Managing your investment property can be done.
You just stick someone in then watch the money start flowing right?!
Well, the short answer is yes, it can be done – but it is a lot more complicated than that.
Self-managing your investment property can become time-consuming, stressful, and fraught with financial danger.
As a private landlord, the buck starts and ends with you.
From finding quality tenants, to managing their needs, understanding your legal obligations, regular inspections, maintenance & repairs, and chasing up rent – the list just goes on.
It’s for this very reason that most landlords choose to hire a property manager to help manage their investment properties. Their expertise, connections, and service help manage your property efficiently and minimise the risk of financial failure.
When choosing whether to self-manage your investment property it is important to understand and weigh up the risks involved. Your property is a huge financial investment and requires considerable consideration before choosing which path to follow.
Here are some of the main risks involved with self-managing your property:
Finding High-Quality Tenants
As a private landlord, you need to find your own tenants. This involves presenting the property well, professional photos, and paid ads in your local newspaper and online. Generally, you are screening prospective tenants based on very little information other than a couple of payslips and your intuition.
Of course, you could get lucky and manage to land a half-decent applicant, but with only a small pool of applicants to choose from, the chances are very slim. Many of the respondents to private ads tend to have poor rent history or bad credit, knowing full well a private landlord is likely to lack the tools to adequately conduct a detailed background check.
A property manager has access to tenant databases that allow them to assess a much larger pool of tenants. On top of that, they can undertake more extensive background checks to identify red flags and high-risk applicants.
Choosing the wrong tenant to occupy your investment property can become very expensive. The last thing you want is a bad tenant that falls behind on rent, trashes the place and you can’t get out.
Many private landlords fall into the trap of not having adequate documentation to support the tenancy. They may prefer a handshake or verbal agreement to maintain a friendly relationship with the tenant as they feel the need to keep the peace.
In these cases, the lines become blurred, resulting in documentation that is either not legally binding or incorrect. Condition and inventory reports are often too broad or left out completely. Along with other important documentation such as sign-out sheets for keys, bond lodgement, and maintenance request forms.
These issues tend to fall back on inexperience and a lack of industry knowledge – the bread and butter of an experienced property manager.
With the amount of financial investment involved in owning an investment property, it is crazy to think that a landlord could leave themselves open to such risk. If something were to go wrong, legally the onus falls fair and squarely back on you.
Being a private landlord, one of the more complicated aspects of renting out your investment property is knowing the relevant federal and state legislation. The laws are designed to preserve the rights of both prospective parties and provide a finer line between responsibility and liability.
The law governs everything from rent increases to general maintenance and urgent repairs down to lease termination and eviction notices. It’s paramount that a private landlord understands both their rights and that of their tenants, so they don’t find themselves fixed in hot water.
Unfortunately, many private landlords aren’t legal experts and are being exploited by some tenants. Breaching the law can result in hefty fines or potential lawsuits, leaving you out of pocket and costing a lot more than you bargained for. Experienced property managers know the relevant laws inside and out, helping property investors avoid potential legal exposure and reducing the risk of monetary losses.
Failing to Request a Bond
A rental bond is a security deposit by the tenant to the owner designed to provide financial protection for the investment owner in case of a breach of the lease agreement or damage to the property. As a private landlord, the risk of having a bad tenant is a lot higher than if the tenant was sourced through the strenuous screening processes undertaken by a property manager. So, a rental bond is even more important to protect your financial investment.
Unfortunately, a lot of private landlords don’t even ask for a bond, opening themselves up to financial liabilities when things go south. In these cases, you either have to pay for the losses yourself or spend more money chasing them up in court.
It’s a lose-lose situation.
Time is money in this modern age. One thing a lot of private landlords underestimate is the amount of time and effort that is required to effectively run investment properties. Whether it be chasing up rent payments, sourcing tenants, dealing with disputes, general maintenance, urgent repairs, regular inspections, paperwork requirements, and more, it can become very time-consuming and mentally stressful.
Unless you are running your investment properties full-time, there is the risk of cutting corners or not carrying out some of these essential tasks that keep your tenants happy and help protect your financial investment.
Professional property managers are adept at carrying out these tedious tasks while keeping you well informed and helping save you time and money in the long run. Unfortunately, with only so many hours in a day, it can be hard for some of us to juggle work, family, and other commitments. So, you must have the tough conversations with yourself and decide if managing your investment property on your own is even viable.
Self-managing your investment properties can be done. However, most of us do not have the time, resources, or knowledge required to self-manage them efficiently. Understanding the risks involved and your legal obligations are paramount and can make or break your financial investment.
If you are feeling a little overwhelmed, finding property management in Perth can provide expert service and help you maximise your return on investment.