Types of Property Managers & Self-Managing Compared

Published 17 December 2020 by Team :Different

If you’ve just bought your first investment property (congratulations, by the way!), you might be thinking self managed investment property is a great way to save money while making the most of your new investment.

It might come as a surprise to you that as many as 80% of Australian investment property owners use a property manager. The reason is because managing your own property comes with a lot of risk and responsibility, and can take up a lot of your valuable time. It's not always clear-cut which way is right for you and your rental.

So how can you assess your options when it comes to property management? Is self-managing ever a good idea? And is hiring a property manager really worth it?

We’ve got fresh insights from our Growth Team here at :Different to help you make an informed decision on when you should DIY, and when you should hire a good property manager!

Different types of property managers

Property managers are the people who take care of everything related to running and maintaining your rental property, so you can focus your time on things you’d rather be doing. Want to know more? Read more about a property manager’s duties and responsibilities here.

You’ll generally encounter one of three types of property managers:

1. Traditional property managers

If you take a walk down the street and knock on the door of your local real estate agency or boutique, you’ll find your traditional property managers. They’re one of the most popular options for property management as investors can hire a manager from the same place they bought the property from - it’s seemingly easy and convenient. 

So what can you generally expect from a traditional property management company? 

Here are a couple of characteristics:

  • Working for big names - Most traditional property managers work for large real estate firms and boutiques that are well-known, with a great reputation. These are your Ray White, LJ Hooker and so on.
  • Providing a local presence - Traditional property managers usually cover properties in a certain area, meaning you can be reassured that your property is being looked after by a local professional.
  • Charging percentage-based fees - Percentage-based fees are calculated as a commission of your weekly rent plus GST. This can also vary depending on where your property is located. It’s also important to note that certain services can also cost extra, so it can be challenging to figure out what you’re really paying for.
  • Property management as an extra service - Property management is just one of many other services for most real estate agencies and boutiques, which tend to focus more on sales and other activities that can bring in the big bucks.
  • Big workloads - Traditional property managers are known to manage up to 150 properties for every real estate agent, which is a lot of paperwork, tenants, and inspections for one person. It's hard to know if your property will get the attention it needs.

2. New model property managers

While traditional property managers used to be the status quo, a growing number of disruptors are entering the market. New model property managers are shaking things up by making property management their core focus and usually using tech to deliver a better experience for investors through innovative solutions.

Some ways new model property firms are doing this can be seen below, as we take a quick look at some of YBF Ventures’ finalists for best PropTech firm in 2020:

  • Bricks + Agent - Providing property maintenance and inspections for property managers or folks that have chosen to self-manage, making it easier for everyone involved.
  • :Different (That’s us!) - We use a combination of smart tech to automate routine tasks and a team of experienced property professionals to deliver the services and support that property owners and tenants need, 24 hours a day, 7 days a week, 365 days a year. We also deviate from the percentage-of-rent based fee, which has been the norm, to offering a fixed $100 monthly price in property management fees. We've taken a more holistic approach to rebuilding property management.

CoreLogic has also identified other disruptors in the property management space:

  • Zenplace - Uses tech and robots to conduct inspections at a higher efficiency, claiming to do 10 times the number of inspections and attract better quality tenants compared to traditional property managers.
  • Zeus Property Management - Changed the property management business model. Instead signs master leases with property owners for around 2 years, then they design, furnish and maintain the property for corporate tenants to place employees in properties.
  • Vacasa - Specialising in property management for holiday rentals.

As you can tell, we all do things a little differently. While some new model property managers focus in on one specific aspect of property management, others like us at :Different have taken a more ground-up business model innovation to property management.

What unites us is that we try to provide solutions to create a better customer experience for investment property owners, who have been unsatisfied with the standard service traditional property management companies have given them.

Curious if a new model property manager is for you?

Schedule a call-back with our team to learn more about how :Different delivers smarter property management solutions that cater to the modern day needs of your property.

