When buying a residential property as an investment, buy-to-let investors are faced with the choice of managing the property by themselves or engaging the services of an estate agent.
PayProp CEO, Louw Liebenberg, says that while both choices have merit, each comes with relative risks and benefits.
“Investors sometimes underestimate the amount of time and skill required to successfully manage a rental property; from repairing fallen curtain rods to managing electricity usage and collecting rent, it’s a time-consuming, sometimes menial and often frustrating task,” says Liebenberg.
Liebenberg compares the differences between managing an investment property yourself and appointing an agent.
Option 1: Managing your own property
- Immediately you’re pleased that you’re ultimately saving 10% in management fees. Or at least that is what you think. Remember that your agent also pays costs like bank fees on your behalf, so be sure that you take these into account when tallying the numbers.
- You like to feel like you have control of your property and maintain it to a standard at which you’re comfortable. Unfortunately, this also means taking the inevitable 2am burst geyser phone call.
- Landlords are often concerned about the safety of their money, specifically with the reported incidence of deposit theft in recent years. Some owners believe that their money is safer if they keep it themselves. Keep in mind that the Rental Housing Amendment Act has now put the onus on the landlord to show the tenant where the deposit money is.
Option 2: Using an agent to manage your property
- Many owners end up using estate agents because they don’t want to have to deal with tenants when they don’t pay or when things go wrong. An experienced estate agent will have managed hundreds of these cases before, and will be able to manage the challenges much easier than the owner.
- Estate agents are monitored by the Estate Agency Affairs Board, so you know that they have to have proper systems when it comes to financial management and legal compliance. Owners don’t always have the time or appetite for the legal ins and outs.
- When things go wrong it is good to have access to someone that knows what to do next. Owners trying to evict tenants without legal and professional assistance can ultimately aid the tenant’s case at the Rental Tribunal, because they have not adhered to the legal requirements. The cost of getting it wrong can be high.
Estate agencies will be able to offer you ‘introduction only mandate’ or ‘managed mandate’ options, says Liebenberg.
Introduction only mandates mean that the agency will only source the tenant, and you manage the property by yourself. The managed mandate means that they take full responsibility for managing your property. Be sure that you know which option works for you upfront.
Liebenberg says that recent changes in legislation have made it increasingly difficult for private landlords to do what is fast becoming a highly specialised job.
“Our advice is that, unless you really know what you’re doing, you opt for an estate agency to manage your rental property and take the hassle out of your investment. After all, it is a ‘passive income’.”