Episode 003 | Investment Strategies Part 3 – Buying New Versus Established Property And The Importance Of Property Management
Should you buy an older property or is a newly built one better? Concluding our chapter on investment strategies, Damian and Arin discuss how established versus off-the plan properties or house and land packages stack up as an investment. They then turn their attention to the importance of professional property management and the implications that has on your investment strategy.
Welcome to episode 3 of our property investing masterclass
In our previous episode, we discussed negative and positive gearing, as well as the importance of location.
Today, we talk about whether you should buy an established, typically older property or whether you should go for a new house via a house and land package or off-the-plan purchase. On top of that, we also discuss the important of professional property management and some of the pitfalls people are not always aware of when selecting of property management firm.
Listen Now and Learn:
- New versus established property
- Off-the-plan apartments, house and land packages, off-the-shelf investments – embrace or avoid?
- What are some of the questions you should ask when engaging a property management firm?
- What are the benefits of hiring a good property management firm?
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Property Investing Masterclass
Arin Di Camillo, Momentum Wealth: Welcome, and thanks for tuning in for episode three of this Momentum Wealth podcast series. My name is Arin Di Camillo, Manager of the Property Wealth Consultants at Momentum Wealth. I’m joined again by our Founder and Managing Director, Damian Collins. Damian, welcome.
Damian: Great to be back, Arin.
Arin: Good. We covered a favorite last episode.
Damian: We sure did, but I’m sure there’s lots to cover today as well.
Arin: Plenty to come as we explore the fundamentals of property investing. Today, we’re going to cover new versus established properties. We’re going to look at off-the-plan purchases and house and land packages. Then, the second part of the episode will be all about property management and how to effectively manage your properties to get the best results for your property portfolio. How are you with that, Damian? Ready to go?
Damian: Sounds good. And there’s some really good information there for investors as well.
Arin: Excellent. Well, as I said, this is 10-part series. So if you’ve just found us, feel free to go to the website and check out episodes one and two. Throughout the series, we’ll be talking about the fundamentals of property investment, not just selecting the right properties, but also all the other parts that go together for a sound investment strategy. So, there’s more to investing than just buying the right property, isn’t there Damian?
Damian: Yeah, absolutely, Arin. It’s getting a strategy in place upfront, financing your properties correctly. It’s also about value-adding potentially along the way, looking at also development, developing properties, and also commercial as well. So there’s a lot more to it and I guess a lot of people focus on just buying the property but there’s a lot more to it when you’re looking to build wealth through property investment.
Arin: Excellent. As always, we have had great feedback from our summary notes provided at the end of the episodes. We’ll be doing again the same today with some additional information that I will let you in on at the end of this episode. So stay tuned. All right. We’re kicking off today with new versus established property. Straight up, Damian, what’s better?
Damian: Well, again, Arin, first of all, I always say that it depends on the client’s circumstances. And to some degree, that’s an important part, where they’re at along their journey. They both have their pros and cons. So, an older style property or established property is more likely to have good land value, content, not always, but that’s something we look for. And buildings go up, buildings, I should say, land goes up in value, buildings go down over a period of time. So an established property is more likely to potentially have more land component value and lesser building component value. Again, we do that detailed level of research when we’re buying, what’s the land value and the building, but that’s as a starting point, more likely to be that.
The downside though, with established properties is, in particular, they might well be old, they might have a lot more maintenance. The rental returns might be less. So there’s some of the downsides. When you buy a new property, I guess, the benefits are that, generally, the property is not going to have too much maintenance because it’s new. The tenants might like it better because it’s new and shiny. You might get a better rental return and you also get depreciation benefits. But the downside is that historically, from the research that we’ve done, those new properties tend to underperform the market in capital growth.
So, in a perfect world, I would say, you would chase an established property because that is something that’s going to give you more capital growth over a period of time and make you more money. And that’s when we’re investing early on. It’s about growth. Growth is what makes us money, growth is what gets us the equity to get into the next one. So, in a perfect world, just pure and simply, you’re more like to go for established. But we’ve had clients who’re a bit tighter on cash flow. So, we have bought newer or near new properties, and so it still would depend on the client circumstances, but established is a preferred way if you can afford to do that.
Arin: So we’re looking for, not as pretty properties, potentially older that require more maintenance. So important to plan for these things before you make the purchase, is part of your strategy.
