction.

“Ultimately, it’s a cost-versus-time equation,” says van der Westhuyzen. “Assess how much time you’re going to need to invest in managing the property, and weigh that up against what you’d spend on getting a letting agent to manage it for you.

“Obviously, you do save a lot of money, but it certainly comes at a cost – and it can be quite stressful as well.”

Key takeaways

• The main benefit of managing a rental property yourself is that it saves you money.
• A letting agent will charge anywhere between 5 and 12% of your weekly rent in property management fees.
• While the DIY approach will save money, you need to factor in the time and the stress.

Call 13 62 27 to talk to one of our friendly mortgage specialists today about financing your investment property.