For Landlords with less than five properties, rental income is usually not enough for financial independence. Plus, if you have a day job, managing both is tricky, so a management company makes sense.
Letting fees may be high, but could offset potential compliance omissions, resulting in Rent Repayment Orders. Deposit insurance errors or property licensing can mean 12 months of rent repayment to tenants, wiping out any self-managing savings in the period.
For landlords with property portfolios of 10+ properties, management is usually a full-time occupation. To reach economies of scale (large enough asset base to cover fixed costs) the portfolio should comprise of 20+ properties. This means you can hire an in-house dedicated property management team. Benefits include control of service offered to tenants and know-how of these specific assets. This allows the landlord to focus on growing the portfolio – sourcing investment opportunities, acquisition and financing strategies. Other activities like renovation and conversion add value. However, the landlord must monitor the team and address people management issues.
Landlords who value flexibility, as well as international landlords with larger property portfolios still prefer to fully outsource property management. Yes, the fees are higher, but there’s flexibility if you want to change property managers, without the hassle of managing internal operations teams and related admin work.
During Covid19, with reduced rents and vacant properties, many landlords turned to self-managing to save on fees. Many smaller landlords believe property management is easy. But there’s finding the right tenants, referencing, credit and affordability checks, deposit schemes, inventory, check in reports. Not to mention licensing regulation, EICR, gas safety and Assured Shorthold Tenancy agreements. As your portfolio grows, keeping track of everything becomes harder and harder. Mistakes could prove costly.
Renting regulation and compliance procedures change all the time and the landlord is legally required to adhere to them. So, whether self-managing or outsourcing, you need a system that ensures these are followed.
Full time landlords should focus more on growing their portfolios and optimising their capital structure. These have a larger impact on their bottom line and long-term profitability. As long as the rent is collected and costs are streamlined, the existing portfolio needs less attention.
What’s a good property management system? One that puts landlords in control, with no distractions, as the day to day is taken care of. So, they can focus on maximising returns on their capital investment.