Damian: Certainly, yeah. If you’re buying an older style property, I’d certainly recommend… or any property, but certainly the older style ones, putting aside a couple of thousand dollars a year in your budget for repairs and maintenance. So there’ll be some years where you don’t spend it. You don’t spend hardly anything and that’s great. But there might be another year where the hot water heater blows up and a few other things go wrong that you’ve got to spend a lot of money. So just plan for that in your budget, putting aside some money upfront. And then from your rent each month that you get, putting aside into a reserve fund or setting aside and you know personally that you’ve got the money there should those repairs and maintenance come up.
Arin: So it’s all about the planning upfront and then making sure you’re ready to move if something does happen on the way.
Damian: Yeah, definitely. You don’t want to be in a situation that, look, rental properties of all types in residential, there’s always going to be something that comes out of the blue and you just got to be… It’s like a car, just got… took up the car for a service and got hit with a three-grand bill today, so not exactly thrilled about that, but that happens. So things happen and it’s the same with your rental property, making sure you’ve got money set aside for when things get… need repairs and maintenance.
Arin: I’m sure you planned well ahead for potential maintenance bill…
Damian: Yes, I definitely wasn’t expecting it but it happened.
Arin: Excellent. Now, we’ve spoken as recently as this week with some investors who are looking to invest specifically for depreciation purposes in a new house. They wanted a new place just because they can depreciate it. Is that a valid strategy in its own right?
Damian: Well, again, not really, Arin, because that comes back to what we spoke about in Episode Two about negative gearing. So, depreciation is great in that it’s a deduction we can claim. So for a new property, you can claim 2.5% of the building value. So let’s say it was a villa that you might have purchased, brand new one that might have, say, $250,000 of building value. You can write off 2.5% per annum on that. So that starts to add up. That’s about $6,250. Just doing the quick numbers in my head. And you can also write off on any property you buy, you can write off the plant and equipment. So that would be your ovens, your carpets, your blinds, and those sorts of things. And there are depreciation specialists who can do that, figure that out for you.
So newer properties up to those properties built after 1985 can depreciate the building. Those properties built before that can’t do that. And those properties, all properties, they can depreciate the plant and equipment. Yeah, so a new property is going to get more depreciation for sure but the reason is buildings do depreciate. They go down in value. It’s simple, while you go and look at a brand-new house that you might build, it’s going to cost you, again, say, $300,000, $400,000, or if it’s a villa, we spoke about, that might cost $250,000 to build, on a property. You go and look at a house that’s 40 years old, in a lot of cases, they’re knocking them down and starting again. So that tells you the building value has pretty much gone down to next to nothing. So that’s why you get the depreciation allowances. So it helps you with cash flow but that property just doesn’t grow as much. And ultimately, growth is what’s going to get us the extra equity to buy our next investment property.
Arin: With these older properties as well, and I often will get our asset management advisor to come in and recommend some renovations to the place, kitchens, bathrooms and so on. Opportunity for depreciation there?
Damian: Yes, you certainly can. So if it’s carpet replacement, you can depreciate the carpet, same with the ovens, blinds. Painting, not so much because that’s part of the capital cost. So, look, that’s where we get depreciation specialists in. We recommend that to all our clients, get a firm in who knows what they’re doing and they’ll tell you what you can depreciate and not.
Arin: So by and large, an established property is the way to go, an older property is the way to go?
Damian: Yeah, certainly, if you can afford the… if you’ve got really strong cash flow and, you know, cash flow is not a big issue for you, we’d buy something recommendable. Let’s buy something that’s huge on the land component value. Might even be a future development site. The houses need to be livable and rentable and you might spend a little bit just getting it, fixing it up to get it to that point, but ultimately, it’s got, you know, 90% or thereabouts, 80% land value. That will get you better capital growth over the longer term. That would be the preferred.
For clients who’ve, perhaps, can’t afford a lot of negative cash flow, we might buy them, still some of the good land component value but it might be, yeah, five years old or something like that. So they’re still getting good depreciation. They’re seeing reasonable capital growth but the cash flow is there to help them. So it’s better to have that investment than not have any investment at all because they’re not in the market, you know, not benefiting from creating wealth through property.
