No one said that property investing is easy. And whilst most people know all about the pitfalls and heartaches of buying a property – aka the exciting, front end part which includes the “joy” of becoming a landlord, everyone seems to forget the back end of the transaction – aka the boring part of holding the property for long periods of time when nothing happens.
Today, I wanted to list out the 7 typical mistakes I see landlords make every day. They are costing them not only money, but a lot of angst along the way. Here they are in no particular order…
1. Taking little or no interest on the management of their property. This is the most common mistake I see. 9 out 10 times, landlords will outsource the property to a property manager and then forget about it! This is the old “set and forget” strategy… literally! It’s a little like they’ve done their part and now it is up to the universe to look after the property, until such a time they have to pick it up again.
And that could be OK, except as it happens, a lot of times without realising it, the person they are passing responsibility to for their most expensive purchase ever, is someone 3 months into the job and with very little real life experiences. Other times it is a disgruntled employee who really doesn’t care anymore (very common in our industry). Regardless, it is just human nature that – if as a property manager I know that my owner don’t really care – I will have very little motivation or care than the owner does.
Let me share a secret: there is no greater motivation/reward for a property manager, than knowing their landlord cares and is interested in what they do!
2. Getting involved too much on the day to day management of it. This is the other extreme from the previous mistake. Some landlords, either because they want to save money or because they fancy themselves being handy on the tools, decide to do all repairs and maintenance themselves. Others want to take an even bigger part on the management of the property such as paying bills and going to inspections.
In my experience, this is a recipe for disaster because the landlord, unwittingly starts becoming emotionally attached to the property, not to mention not doing a great job and cutting corners that ends up costing them more money in the end. Property investing and being a landlord needs to be treated as a business. The minute you develop an emotional attachment to the property, your judgment becomes severely impaired. An emotionally attached landlord will end up making mistakes like over investing by buying the best possible appliances for your property, or fixing things that aren’t important to the tenant and add no value to the property.
3. Building a relationship with the tenant and starting to deal directly with them. This is something that landlords need to avoid at all costs. “Becoming friends” with the tenant, will almost certainly affect a landlord’s hip pocket as the objectivity required during rent increases and requests for repairs is compromised. I have seen many landlords – including myself before learning my lesson – holding back on legitimate rent increases because they don’t want the tenant to think bad of them. I’ve also seen, instances by which tenants start dealing directly with the landlord which either undermines the property manager OR results on the landlord running around at all sort of odd hours, trying to deal with issues they shouldn’t be!
4. Being slow to or resistant on authorising repairs and maintenance. Many landlords are sceptical, resistant or slow to approve necessary repairs and maintenance. The general perception is that this is caused because they are “greedy” and don’t like spending money, which is not the case in my experience. After all these years, I’ve now come to realise that when landlords push back on repairs, it is because of the old “out of sight, out of mind” kind of experience. In other words, not seeing for themselves the issues first hand, landlords can’t appreciate the frustrations their tenants are experiencing. A good part of Tribunals is devoted to resolving disputes relating to repairs and maintenance and, in most instances, the outcomes are in the tenant’s favour.
Not completing repairs is often cited as the number 1 issue causing tenants to pack up and leave, costing landlords 1000’s of dollars along the way. My advice to landlords, is to factor in their holding costs of their property the cost of ad-hoc repairs and regular maintenance, so that when they come up they are prepared mentally for it.
5. Being petty. This is my biggest bugbear and it happens regularly. I am the first to say that EVERY DOLLAR COUNTS. More often than not though, I deal with landlords that decide to be outright stubborn on matters that don’t really matter or are only worth a few dollars. I never understood why some landlords can be so resistant to relatively inexpensive repairs (which are tax deductible) or decide to put their foot down, NOT accepting a great tenant, arguing for $5 extra a week! Good tenants are worth their weight in gold and not accepting one for a couple of hundred dollars a year – half of which will go the taxman anyway – will cost a landlord a lot more with every day the property remains vacant. This happens more often than you think and my advice to all current and future landlords is to maintain perspective. A little good will with the tenant and a few dollars, will go a long way.
