The 4 biggest and most expensive mistakes property investors make

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Mistake 01.

They are persuaded by unachievable high market rental price promises.

Some agencies tell you they can get you a rental price that sounds amazing and it would be amazing if if it was achievable. But usually, these inflated price promises end up costing you longer vacancy, lower returns and just make the whole thing more stressful.

A good agency will only promise what’s achievable. You’ll know because they can back up their recommendation. They can show you comparable properties that are achieving a similar price. If the price sounds too good to be true, it probably is.

Case in point

First time investor loses almost $2000

A first time investor was shopping around for a property manager to look after their property.
Our recommended market rental price range was $580-600 per week, another agency promised they could get achieve a rental price of $640 per week. The first time investor chose the agency based on this.
The property was vacant for 3 weeks because the price was not achievable. They reduced the rent to $600 and got a tenant. As a result the investor was $1,800 out of pocket.

Mistake 02.

They don’t know what they should be getting for their property management fee.

There is actually a lot of work that goes into looking after an investment property. Both from a compliance perspective and to ensure that the asset retains its value. If you have handed the management over to an agency you don’t need to know all of the ins and outs. However as with any good business practice, you need to make sure that you are getting what you pay for.

Most agencies commit to do all the necessary things, but are they really? Have you checked?

We’ve seen agencies:  

  • not pay bills on time, resulting in penalty fees for the owner
  • miss the annual review or not recommend increasing the rent when the market can tolerate it
  • skip routine inspections leading to significant unattended maintenance issues that have had a large financial impact for the owner
  • be complacent with their maintenance supplier management. Quotes are overpriced, and works are substandard which has meant higher costs for the owner
  • that have minimal understanding of what’s happening in the industry. They don’t update their owners on pending legislative changes that may have an impact on their property returns and value

Case in point

The overseas landlord has an unpleasant homecoming

A landlord was living overseas and returned to live in their property.
The property manager didn't make them aware of changes to notice periods. The change meant they had to provide 8 weeks notice to their tenant to move back in rather than 4 weeks.
They had to find temporary accommodation that cost them $2,800. When they moved back in they discovered that there was an unreported water leak in the bathroom which cost them $14,000. Their insurance didn't cover it because their policy had lapsed and they weren't informed.

Mistake 03.

They or their property manager don’t understand the impact great tenants make on their returns.

It's not always obvious how much of a difference having great tenants make. That’s generally because the better the tenant, the less you have to get involved, and there is generally no unexpected financial impact. Great tenants look after your property, they pay their rent on time, they report maintenance issues before they cost you an arm and a leg. All in all, great tenants do the right thing.

Great tenants tend to stay put for longer, because your investment is their home and they treat it that way. Not so great tenants on the other hand do the opposite and worse. They often end up costing you money, time and stress.

Not only do some agencies not vet the tenants thoroughly, but they also don’t treat tenants as their clients. Tenants have a choice to stay in your property, and they may choose to leave if their property manager doesn’t look after them. A good property manager will educate your tenants on how to look after your property.

Case in point

The unhappy tenant costs the landlord in the long run

A tenant moved into an older property and had consistent issues with maintenance.
The property manager rarely returned their calls or emails. When they did speak the property manager didn't attempt to resolve the issues and was unpleasant to deal with.
At the end of the 12 month tenancy because of the issues the tenant decided to vacate the property. The owner incurred reletting fees to replace the tenant after just 12 months. The tenant also took the property manager to tribunal seeking compensation. The tenant won the case and the agency passed the costs onto the owner.

Mistake 04.

They don’t factor in the management and costs of inevitable maintenance issues.

Some agencies don’t help you to understand that there are inevitable maintenance costs that you should take into consideration when you are a property investor. Some don’t even tell you at all.

Most agencies don’t provide preventative maintenance advice and reports that help you to avoid big ticket costs in the future by making sure property maintenance is attended to on a regular basis.

A good property manager will advise on the likely maintenance costs of having an investment property, and even advise how much you should be allowing for this on an annual basis. They will have dedicated resources looking at how you can proactively manage the maintenance, while educating tenants on how to monitor and report on any issues they may see in the property.

Last but not least, there are a lot of agencies that don’t manage their trades effectively. What that means for you is they could have trades on their panel who become complacent and not only overcharge, but the quality of works is poor. You end up paying a lot more, for a lot less.

Case in point

The minor maintenance issue compounds and ends up costing thousands

The tenant noticed a small leak in the ensuite but it wasn't impacting the use of the bathroom and seemed insignificant so they didn't report it.
The shower base sealing had been leaking for the last 2 years. The leak had infiltrated the main bedroom floors and walls. The tenant identified a mouldy smell but it had been there since the start of their tenancy and the tenant couldn't see any physical damage.
The landlord had to repair not only shower base but internal walls, insulation, carpet and some framing due to rot. The landlord had to also cover temporary accommodation costs for the tenant as mould was present and the property was considered uninhabitable. Insurance covered some of the clean up but the landlord ended up having to pay $10,000 to fix the initial problem.

Are these mistakes sounding familiar?

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