Arin: Sure. I guess it’s kind of counter intuitive to be buying an aging property, potentially, an uglier looking building, for example. But people are happy, you know, investors and owner occupiers are happy to pay a premium for a blingy brand new fresh-looking house. So I guess there is a price adjustment there that we’d have to allow for as well.
Damian: And that’s the thing. They’ve done studies over a period of time and that shows that people… We always know the story, I guess, with the new car. You go and buy a new car and as soon as you drive it out the lot, it’s dropped 10% in value and within the first year, it’s often dropped 15%, 20% of value. And a lot of cars, after three years, are worth half of a brand new one.
Arin: Oh, I had Alfa Romeo. I know exactly how that goes, yeah.
Damian: Yeah, well that’s a pretty expensive learning curve for you there, Arin.
Arin: Very much, obviously.
Damian: And the house is not nearly as bad but it does, the perception in people’s mind is that a house that’s five years old is worth about 20% less than something brand new in terms of the, not of the overall package but in terms of they’re…in their mindset, they’re devaluing that house, not the land, the house component by about 20% to 25% after five years. So it certainly does go down in value over time. And so, you know… if you could buy an older style one that’s, in everyone’s mind, is already written off to very little value, then you’re buying… most of what you’re buying is the land value component which is what goes up in value over time.
Arin: So we’re getting into the right suburbs and we’re getting into the right type of property within that suburb… and preferably older with some upside is what we’re looking for.
Damian: Definitely. So it’s about the right city, the right suburb, and the right property within that suburb, absolutely.
Arin: Excellent. Okay, let’s talk about some types of properties that we typically tell people to avoid. And I’m speaking specifically about off-the-plan, house and land packages, even shelf products. By that, I mean products that are already built for developers or property spruikers to sell as an investment or under the investment guise. But they’re not really factoring in anything about the client’s personal situation. They’re just trying to sell the product basically. Now, we tell people to avoid these. What are some of the things we need to look out for here?
Damian: Well, I must start with the last part there, Arin, first. The spruikers are ones where they’ve got a product already. And their services are free, they say, or cost very little. Nothing’s free in this world. And developers and builders, yeah, they pay, just like when you sell your house, you pay a selling agent to sell it. And these developers and builders are paying the property spruikers sometimes quite substantial commission. So anything that someone says, “Oh, it’s a free service to you,” it’s not free. They’re getting paid and they’re getting paid good money. And it always worries me when someone goes, you know, they say they’re property advisers, but you go and visit them and they’ve got a ready-made product for you or a range of products. Now, that’s a product seller. It’s not someone who’s giving you the right property based on your individual circumstances. So I’d certainly recommend steering clear from them and be very aware that anything they say is free is not free because they’re getting paid for that.
Arin: Sure, yeah.
Damian: And a lot of the products you mentioned before that, the apartments off-plan and the house and land packages is the space that these people operate, when they’ve only got brand new properties. In a typical city, the amount of new stock in any year is only about equivalent to about 2% of the total housing supply that’s available in that city. So why would that 2% brand new stuff be right for you? It’s pure and simple – it’s not. It’s the right product for these guys to sell to get a commission.
Damian: And often, it is in the space of apartments and off-the-plan and also house and land.
Arin: And we see that interstate as well where spruikers will move to a city and then sell product in another part of the world.
Damian: Yeah, absolutely.
Arin: And we see it obviously, Perth with Queensland, and in Melbourne with Queensland. Queensland selling in Adelaide. We see a lot of clients coming to us with those sort of stories, and it’s very scary what’s happening.
Damian: Yeah. And they get people in and particularly, it’s… In some respects, it’s worse now. There’s more of them. But at least now people can do a bit more checking because you’ve got the real estate portals to go and compare what other properties are selling for in that area. But you’re still… if you’re not in that city, you don’t know the market fully. You don’t know what’s going on. Is it a good long-term area? And I’ve certainly seen people get burned quite substantially buying properties. And the other thing is they cross-collateralize. They structure the loan, so you don’t know if valuations are coming in less than what you’ve actually paid. And I’ve seen properties where they’re down 25%, 30%. And these are in, you know, Gold Coast or sometimes other areas where they’re… even in the major cities. They can still be coming quite under, you know, a couple of years later of what you paid for them. So it’s just something to be very conscious of.