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3. DIY property managers

If you’d rather save some cash and manage everything yourself, you can also become a DIY property manager. However, it involves a lot of work, and there’s a pretty steep learning curve involved too.

So, what does a property manager do?

Here’s a quick rundown of what your duties and responsibilities as a DIY property manager:

  • Inspections - Apart from conducting open homes for prospective tenants, you’ll also need to conduct ingoing, outgoing and routine inspections. These are key to making sure your tenants are treating your property as they should. You’ll need to know exactly what to look out for, from checking the walls for any dampness, to making sure the smoke alarms are working well. You can check out this entry condition report checklist to make sure you’re looking out for all the right things. 
  • Leasing - Renting out your property as a DIY property manager is a multi-step process; from setting a reasonable rental rate, to advertising your property, and finally to assessing the character of prospective tenants, you’ll want to make sure you’re treating each step of the process with care. This way, you’re more likely to find the best quality tenants who will stay in the long-term.
  • Tenancy agreements - Negotiating the terms of rental agreements must be done directly with the tenant. Who will pay for the utilities, and who are the tradies the tenants should contact for emergency repairs? Tenancy agreement forms from your relevant state authority (such as this one from Fair Trading) can be helpful in guiding you through this process.  
  • Managing bills - From managing council and strata fees to paying utility bills, you’ll need to stay on top of everything and make sure bills are paid every month or quarter. This is especially important if you’re looking to invest in another property in the near future, as any late payments (no matter how small) can reflect badly when the banks assess your Credit File Report.
  • Rental collection - If you aren’t particularly software-savvy, collecting the rent might involve meeting the tenant every so often to pick up the cash, or manually checking your bank account to see if they’ve paid on time. If they’re late with their rental payments, you will need to chase them up directly. 
  • Maintenance - As a DIY property manager, you’re obliged to promptly respond to tenant requests or problems, especially regarding maintenance. After all, no tenant wants to have to wait 2 days for a burst pipe to be fixed while their bathroom is being flooded. Efficient communication is key to maintaining a positive relationship with your tenants (and therefore keeping them around in the long-term!). 
  • General admin - It’s important to keep an organised paper trail of everything that’s going on, just in case you need it later to resolve any potential disputes.
  • Keeping up to date with tenancy laws - Property management can be a legal minefield, so staying on top of changes to tenancy law is key to knowing your rights and responsibilities as a property manager.

Self managed vs Property Managers

Now that you’re aware of the different types of property managers out there, it’s time to assess your options. We’ve broken down the pros and cons of self-managing vs. hiring a property manager to help you out below.

Pros of self managed rental property

“If you want something done well, you should do it yourself” is an old saying, but those who choose to self-manage their properties definitely take it to heart! Here, we’ll take a look at the advantages of renting your property privately:

1: You’re in control

One of the biggest advantages of DIY property management is that you’re in the driver’s seat, so you can call the shots when it comes to how your property is managed.

It’s all about being in control. Some people always self-manage because they want more control, while others aren’t satisfied with the lack of control they get with property managers.

Andrew Leung, Head of Growth at :Different

DIY property management lets you get down to business without worrying about potential communication issues between yourself and a property manager. The DIY approach also lets you have a closer relationship with your tenants, allowing you to oversee them personally. Done well, this can encourage tenants to stay with you for longer, and increase your rental yield.

But before you jump into self-managing, it’s a good idea to ask yourself one key question…

2: You can communicate directly with the tenant

Many investment property owners decide to cut out the middle man after waiting for days or even weeks on end waiting for a response from their property manager.

By cutting out the middle man you can reach out to the tenant directly and instantly. If you've got time on your hands, it's a good way to solve issues immediately (if you know how).

3: You can reduce the expenses of your investment property

Like we mentioned, being a DIY property manager is a good way to reduce costs related to your investment property. Over the course of your investment property's lifetime, a property manager is going to cost you several thousand dollars in property management fees, which could instead be saved up to buy a second investment property instead!

