The first step in transitioning our newly-built Queensland investment property to an income-generating asset—rather than a financial liability—is to find a rent-paying tenant. But let’s not jump ahead because first it’s time to find a good property manager.
As we reside in Western Australia, managing an interstate investment property ourselves would be challenging but not impossible.
Travel costs to inspect an investment property are tax deductible once the property is income generating but not before. Once a property is tenanted, the ATO allows its owners to deduct travel costs twice per year but be careful because if you and your spouse are joint owners and travel together that’s your two trips (and if you’re thinking about making the trip into a holiday opportunity, think again: you may not be able to deduct all—or any—of your costs). It’s also worthwhile attaching a dollar amount to your time and asking yourself if that time can be spent more productively.
Then there’s Queensland law, in our case, which entitles a property owner to only four inspections per year. That number includes regular, scheduled inspections by the property manager.
To my mind, hiring a licensed property manager to manage an investment property offers another layer of risk management—an insurance of sorts—and is yet another cost of “doing business” as a property investor. We could play the role ourselves but it doesn’t seem to be a good idea apart from the cost savings, which are tax deductible anyway. Speaking of insurance, some insurance companies offering landlord insurance require the insured property be managed by a professional property manager.
In theory, even an average property manager will know the area (and rent benchmarks for that area) and may have a database of possible applicants ready to go. The property manager will advertise the property, schedule and host open for inspections, screen applicants, conduct rent inspections, and manage maintenance. We also have the option of having the property manager arrange payment of some charges, such as rates, the water connection, cleaning, landlord insurance, etc from rents collected. Of course a property manager also deals with rent collection and bond monies and can represent you at tribunal (for an additional fee) if necessary.
Importantly, a property manager offers a layer of separation between you and your tenants to avoid getting too personal and keep things business-like.
Expect to pay between 7 and 10 percent for a property manager. In our case that breaks down as commission of 5.5% of one week’s rent (including GST) plus a 2.2% management fee.
I’ve heard it suggested finding a good property manager is imperative but perhaps not the easiest thing to do. There are countless property managers for hire out there and a much smaller selection of really good ones.
Open Wealth recommended us to West Property Group (Century 21) and I spoke with Kerry West, the proprietor, who was extremely helpful and patient as we talked about everything from insurance to rent expectations to annual rent increases to pet bonds and so on. Kerry is a property investor herself and having someone representing you who understands what you’re trying to achieve is a big plus in my view.
Notably, Open Wealth include a rental guarantee with their properties, the terms of which mandate the property is to be managed through the agent they nominate.
Our success is linked with that of Open Wealth, in a way, so it’s obviously good for Open Wealth to have their client’s properties managed by good managers, with the added bonus that we receive a slightly discounted management rate. At the end of the day, this property is a turn-key investment and I’m happy to accept Open Wealth’s advice as we move from acquisition and construction to “commissioning”.
There were a few minor differences between property management norms in WA and Queensland that surprised us.
We’ve previously rented in Perth and, as tenants, had to pay the letting fee ourselves; in Queensland, the landlord pays the letting fee (of 110% of one week’s rent—inc GST).
Apparently the area attracts many families with pets. In WA, as pet owning tenants, we paid a pet bond. In Queensland it’s not legal to charge a pet bond. I’ll be writing more about pets in an upcoming post.
Given the rental guarantee, the geographic distance between Perth and Brisbane, and our lack of experience as landlords, appointing a professional property manager is the right thing do in our case, at least for now. Hopefully they earn their keep and attract a quality tenant at a good weekly rent!
I suppose a disclaimer is also worth posting: I'm just a guy, I'm not an accountant, lawyer, solicitor, tax agent, mortgage broker, banker, financial adviser, insurance agent, land developer, builder, government agent, or anything else so I disclaim your application of anything I write here is to be applied at your own risk. What I write may be incorrect and you are best to seek your own professional advice (tax, legal, financial, and otherwise) before entering into contracts or spending your money. Your situation is unique to you and what I write here reflects my experience only. This content is not professional advice and is not tailored to your situation. I'm learning too and expect to make many, many mistakes along the way.
Enjoy,
Michael
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