Arin: I think the giveaway there is that they’re not taking into consideration, as I said, anything about the client’s personal situation. They’ve just got a set product that they’re trying to flog to them. So it’s…
Damian: Yeah, definitely. Any time… it’s always just brand-new product they’re offering and it’s either low cost or no cost to you and it’s, yeah, product flogging, I’d run a mile from it.
Arin: Getting away from the spruikers for a second, going on to house and land packages. Now I have a soft spot for builders, obviously, my former employer, great bloke, looked after me. The house and land guys are selling their product as best they can. They’re not investment advisors or experts. As far as they know, it might be a good investment, but again, they’re not taking into consideration the client’s personal situation and they don’t really know whether it’s a good investment. So house and land, we will tend to avoid.
Damian: Yeah. And look, again, it comes down to… You know, if you’re buying it to live in and that’s what you want… you want the brand-new house and you’ve got… let’s say you’ve got a low budget. You want a brand-new house on a block. You’ve got to go 40 kilometers out of the city or whatever it is, that’s perfectly okay. Lifestyle.
Arin: Lifestyle choice, yeah.
Damian: It’s a lifestyle choice. And there’s nothing wrong with a house and land package. Lots of young people do it. As long as they… all I would say, as long as they understand that that is a lifestyle choice and from an investment point of view, you’re probably not going to get the same growth as you would if you bought something older in maybe even a smaller block, you know, 15 kilometers out of the city. But that’s okay. That’s a personally… a lifestyle choice.
Now, when it comes to investment, as you say, a lot of the builders, yeah, they’re trying to get building and they’re trying to make things happen and they try and sell house and land packages as investments. And, look, a lot of those investments, again, look, over time they might go moderately well. You know, but what you find is these house and land package are in areas that where there’s a lot of land supply. And we go back to the fundamentals. It’s about strong demand and limited supply. And if you’re buying in a brand-new estate, often there’s still lots more blocks coming up in that estate. There’s also the estate across the road and around the corner and there’s the one that’s two kilometers back that’s coming as well. So for the first 10 years, the performance of those estates sometimes is pretty low and pretty average.
Arin: And we often see as sales slow in those estates, the developer will then have to provide incentives to people to buy the blocks. Ten thousand, 15 grand rebates, which immediately devalues everyone else’s surrounding blocks. So it happens very easily.
Damian: Yeah, exactly. So I would, again, if you’re going to a house and land package, you’ve got to be asking, “Well, what’s going to be the growth drivers here? Why is this property going to go up?” And often, they’ll say, “Oh, this suburb is growing in population.” The reason is that there’s lots of land supply. Established suburbs don’t grow very much in population because there’s not a lot of land, not a lot of supply of properties available that they’re creating new stock for. So I’d rather invest in that established one where I can’t… there’s demand but there’s less supply available versus those suburb new house and land package areas. So, again, understanding that and unfortunately, a lot of people don’t.
Arin: And I guess, if you are going to build for lifestyle choices, it’s still very important to choose a reputable builder.
Damian: Oh, absolutely, absolutely. Again, nothing wrong with it. Buying a brand-new house in a block of land, it’s a lifestyle choice. But just people need to understand lifestyle choice and investment choice are often quite different.
Arin: Absolutely. Moving now to apartments and off-the-plan apartment purchases. We’ve seen some horror stories obviously but there’s a lot going on with apartments in Perth in particular at the moment, but also in Melbourne and Sydney. How do we feel about investing in off-the-plan apartments?
Damian: Well, once again, you’ve got to be very selective. So firstly, you’ve got to be looking at what’s the amenity in that area, what’s the demand? Why would people want to live there, first? Then, I’d be worried about, well, what are the supplies coming up in that particular area, you know. So a lot of the, particularly, the city areas, we’re seeing, and, look, they always talk about it in the paper, is there an oversupply, undersupply? There’s a lot of building going on in Sydney, Melbourne, Brisbane particularly, a little bit in Perth, but Perth is a bit behind those other cities in terms of apartments. But, look, long term there’s a lot of demand for apartments. And the lifestyle is changing. But the issue you have is that, particularly in the city locations where they can build the 20, and 30 and 40 story apartment towers, there’s a lot of supply coming and that supply can meet the demand.