On the other hand, if the investment property takes up so much time that you're faced with having to quit your job to become a full-time DIY property manager, the equation is obvious. Hiring a property manager for a few hundred bucks a month so that you can keep your full-time job.

Disadvantages of self managed investment property

On the flip side, DIY property management isn’t easy, and being in control of everything comes with its own set of downsides. Let’s run through a few of the main ones below.

1: Where did all my time go?

One of the main disadvantages of becoming a DIY property manager is the huge time commitment involved. It clearly isn’t easy, and keeping on top of all the duties and responsibilities involved can be majorly time-consuming.

"It really comes down to how much you value your time. If you’re earning $80 or $50 an hour at your current job, why not pay someone $3 a day to keep your job instead of becoming a DIY property manager?"

Andrew Leung, Head of Growth at :Different

After all, as Andrew implies, time is money; and a good property manager can free up the time you could be spending watching your favourite show, or even catching up on some much-needed sleep.

If you're faced with the choice of leaving your job to become a full-time property manager, hiring a property manager is obviously a better path financially.

2: Where did I put that form again?

Keeping on top of everything can also be a challenge with DIY property management. While it can be refreshing to have full control over how everything is done, this also means that your duties and responsibilities can really pile up.

"With a lot of DIY owners, they have really bad paper trails for protecting their property. Not doing entry conditions, not collecting bonds… People aren’t used to asking for things."

Andrew Leung, Head of Growth at :Different

While no one’s perfect, it’s important to make sure you’re up to date and keeping good records as a property manager - especially since property management can be a legal minefield. If you're going DIY, you'll have to bring your A-game when it comes to correspondence, keeping records and contract copies and so on.

3: Challenges with conflict resolution

Conflict resolution is also a major headache for DIY property managers. While there’s plenty of advice available online, tenancy laws change all the time and what was good advice a year or two ago might be outdated in 2020. It’s also hard to keep your cool and try to do things ethically when your own property and money are on the line.

"If you look online, the most common questions are all about disputes. What time does the tenant have to turn off their stereo? My neighbour blows leaves into my backyard, what are my rights? It’s hard to resolve those conflicts fairly."

Andrew Leung, Head of Growth at :Different
4: Difficulty finding good tenants

DIY property managers are also put at a disadvantage when looking for potential tenants. The numbers don’t lie: realestate.com.au has 4.5 million visitors every month, while Domain has 3.2. But individual owners can’t list their properties on either website.

This means you’ll have to use alternatives such as Gumtree, rent.com.au, or even Facebook Marketplace which have much less traffic, causing you to miss out on promising tenants.

5: Family troubles?

Some property investors rent out their real estate to family members and go DIY, thinking it'll be easy as pie. Trust us on this one - it's a bad idea. Especially when you end up in an argument over the dinner table with your aunt and uncle, because your second cousin twice removed hasn’t paid their rent - and they believe you should give them a second chance (for the 6th month in a row).

"A lot of people who rent out to family come to us because they need a 3rd party to step in and do what’s fair, without getting heated."

Andrew Leung, Head of Growth at :Different

To avoid awkward situations like this, we recommend having a professional manage your property so you’re always treating your property like a business - even if you’re renting out to family members. This lets you avoid awkward conversations and get a fair outcome, without being written off the list for the family Christmas dinner party!

Advantages of hiring a Property Manager

On the flip side, the biggest advantage of hiring a good property manager is that you have a professional who lives and breathes the market, to help you make the most of your investment. With 80% of Australian investment property owners using a property manager to help them do exactly that, you know you’ll be in good company. 

Let’s take a look at why so many Australian investors have decided to put their money on property managers, instead of taking the DIY route.

1: Professional advice, available when you need it

Property managers aren’t just experts on property management - they have a wealth of experience and knowledge on the market as a whole. Want to know what tenants want, or what’s always renting? A good property manager is bound to be in the know, with great tips on how they can show your property in the best light to potential tenants.

"It’s useful to talk to someone that’s good at managing investment properties. A lot of decisions can be very costly without the right advice and knowledge, and a property manager can provide that."

