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Self-management vs property management – which is best?
Insurance insights

Self-management vs property management – which is best?

22 May 2020 5 mins read

It’s a question every property investor needs to ask themselves: Will I manage my own rental or put it in the hands of an agent? We look at the pros and cons of each option.

For some investors, being a hands-on landlord suits them, particularly if they live close to their rental, have a good long-term tenant and can spare the time to arrange maintenance and repairs, rent collection and inspections. It is also an option for those who wish to have control over their investment – which, aside from their own home, will be the biggest financial investment they are likely to make.

When deciding whether to self-manage or use a property manager, the owner needs to consider several factors, including the time and effort required to manage a property, the costs and, most importantly, the legal requirements and obligations.

Legal obligations

If an owner is self-managing, they need to be fully aware of the applicable rental laws and understand their obligations. As far as the law is concerned, ignorance is no defence. Many states and territories have recently amended and/or are implementing changes to tenancy legislation. This means those leasing property need to be aware of the changes and how they apply in their situation.

Understanding laws and obligations is a key benefit of engaging a professional property manager. They are required to be up-to-date with legislation and all regulations that apply to rental properties – not just the Residential Tenancies Authority  but also other applicable legislation including building safety, strata laws and short-term accommodation. No-one wants to fall foul of the law, and having a competent agent managing the investment property can help ensure that doesn’t happen.

Time management

It’s worth noting that adequately maintaining a property is a requirement for landlord insurance. This involves finding and contracting the right tradie (one that has suitable business and liability insurance in case something goes wrong), setting up a suitable time with the tenants, checking the work has been done satisfactorily and then paying the invoices. Agents can also perform all the time-consuming tasks involved with the rental. They arrange repairs and maintenance and usually have a panel of preferred suppliers on-hand to perform the work. Agents also deal with tenant requests and any complaints from neighbours 24/7. They conduct the rental inspections and provide a comprehensive report to the owner, ensuring important matters are raised with landlords and resolved to comply with legal and duty of care requirements.

Choosing the right tenant

Getting the right tenants into the rental is imperative. A good tenant will pay their rent, not make endless trivial demands and look after the property as if it were their own. A bad tenant can be a nightmare – rent arrears, damage, illegal activities… An agent has the skills, experience and resources to help identify good prospective tenants. They perform all the checks required – identity, credit/financial, employment, rental history, character references, background, criminal record, tenancy databases – to thoroughly screen tenants. Then they do all the paperwork required for the tenancy agreement (they have all the forms at their fingertips) and set up payments. Limiting time between vacancies ultimately saves the owner money.

PMs are an intermediary

Most landlords use the rental income to pay their mortgage, so getting rent paid in full and on time is a priority. An agent takes care of collecting rent and chasing any late payments. It can be a time-consuming and difficult task and having someone at arms’ length can make the process easier, especially if the landlord has developed a friendship with their tenant and the money conversation will be awkward.

If the landlord is friendly with the tenants, enforcing the lease agreement can also become complicated. Breaches of the lease agreement can be detrimental to the landlord and in some cases may void their insurance, for example if their tenants sub-let or run a business from the rental. But ensuring compliance with the agreement is what the agent (aka neutral intermediary) is paid to do, so they do it.

Of course, if things go pear-shaped and the tenancy needs to be ended, an agent will know precisely what to do to meet statutory obligations (e.g. issuing notices, applying for termination orders and appearing at tribunal). An agent will also be on hand to assist with landlord insurance claims too, by supplying the paperwork and evidence required or managing the process entirely on behalf of the landlord client.

And PMs are really good at record-keeping

Making sure appropriate records are kept is super important when it comes to making a claim against your insurance. When you need to make a claim, you may need to submit paperwork such as the tenancy application, lease agreements, bond lodgements, details about property inspections, notes on repairs and maintenance, and of course the ledger of payment collected (some of these things are also really important for tax reasons).

Real estate agents are required to have a trust account and they usually have all of this information at their fingertips. They generally provide them to the landlord each month but can certainly provide them upon request.

So, what are the costs?

In return for relieving the owner of the time-consuming and sometimes onerous obligations of leasing a property, the agent collects fees. Commission usually ranges from 5 to 15 per cent of the weekly rent, and other fees apply for various services such as letting and lease renewal, admin fees, tenancy database checks, file preparation and tribunal attendance, EOFY statements, lease transfer fees and insurance claims. Others will charge a flat fee. And it is the on-going fees involved that can often be the reason landlords choose to self-manage. However, property management fees (like landlord insurance premiums) are generally tax deductible.

To sum it up…

As a landlord insurance provider, EBM RentCover has both direct landlord clients and a network of agents that we arrange their clients’ insurance. We understand managing a rental can be complex, especially in terms of legal obligations and requirements (which can have an impact on insurance cover), and we believe a great property manager is worth their weight in gold. So while self-managing might be the preferred option for those who can cope with the workload and understand the legal liability risk that is involved with DIY, engaging an agent can be a wise move to ensure a good return on an investment.

Main photo by Naomi Hébert on Unsplash

*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are there, contact 1800 961 017 if you have any questions. 

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