So again, our research shows that those properties historically over the longer term underperform in the market. Now, there might be some boutique opportunities in apartments. If you get the cycle right, you might buy off the plan. And you might be find you’re 15%, 20% ahead. One of the examples that we’ve seen in the Perth market was the Raffles building where people who bought there, doubled their money before settlement. Now, that was a unique project waterfront, for those who don’t know Perth, Applecross, the only one of its kind at the time. It was in a rising market. And so people did what they did particularly very strongly. So but that, again, those apartments had very much a high implied land component value.
Arin: Particularly unique, that spot too, isn’t it?
Damian: Yeah, absolutely. So they had a high implied land component value. So that meant that, you know, apartments can have a land value absolutely. There’s not a block that they own particularly themselves. But every apartment purchase has an implied land component value. So those were strong on the land component value and all those other factors we just mentioned. A lot of the box ones in the city areas where it’s another tower, another tower, another tower. They’re not unique. There is nothing particularly special about them that would make people want to live there. And there’s so much other supply coming on. So, look, it’s not often we buy apartments. So, it’s got to be, again, the right product for the right client. But for most, you know, a vast majority of apartments we’d say pass and move on. There are better investment opportunities.
Arin: Yeah. And coupled with the risk of buying off the plan, there’s so much that can happen between the purchase and settlement as well. So it just exacerbates the risk, really.
Damian: Yeah, and look, there are ways, you know, in terms of development, clients can participate in development and I’m sure we’re going to probably talk about more of that through the journey. The way clients who want to get in on off-the-plan, there are opportunities to participate in development syndicates where they take it at a wholesale price, save on the stamp duty and get in maybe 15% under. If you want to get into an apartment, that might be a better way to look at it. And getting that immediate equity, on the upside.
Arin: So take the apartment with a discount off the market price and you might even end up with a property that’s positively geared right from the off.
Damian: Yeah, again, as long it’s a good location, limited supply, and decent enough implied land component value, that could be a good investment.
Arin: So off-the-plan, risky. Established apartments? I mean, you mentioned Raffles, again, that was an off-the-plan one. Is there any unique propositions that we’d view and have a look at?
Damian: Same again as what we said before, going back to all those fundamentals. If it’s established, well, it may be good but then again, if it’s in area that’s got lots of land, lots of new apartments coming on and lots of zoned land for it to make that happen, then the likelihood is that more and more supply will come to the market that’ll hold back the growth. So we never rule out apartments, certainly, in the Sydney, Melbourne market where prices in good locations can be quite expensive. If a client’s got a budget of, you know, half a mill, you’re just not going to get a villa town house or a house in any good location generally in Melbourne or Sydney for that. So you do start to look at some of those older style apartments as a potential investment. You might get a two-by-one in a good suburb. They tend to have good implied land component value. So again, they can be good investments in the right location for the right client if they’re particularly based on their budget as well.
Arin: So a great commentary there around off-the-plan, you know, shelf products and also house and land packages. We’ve delved a bit into that, and you’ve beautifully articulated some of the risks that are inherent with those products. Let’s move now to property management. For me, one of the most overlooked parts of the property investment journey is not having the right management look after your property. What are the things that we’re looking for in a property manager, to look after our portfolio?
Damian: Well, I guess, it’s disappointing. A lot of people in… and I guess, the real estate industry has to take some responsibility themselves. But it’s sort of been commoditized where people go, “Oh, it’s all the same. I’ll just go for the cheapest. You know, it’s like I’m buying, you know, a car and it’s… I know the model I want, I’m just going to get the cheapest dealer.” Well, property is not like that because property management, I should say, is not like that, because the service levels vary quite significantly across the board.
And so, look, fees are certainly a part of your consideration in choosing a property manager, absolutely, because, you know, that’s a cost but it is tax deductible. And you’re talking about somebody who’s, you know, potentially looking after a $500,000, $600,000, $700,000 asset. Is it worth a cup of coffee a week, you know, a couple of hundreds bucks a year after tax. Is that worth getting a better quality person look after your property, and I agree. Absolutely, it is.