Andrew Leung, Head of Growth at :Different
2: Experts in finding good tenants for your property

Unlike DIY property managers who don’t have access to popular websites, a good property manager should make sure your property gets the exposure it deserves to attract potential tenants. At :Different, we make sure your property has top quality photographs done by professional photographers, with premier listings on realestate.com.au and Domain.

You can read this article to find out about how we find good tenants for your property.

3: Unlocking more time to do what you love

A good property manager also takes the pain out of property management by taking care of everything related to your property. This frees up time you can spend doing what you love, whilst being reassured everything is being taken care of by a seasoned professional.

Disadvantages of hiring a Property Manager

While we like to talk about all the great things about hiring a good property manager, the truth is that property managers aren’t always good news. A bad property manager can cause headaches for property owners, so it’s important to keep an eye out for these issues so you can nip them in the bud as soon as they appear.

Some of these include:

  • Failing to keep you updated on your tenants and your property
  • Not taking care of maintenance requests ASAP
  • Taking longer than 24 hours to respond to requests or queries 
  • Not doing their due diligence in finding the best tenants

You can do your best to avoid experiencing these negatives from the outset, by putting in the time to find a good property manager.

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So, when should you self manage your rental property?

Given the huge time commitment DIY property management requires, it’s not something you should go into lightly. But we’ve got a few situations where it can actually be good business sense.

As we mentioned earlier, the first is if you really want to be in full control of your investment. You’re someone who wants to be hands-on in your approach to property management, and you’re not afraid to get out there and talk to prospective tenants, learn more about tenancy laws, or conduct inspections by yourself. After all, if something’s worth doing, it’s worth doing yourself - and if you take this motto to heart, self-management might be right up your alley!

"If you live next door, or you walk past the house every day, you can check up on the tenant super easily. If you’re a person with a lot of free time that enjoys human interaction, it’s a great opportunity for someone to self-manage."

Andrew Leung, Head of Growth at :Different

The bottom line: Are property management companies worth it?

At the end of the day, DIY property management can be a lot more trouble than it’s worth. From the large amount of time needed to take care of a seemingly endless list of duties and responsibilities, to the steep learning curve to make sure you do it all properly to avoid any legal liabilities, DIY property management can be a costly exercise.

A good property manager can take the pain out of property management, allowing you to benefit from their experience and knowledge to make the most of your investment.

But it’s important to understand how property management fees work and what services are included, to figure out if you’re being charged a fair price. There are two main ways of structuring property management fees: percentage-based fees and flat-fee structures.

Percentage-based fees

Most traditional property managers charge a percentage-based fee for their services as a commission of your property’s weekly rent plus GST. This rate changes based on the location of your property, with metropolitan areas having lower rates than regional ones. 

Fees can also be negotiable depending on your circumstances. Single owners might negotiate to have more included within their base rate, whilst someone with an existing property portfolio could arrange a cheaper rate if they bring their entire portfolio over.

Flat-fee structures

Flat fees mean exactly that; you pay a flat fee every month, which doesn’t vary depending on your rental yield or property location. Flat fees are calculated by seeing how much it costs the property manager to manage properties within their service model.

As a result, flat property management fees can be more transparent, simple, and fair; but they aren’t necessarily “cheaper” than percentage-based fees. It’s totally possible to get more value for your money from a percentage-based fee than from a flat fee, and vice versa!

What’s included in the property management fee?

For traditional property management firms operating on a percentage basis, there tend to be a lot of “additions” which cost extra down the line. Some of these include:

  • Monthly admin fees
  • Lease renewal fees
  • Annual statement fees
  • Tribunal attendance and/or preparation fee
  • Property leasing fees.

To get a full picture of what is and what isn't included in your fees, check the fee structure in your property management contract.

With a flat-fee structure, many of these fees are already included and won’t be a concern; but always check for a full breakdown, to make sure you won’t be bitten later.

If you'd like to learn more about common property management fees, we have an article explaining what's included in the property management fee in-depth, showing it in action.

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