Nine Costly Property Management Mistakes and How to Avoid Them
In reviewing their property management and investment strategy, property investors are faced with the decision of whether they should DIY or engage a property manager and what value this brings to them. To help make an informed decision, let’s look at some very costly property management mistakes and strategies to employ so you can avoid them.
1. Not knowing the legal compliances of WA properties well.
Are all aspects of your property in legal compliance to the rules and regulations required by Western Australian authorities? Have you checked the security features and are you being kept up-to-date with regulatory changes and familiar with the Residential Tenancies Act?
We have compiled these helpful articles to support your compliance understanding for residential properties in Perth and WA:
- https://www.timeconti.com.au/blog/investing/compliance-for-rental-properties-wa
- https://www.timeconti.com.au/managing-asbestos-in-wa-properties
- https://www.timeconti.com.au/blog/investing/discussion-paper-on-major-review-of-rta
2. Failing to understand how utility bills are divided and how to expense correctly.
As Property Managers, we are often asked about expenses and utility bills – how are they divided between the Owners and Tenants, which are considered maintenance costs and how this is determined.
In particular, utility bills often require explanation. Our article on Utility Expenses would help you understand which bills the Owner and the Tenant should incur.
3. Tenant Screening – understanding, management and relationship.
If you are considering conducting tenant interviews, ensure that you have the right tools and database access to perform them. Here are some tips on helping you assess for strong tenancy applications.
- https://www.timeconti.com.au/top-tips-for-successful-tenancy-applications
- https://www.timeconti.com.au/blog/market-update/what-are-the-most-sought-after-amenities-perth-tenants-desire-in-2020
Forming an informal and friendly relationship with Tenants oftentimes does not pay off. As the property is viewed as a business asset, the relationship with the Tenants should be managed professionally.
4. Insurance & Risk – inadequate insurance policies for coverage.
Do you have adequate insurance coverage for your asset? And which type should you consider (public liability, landlord insurance, building/ content etc)? Do you know what the insurance covers and does not, why you need to do so, and in which circumstances they are particularly important?
As the property should be treated as a business, do you have a risk mitigation strategy in place? We have prepared a detailed article on Landlord Insurance and some points to consider on our blog.
5. Adopting the property as if it were a home instead of a business.
Emotional attachments may ring high, especially for first-time landlords. Remember, make your decisions as if you were managing a business to ensure that it provides the income that is required. Keep a professional front while keeping at the forefront of your mind that there is sufficient cash flow to support the investment. Purchasing an investment property requires objective decision-making skills including an understanding of the rental market, what tenants are looking for, which are the most important features, how to renovate to add value to your asset etc.
If you would like to read more, here are a few articles that could help:
- https://www.timeconti.com.au/blog/investing/10-features-of-great-investment-properties
- https://www.timeconti.com.au/blog/investing/top-10-questions-to-ask-before-purchasing-your-next-investment-property-for-rental
6. Inability to attend to property maintenance promptly.
Owners have a legal responsibility to ensure that they attend to repairs, which are categorised as urgent and non-urgent repairs in a timely manner. Tenants, on the other hand, would require to inform the Owners of non-urgent repairs required in writing. Here’s where property inspections also come in to help ensure that property maintenance and upkeep is performed regularly.
If certain requested to be repair items were not working before the tenancy agreement was entered into, and these have been disclosed, or they are items that the tenant could not reasonably have expected to be working at the time the agreement was entered into, the Owner does not have the obligation to repair them.
For more information, here are some resources from the Department of Commerce:
- https://www.commerce.wa.gov.au/consumer-protection/non-urgent-repairs-rental-home
- https://www.commerce.wa.gov.au/consumer-protection/urgent-repairs-rental-home#:~:text=Landlord’s%20obligations,of%20repair%20during%20the%20tenancy.
7. Pricing – setting rent prices too low, too high or not able to ascertain appropriate rent increases and decreases based on the market.
This is one of the trickiest components to the mix – how do you ensure that your property is not priced too high nor too low so you can make optimal returns on your investment? Property prices can be very local to the suburb and sometimes even to a particular street so make sure that you have appropriated research tools from reiwa.com.au and information from CoreLogic for price indication. In addition, investigate the median price of the suburb and the recent rental prices on your street for similar facilities and home features.
As you set your rent price, be mindful of how this will impact your cashflow. As rental income is the main source of income on your asset, you should draw up a budget estimate for fixed costs (e.g. mortgage repayments, property taxes, council rates, insurance fees, etc) and variable costs (e.g. property improvements, maintenance, repairs, utilities etc) that you may incur. It is also highly recommended that you have a cash flow buffer in the event that your property is vacant for several months so that you will not have to sell your asset at a loss due to cash flow pressure.
8. Administrative burden.
Although this could be a painstaking task, it is critical that you should keep a record of everything – both for tax purposes as well as for potential legal litigation. This includes all communications, deposits, forms, rent receipts, maintenance invoices and receipts etc. Organise your digital records to avoid paper clutter where possible. In the event of a legal proceeding, having a clear record of transactions and communications would help substantiate the case and provide helpful evidence to support any claims made. Read further on our blog on the 8 most common landlord traps.
9. Going for the cheapest fee.
Choose a specialist property management company, if you are going to hire one, that has stood the test of time. It would not make sense to save a few hundred dollars and risk a few hundred thousand dollars – in our 70 years of experience, we have managed a variety of circumstances and have seen these costly mistakes being made over and over again. With the risks involved in property investment, we would urge you to make wise decisions so you can be successful in your property journey.