So what do we look for? First of all, it’s not about the individual property manager. It’s about the company, because property managers will come and go over time. You want to make sure you’ve got a company who’s got good values around property management. A lot of agencies, it’s second fiddle to their sales division. So you want to make sure that the property managers are an important part of their service offering. You want to be checking about how many properties they manage per property manager. Or if they’ve got a structure, is some of them have models where the property manager manages more but they’ve got a lot more support behind them. See, you want to understand the model that they run and the ratios of staff to property management. And certainly, you know, what’s their background? You know, have they been recognized by the industry or their clients for being good, you know, have they got testimonials, have they got clients who are happy to give recommendations for them in terms of that service that they’re offering? They’re just some of the things, Arin, that you’d want to be checking out.
Arin: I guess, also, often, we see people coming to us after the horror story. They’ve had something go catastrophically wrong with the property. We’ve seen in the news reports as recently as a couple of weeks ago, tenants trashing places, just leaving, not getting anything back from them. And that’s when people then go, “Oh, maybe I need a property manager now.” So the message from us is to get good property management upfront, really, so that you avoid all the trouble.
Damian: Yeah. Look, it’s a tax-deductible investment in looking after your most important asset. And people have tried to self-manage. I don’t get that. I’ve never ever self-managed. I’ve felt my time is better suited to other things. And I find self-managers get too close to tenants, they don’t put the rents up. We’ve picked up properties from self-managers where they’ve been, you know, $50, $100 a week under. So that’s thousands, way more than our property management fee even was. And they’re dealing with all the hassle and headache. And so, you know, and also self-managers don’t do… to get landlord’s insurance, you’ve got to follow certain procedures and processes. The legislation is quite complex around property management. You know, the act that you’ve got to follow and the compliance you’ve got to do, otherwise you can get prosecuted and fined. I just… personally, I don’t see any benefit in it.
Arin: There’s a lot involved.
Damian: There is, absolutely.
Arin: And it only takes a couple of weeks of vacancy before you’ve blown what would be a year’s worth of management anyway.
Damian: And that’s the thing. And that’s the thing. You know, again, a good property manager and a good property management team, if they save, you know, one to two weeks vacancy a year, all of a sudden there’s well more than the discount you might have gotten by going to a cheap property manager or even doing it yourself.
Arin: So we talked about, look, making sure you’re looking for good company, making sure that company has got the right structures and processes in place, bearing in mind potential for turnover of property managers. We’re looking at those things. But what sort of questions should we be asking of our property management company when we’re looking to engage with them?
Damian: Well, I’d certainly be asking them, talking about, asking them about, “Well, tell me about your clients and, you know, how happy they’ve been, how many properties do you lose each year to other property managers?” And finding out about how, you know, most agencies like any business, they’re going to occasionally lose clients but if they’ve got a lot of clients running out… But I’d certainly be more…particularly interested in their clients and their feedback from their… have they got testimonials on their website or are they even willing to let you talk to some of their clients? And that’d be some of the questions I’d be asking, for sure.
Arin: Yeah, sure. What about maintenance for the properties? We were talking in another episode about allowing for maintenance of the properties bearing in mind they might be older. Do we look into their policies around how they schedule inspections and maintenance for properties?
Damian: Yeah, definitely. Are they proactive in recommending things to do? I mean, I know no owner wants to spend money, but sometimes, if you leave things to go too long, then you can find that the expense of… can be quite substantially more. So, yeah, wanting to know how often they do inspections on the property, the quality of the reports that they provide, certainly, around maintenance. So are they providing proactive recommendations? “Oh look, I think you should do this. You might actually get a bit of rental return.” Or, “If we do this, if it’s a softer market, maybe you won’t get a better rental return but I’ll get you… we’re confident we can get you in a tenant more quickly.” Those sorts of things. You want an advisor, somebody who’s not just a rent collector.
A lot of property management firms, they collect the rent and they put the problems back to the owner. And, you know, before we established Momentum Wealth, I had other firms who managed my properties and I’d often get, “Well, here’s the problem. What do you want to do?” And I used to go, “Well, I don’t know, you’re the property manager. You tell me. I’m busy doing my thing.” So you want a property management firm who’s going to be giving you advice.” This is the problem, here’s the solution that I recommend for you. Do you want to go ahead?”
Arin: Sure. Now, we’re pretty lucky at Momentum Wealth. We tend to win a lot of awards in most of the industries we’re in. Should that be something that you factor in when you’re looking at the companies that you’re engaging?
