Daily Archives: October 30, 2019

What are the Risks of a Self-Managed Property?

When determining whether or not to self-manage a property, weighing the pros and cons is vital. You may be ready to own and manage a property or you’re simply thinking about it – either way, knowing the risks involved is a good place to start. One of the major reasons why landlords choose to go with property managers is because of their expertise and connections.

As a landlord choosing to self-manage, the onus is on you. From finding tenants to making sure that all legal obligations are followed, the ball is in your court.

Landlords who hire a property manager, while being informed of issues, don’t have to single handedly manage situations. That is why, when deciding to self-manage or not, it’s important to calculate the risks involved.

Here are the top 5 risks of self-managing a property:

Sourcing tenants

Professional property managers are afforded access to databases which sees them able to look at a large pool of tenants. On top of that, property managers have access to thorough screening means, which can weed out applicants that are simply not suitable for the property right off the bat.

While a private landlord can place ads in the local newspaper and online, the prospective pool of tenants is smaller, therefore the potential to find the right tenant is also smaller.

Placing the right tenants

Many tenants who look for private ads that don’t involve a real estate agent generally don’t have the best rental history. Because these prospective tenants understand the rental process, they opt for private listings to avoid background checks that could turn up unsavoury information.

As most private landlords are not privy to the same information as property managers, they have to take applicants on their word because they usually cannot access information that may prove otherwise.

Additionally, with private landlords, in most cases self-managing a property won’t be their only job. As such, they simply do not have the time to comb through references and applications checking for inconsistencies or information that turns up red flags.

Without access to the most accurate information, private landlords are forced to make decisions based on instinct, and this can prove costly down the track if the wrong tenants are chosen and the rent goes unpaid or the condition of the property drastically decreases.

Insufficient documentation

A private landlord might forgo formalities in favour of keeping the relationship between themselves and their tenant friendly. Because the landlord will be managing the property, they feel the need to keep their contact with all tenants friendly to avoid any awkwardness over power dynamics.

As such, this blurring of the boundaries between tenant / landlord / friends results in private landlords either not using a legally enforceable contract or using an incorrect lease document because of inexperience.

When a landlord feels that they can trust the tenant, things fall through the cracks and documents such as inventory lists or sign-out sheets for keys are often left untouched. While this may not seem like an issue in the beginning, if something was to go wrong, the landlord has no one to blame but themselves for not protecting themselves with the right documentation.

Failing to protect your asset and its income

Knowing the laws is one aspect of protecting your asset, while taking thorough written condition reports as well as lots of photos is another way to protect both the asset and its income.

By taking steps to ensure that the property is in good working condition, as well as documenting both visually and verbally what the property looked like before the tenant moved in, the risk of disputes down the line lessens.

Most private landlords however do not go to this extent, and some even forego their right to inspect the property. Thus, in the event of damage it will be the landlord’s responsibility to cover the associated expenses because there is no proof that the tenants didn’t inherit the damage when they moved in.

Higher than expected expenses

Buying the right property in the right location will determine how profitable the investment will be. It is important to remember that as an investor, you aren’t buying the home of your dreams. That being said, you still need to purchase a property that people will want to live in.

Buying an investment property that is dilapidated but in a good area will have you spending exorbitant amounts on maintenance and upgrades in order to make the house livable. This is a risk because, after spending all of that money on an upgrade, a tenant may not fall in love with the property until months down the track, as one example. Then you are in a situation where the investment property is actually costing you money rather than being a money earner.

In this scenario, a property manager could have been of assistance by advising on properties and locations to buy in, as well as devising a prospective expenses document so that there were no surprises when the renovations bill arrived.

Questions to ask at an open home inspection

Buying a home can seem like a difficult task, especially if you’re a first-time buyer. This is when a real estate agent can be of invaluable help to provide you with intricate details about the home itself and the current property market. If you’re on the search for a new home, here are four essential questions to ask a real estate agent at an open home inspection.

What is the value of the home?

You might know the price of the property but finding out the value can help you to determine if it’s priced fairly. Ask the agent about the value and whether that figure is based on an agent’s appraisal or an independent property valuation.

If a formal valuation hasn’t been conducted, consider getting one from a professional.

Why are the owners selling?

Asking why the owners are selling is helpful. For example, if they’ve already purchased another house, chances are they want to sell their former one quickly. You could also ask how long the property has been on the market and if there have been any price reductions. If the home has been listed for a while, you might have the opportunity to submit a lower offer.

Do you know of any future developments in the area?

Developments might affect your decision to buy a residential property. If you’re an investor, new developments could be a bonus to your rental property. More great amenities, such as shopping centers, can lead to more interest in your home from renters. We buy houses Apopka