Hi All
I was looking for some advice from some property managers out there.
I own 4 properties and I have purchased one last year and one this year which is just about to be settled. As an investor I am trying to buy one property a year or at least add value to what I have. My brother also has one property. Altogether we have 5 properties 3 of those are duplexes. The properties are located in regional NSW.Currently my property manager was charging me 7.5% management fee, which I just bargained down to 7% for all properties. In return for this the property manager asked that any tennat over 1 year with a good record go from 3 month inspection to a 6 month inspection.
I read recently in API mag that properties should either have 5% capital gain or 8% rental yield to be worth while and while the two older properties are in this bracket the two newer properties are not, I know that they will be in time but I want to try and fast track the rental yield.
Would it be bad for me to go back to my property manager and ask them to drop the fees on these two under performing properties? I would also be raising the rent and seeing what Reno's I can do to improve this situation.
If the fee I am currently paying 7.5 to 7 % a reasonable fee for someone who has 5 properties 3 of those duplexes. This property managers are very good at what they do and seem to get good long term reliable tenants for me.
Please let me know your thoughts! Thanks in advanced.
G
The yield is irrelevant to the agent. What you want to be paying is market rates or slightly under for giving him multiple properties.
I think 8% is pretty standard for NSW so you are getting slightly under. If the rent is $300 pw and you get a 1% reduction that is going to save you only $3 per week. Why not work with the agent and work out ways to increase the amount of rent on the property. That way you both can benefit.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I agree with Terry, I do not thing changing the rate you pay to the property manager will make a different on the yield return of the property. Your best chance would be to look at ways to increase the rent charged on the property, either by renovating to increase its rentability. However given it is a newer property this may not be worthwhile. There is always the option of renting the property out by room? This would take more work for the property manager, but can potentially deliver you higher returns.
I agree….7.5%-8% is pretty standard.
The issue is that it could be argued that if you bargain too hard with your property manager and screw them down in price then perhaps they may not provide the same level of service you would hope for because you've taken a margin from the management fee.
Why sweat the small stuff mate…..? And 3 bucks is small stuff!
It's all tax deductable and as you've pointed out they are good property managers so…….it's only fair to suggest you pay for good service don't you think? That's how capitalism works!
Just my 2c mate. Good luck.
Terryw wrote:If the rent is $300 pw and you get a 1% reduction that is going to save you only $3 per week.That's the point I was going to make.
If you're satisfied with your current PM – I wouldn't bother trying to "bargain" them down to save a few dollars in an effort to increase the rental yield a little.
If you tried to achieve every "property experts" advice in API or YIP magazines you'll go crazy. Everyone has a different opinion on what makes a good investment – you just need to work out what works for you.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
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Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi,
Different properties will achieve different returns at different times through the property cycle. 8% rental yield is a great bench mark, but just because its not achieving that doesn’t mean its not a good investment. Definitely keep an eye on the property to see what you can do to be able to increase the rent charged but don’t try and cut back on other costs to achieve the 8% return.
To invest you need a good team of people with you – mortgage broker, property manager, accountant, etc. If you get the cheapest – the service may be lacking or the product/service they give you may cost you down the track.
A property manager can make a big difference to your returns. The amount of screening they do, ensuring rents are prompt and the effort finding new tenants soon after a property becomes vacant.
If you have a PM with two empty properties – both owners of a few properties managed by them. One is paying the asking price the other 1 or 2% below. One sent them a case of red wine for christmas the other rang to complain the rent cheque was a couple of days late in january when the office reopened from christmas break. Which property will the PM put more effort into securing a new tenant? Just one week longer vacancy would wipe out the entire saving of a 1% discount.
For most property investing is a medium to long term investment. Be careful of focusing on short term to much. Some people in Perth are getting people bidding on properties at present due to the rental market. I had a family member the other day being offered $20 – $50 a week more then what she was asking. The highest bidders didn’t get the property. The person offering $20 a week more is someone who will be long term and will look after the property as they know how difficult it was to secure this one. The couple of people who offered around $50 more are people were younger guys on the mines who were likely to move on after a short time and showed little respect for the property during the inspection (walked through with muddy boots).
Regards
Gibbo
Request the PM to ask the tenants if there is anything they need installed in the property for which they would pay more rent.
cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
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Email Me | Phone Meselling motels in NSW
I guess it begs the question tho, is an 8% return the minimum that we shoud be aiming for or do the numbers still not work at 8%? I'd be interested to hear what returns people find works for them – Obviously it depends on costs etc because it's a gross figure.
Rustyrusty05 wrote:I guess it begs the question tho, is an 8% return the minimum that we shoud be aiming for or do the numbers still not work at 8%? I'd be interested to hear what returns people find works for them – Obviously it depends on costs etc because it's a gross figure.
RustyIt is an interesting question because it directly relates to your investing strategy and what you are hoping to achieve.
Net yield is the key as you point out as we can't define cashflow until we know things such as yield after all costs, heavily influenced by the size of the deposit amongst other things.
if your property manager is good, you better keep them !
a good property manager is very hard to find ! worth of gold ! ( there are so many property managers have no idea what they are doing, no communication to clients ….)
Keep the good property manager, if the property manager is no good move on straight away, don't pray they will be good one day !
From a property manager's perspective, I really agree with all of the above and it's great to see a shift in attitudes towards paying good property managers a decent amount.
Whilst API magazine is telling you 8% gross yield is good, is that figure applicable to the area where your property is? If you have a great property manager as you say, they should be able to shed some light on what a good yield for the area is (I'm assuming they've worked in the area for some time) or check with the director of the business, they will be able to shed some light on what a healthy yield is for your particular properties.
Once you've got a handle on a figure of gross yield, work out your net yield goals and ways to achieve them i.e. improvements to the property, planning of future rent increases and pro-active maintenance repairs to keep future costs down (unattended repairs can cause a chain reaction of larger repairs needed in the future).
Your property manager should already be offering you suggestions of improvements that could increase the value of the property and if not… ask them to. It's in their best interests to increase the value of a property as they work on a percentage basis.
scha9799 wrote:if your property manager is good, you better keep them !a good property manager is very hard to find ! worth of gold ! ( there are so many property managers have no idea what they are doing, no communication to clients ….)
Keep the good property manager, if the property manager is no good move on straight away, don't pray they will be good one day !
For sure, I am just trying to work out how much gold they are worth
Thanks for the comments guys. I will stick with the reduced rate of 7%. At the end of the day I am an investor and always looking to reduce costs and increase yeild etc. 8% or more is a good number to benchmark on.I have 2 rented properties; $440 pw and the other at $1300pw; and both using PMs to manage the houses. I feel each put in the same amount of (little) effort yet one gets 3 times as much in fees. I have another 3 houses nearing completion where the developer is ready to sign up Govt rentals at $1900pw each. Of course in return they also want to manage them for me.
Now I am in the situation where I cant afford to pass up the 3 proposed rentals, yet the developer cum PM is going to charge nearly 5 times more fees than my first property. These 3 properties are in the same suburb sharing common fencelines, will be brand new, on long term rents and should be very simple to manage.
Why should I pay 5 times as much in PM fees just because the rents are higher? The alternative is to do it myself, but I would have to have the "inside contacts" with the state and federal government departments to get the same rent. I'm also international FIFO myself and personal time is a problem.
What I really need is a PM that is willing to cap their fees instead of taking a percentage, and have a better agreement than 2 weeks rent for the letting fee. ($11,000 for placing 3 tenants!!) All the (3) PMs in town charge the same fees.
Does a PM exist that is willing to have capped fees?
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