Damian: Well, look, it’s certainly one of the criteria, absolutely. So if a company has been nominated and also won awards, there’s a pretty stringent process that they have to go through to win those awards. So certainly, that’s one of the factors that you would be looking at to see whether the firms are reputable and someone you want to look after your very important investment.
Arin: If you’re paying them, you want the best service you can get.
Arin: So the benefits of having a good property manager, for me, it’s all about peace of mind, not having to worry about who’s looking after my property. They’ve taken care of it and I don’t have to worry about it.
Damian: That’s exactly it, Arin. When I’ve got my properties managed, it’s about, yep, the rent is going to be collected, the maintenance is going to be taken care of. They do the proper checks on the tenants when they’re going in so my place isn’t going to be trashed. And they do the final bond inspection when the tenant moves out. They take care of all those things. They comply with the Act so at the end, I get my rent statement each month, I get my rent from them. They tell me what I need to do and exactly what you said, peace of mind. I don’t want to get a phone call and you’re dealing with hot water systems on a Friday afternoon. That’s not what I’m there for.
I’d just say exactly as you said, it’s peace of mind that I know that they’re going to take care of all the problems and all the issues. And they do come up. You know, no matter… even good tenants can go bad. You know, I’ve had some great tenants that life circumstances have changed, things have gone a bit pear-shaped. So I just want to know that the property management firm, they’ve got the right staff in place that they’re going to be able to look after all those problems and give me that peace of mind.
Arin: Sure. Now, that’s just about all the time we’ve got for this episode. One final question, question without notice, any memorable horror stories in property management?
Damian: They’re all without notice.
Arin: Any memorable horror stories? Any ones where you’ve heard of property management going absolutely pear-shaped?
Damian: Well, I’ve certainly seen it more in self-management where people have… they don’t do the checks. And one of the good things about it, a good property management firm and most property management firms would do some basic level of checks but a really good property management firm will do proper employment checks. And it’s not calling mobile phones, it’s calling the company and looking them up in the white pages… it’s a direct landline. Because people are sometimes shifty and they give… they give their mate’s phone number out and mobile number out. And ah, you know, call it up and, “Oh, you know, John’s a great employee and he’s…” They give their mates as references. So it’s all about the thorough checking.
And a lot of the bad tenants target self-managers. They go to Gumtree and things like that, where they know that they’re self-managing, because they know the self-managers don’t do the proper checks on them, because they know they’re black-banned. The property management industry uses tenancy databases and those tenants are often black banned. And I’ve seen, yeah, self-managers come in. We had one particular client I remember, who had tried to do it himself and cost himself $30,000 in repairs.
Damian: Huge costs. Came to us. Was thrilled. We were able to pick up the pieces, get the property back on track and never had a problem since. So it certainly can be very expensive. Again, a lot of self-managers don’t have the proper landlord’s insurance in place or none at all. They don’t know about it. A good property manager… not an insurance advisor, can’t give you advice but they’ll present you options of what our clients use in terms of landlord insurance and that’s a great one to have, covers you for malicious damage, loss of rent if tenants do run and all that sort of stuff. So, again, smaller manage here, tax deductible, well worth the peace of mind.
Arin: It only takes one small thing to go wrong and it blows up a big part of your investment strategy.
Damian: Absolutely. And as an investor, you want to be building your wealth. You don’t want to be worried about those little things. You want to have the peace of mind so you can focus on your job or your business, earn the income and focus on your next great quality investment.
Arin: So that’s all we’ve got time for this week, Damian. Thanks very much for joining us.
Damian: Glad I could be here, Arin.
Arin: Good to drag you away from the day to day operations of the business and get your insights on the market. Really appreciate it. Before we go, I did promise listeners that we have got some bonus information for you at the end of this podcast. If you’ve go to www.momentumwealth.com.au/podcast, there’ll be the usual summary notes and additional information, but also, we’re going to provide an article on tips to help you select a good property management company. So I recommend you go and download that and check it out.
Now, we hope you’ll join us for next week’s episode. We’ll be discussing supply and demand factors. A big topic to tackle, Damian, so we’ll get you back for that one. And we also want to look at what investors need to know when they’re looking at investment locations. So thanks again for joining us. Really appreciate your company and look forward to you joining us next week.