6. Self Managing. Whole books have been written about this and in just about every property forum, you will find regularly the odd person asking the question: is it hard to self manage? The answer is… YES, it is hard IF YOU WANT TO DO IT RIGHT!
Managing your own property takes effort. It is a lot more than just collecting rent. Making sure the owner’s best interests are looked after, the tenant’s rights and obligations are met and their safety assured, and the property, repairs and maintenance, neighbours, strata and tradespeople are managed as they should, is hard work and you have to know what you are doing.
It’s when things don’t go well that one realises the value of a good property manager. In my travels, I have seen numerous owners who, in an effort to save the management fee, chose to self manage their property, making rookie mistakes along the way that came back to bite them hard. DO NOT DO IT. For a tax deductible cost of $1,500 a year or less, find the best property manager you can and go about your daily job. That would be my advice.
7. Not knowing how their investment is “performing”. Performing means all of the following:
- The property’s capital growth year on year,
- The property’s rental value quarter by quarter,
- The property’s deterioration as each year goes by, and
- The actual holding costs
We are all busy individuals. Most of us are totally dedicated to our jobs, families and hobbies. We do know that buying a property is important and hence why 2m of us are property investors. We buy real estate because it is the safest vehicle to an easier retirement. It is the safest but.. never a guarantee We are quick to buy a property and become proud owners. We are even quicker to appoint a great property manager who will tell us often that all is great with our property. The rent arrives in our bank account every so often and our objectives are met! Not quite. The issue is that not all properties perform as they need to. A property is an investment that must, as any other business should, achieve certain objectives.
These objectives may be short term like achieving maximum rent whilst minimising outlays through regular maintenance. In my experience, unless you have a property manager that thinks like an investor and cares, you will most likely not achieve maximum returns.
Other objectives are long term like sustained capital growth. Unless you monitor the market, you wouldn’t know if you have an underperforming property. I’ve seen it happen all too often… People are happy to sit on their investments for 10, 15, 20 years, without realising that their property is not gaining value. 20 years is a long time to waste in real estate. Maybe, you are better off selling it (even at a loss) and buying another that would help you achieve your long term objectives. That would be my recommendation anyway. The issue is that unless they are actively monitoring the performance of their property, a landlord wouldn’t t know it!
The points I listed above are mistakes I am seeing regularly. They are mistakes that I made early on in my investing career but with the benefit of now having a property management business, I am seeing things a little differently.
I now know that being a landlord comes with responsibilities which you cannot neglect or outsource completely. If there is one thing to remember from this blog, it is the fact that – IF YOU WANT TO MAKE THE MOST OF YOUR INVESTMENT, YOU HAVE TO TAKE A KEEN AND ACTIVE INTEREST ON IT! No one will do it for you.
Who we are:
NextGen Property Mgmt (www.nextgenpm.com.au) is a boutique Real Estate licensed agency that specialises in property management. NextGen Property Mgmt does NOT has a sales team unlike most other agencies that specialise in Sales and have Property Management as a side business. Our area of focus is residential property and we operate in Inner and South West Sydney, as well as St George. NextGen was created from its infancy to cater for investors as it was founded by investors who quickly realised that in a highly regulated industry like Real Estate – competence, expertise, care and service by property managers varies greatly.
As an investor, you need to have trust for and feel valued by your property manager. You need to know that your property is being looked after with minimal disruption and you are getting maximum return for your investment. At NextGen we understand that because we are investors living busy lives ourselves, so our promise to you is that you will no longer have to worry about your most valued asset because we will make sure to take care of it as if it is our own. If you want to learn more about us just click here to organise a time for a chat. Or call us on 0414 494 840. We would love to hear from you and to share our story.