Welcome to Our Series - 'The Path to Managing Your Own Rental Property'.

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Session 1

This session in our series is all about the opportunity and why self-managing your own rental property is beneficial, how you can deliver higher returns and get more out of your investment property and why we think this is really-really great thing for you to look into!

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One of the luxuries that we have as a business is that we actually deal with thousands of self-managing landlords and it gives us great pleasure to take the things that we've learned over time and bring them back to a greater community of people who can leverage those experiences and opportunities and actually apply them to their own personal situations.

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If you were to look at reviews on Google I think you'll find that number one, we're lucky that we've got a pretty large loyal base of customers who have positive things to say about RentBetter but you'll also see pretty consistent themes amongst those people who are self-managing their properties- you'll hear lots of people say things like "I didn't realise it would be this easy".

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If you're an individual who's thinking about managing your own rental property or if you're already doing it, it's not as if you're sitting there in isolation. What we really want you to recognise is that there are plenty of others doing it and we're able to take all the best methods and bring it to you right here through RentBetter.

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RentBetter CEO, Jeremy has been been managing his own properties for about 15 years now and he says it was born out of an original experience in which he was looking at his own management agreement and thought "I think that I personally can do a better job - I care more about my property, I care more about the income and the return, and with a little bit of research and a little bit of effort I believe that I can actually manage my own property and save myself some money".

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So, wherever you are in your journey, whether it's your first property that you're considering purchasing or whether you own a bunch of properties and you're a property mogul with a huge portfolio, we think that if return on investment if cash flow from your property and from your investment is important to you and if getting more out of your investment is important to you then RentBetter should be important to you!

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The Stats - How Many People Self-Manage?

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To understand a little bit more on the size of this market we take a look at the 2017 numbers produced by the Australian Tax Office.

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They did a deep dive into rental income and those who are claiming rental income on their tax returns and if you do a bit of analysis on their numbers, it says about 27% of the market are actually self-managing without an agent.

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If you look forward a few years forward to 2020, REA or realestate.com.au actually ran a survey that concluded approximately 33% of the market is actually self-managing their rental properties.

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Now that is huge! Not only is that suggesting that a third of the market's already doing it themselves, but if you just look at the jump or the shift over time and the annual growth rate or the compound annual growth rate attached to it, it's around of 7% year on year.

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This would then suggest if you forecast it forward at that same rate, then at the tail end of this decade about half the market is likely to be self-managing their property.

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To hit on another point, as much as what we're doing is innovative, new and creative here, there is also an element of people that have doing it themselves whole time and it's now only growing. There's about two million landlords in this country with about three million rental properties, so a third of them doing it themselves is a pretty big number which is exciting!

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What are the drivers for the behaviour shift?

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What are the drivers for this shift in behaviour and why are people or more people jumping on the bandwagon of self-management?

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We think there's probably two really significant and major contributing factors. The first is technology and a general trend and a shift in consumer behaviour and the second is trust.

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The shift in Technology and Consumer Behaviour

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Not only is technology making advances and enabling a lot more capability, functions and features - things that we used to probably have to do manually are now more easily achievable in an automated way.

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If you look at consumer trends like Airbnb or an Uber for example, many years ago people thought it was absolutely crazy that you would go and order an unknown car with a stranger in it to come and pick you up or instead of booking a hotel, that you would go and stay in a stranger's place in a foreign country. But, you can see that over time, the customer experience was positive and the ability to save money doing it was quite appealing and so it actually became quite a natural part of everybody's life.

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Looking at this curve of innovation and the time frames some of these platforms we believe (and see) that the exact same thing is happening when it comes to property management.

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Trust of Real Estate Agents and Property Managers

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The second contributing factor to this, and perhaps this is had a much larger impact is trust for Real Estate Agents. We thought back on many conversations Jeremy and the team have had over the years where someone is telling a story about an experience with a property manager or agent where perhaps, it wasn't a great outcome for them.

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In general we see that trust has become a bit of an issue over the years and we're going to lean on Philip Kotler for this next bit who's a marketing professor and he's come up with a great concept called the Price Value Matrix. ‍

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What he did is plot if you're going to pay for a product or a service, you're going to pay towards the lower end of the low price or the higher end of high price. But when you pay that price, there's a value you derive from it, so you either get a low value or a high value.

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If you're paying a higher price and you're deliberate in deriving a high value then you're in this premium segment. Where you think of things like Gucci or Tesla, you know you're willing to pay more and you're getting more out of it.

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If you're paying a low price and getting low value then it's an economical solution - something like Jetstar, where obviously you can pay the premium for the alternative Qantas but you can get a low price and low value you know what you're getting and you're therefore comfortable paying less for it.

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These two boxes are where it starts to become a little bit tricky so if we look at where you're getting a high value but paying a low price, arguably that's what everyone wants and that's where you find an absolute winner.

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We would look at the Airbnb and Ubers of the world as fitting into this quadrant because you're getting the thing that you used to get for a premium at a lower price and you're really thrilled with it and they have just taken off.

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When you're in low value and you're paying a high price it's really not where you want to be and people automatically start to think “well you know this is a rip-off right?” because you're paying for something and not getting what you want back in return.

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We think that this is the starting point for trust issues with Real Estate Agents because it's at this point where we feel like we're paying too much for the service but not getting what we want out of it and start to question the provider.

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I guess for all of you out there the first question to ask yourself is - where do you want to be in this matrix and where are you today? and, if you're not in the right quadrant or you're not in the right spot, what action can you take to do something about it? 

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The second part which contributes to trust is the perception of different industries and different professions. Roy Morgan, who many people might know run fairly large broad-based surveys of different consumer behaviours and thoughts over time. One of the things that they do is run the 'images of professions 'survey or the 'perceptions of different professions' survey and the higher the score, the greater the level of trust.

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In a recent survey we saw that nurses and doctors score really highly, people really trust and like them. Teachers naturally also scored in terms of helping the future of our society grow and develop. Police also tend to get high results in Australia and perhaps this is a little different to other countries but we're pretty respectful and supportive of police in a general sense. In terms of Politicians, you start to see them score towards the lower rank and when you get to the bottom two you see ‘car sales person’ and real estate agents and property managers sit right in above them.

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In over 20 years that this survey has been run, real estate agents have not really come off bottom or second bottom spot. So not only do we see that there's a driver for the trust imbalance but you see that it bears out in survey results and we think that's really important.

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So what's the Conclusion?

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If you're feeling that either of those above two things are a pain point for you then you've got to do something about it and what we want to talk about now is the opportunity for you what it really means if we say to do something about it and start to consider self-managing your property? 

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The Analysis and Cost Breakdown

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We turn to the A.T.O or the Australian Tax Office data next to deep dive into rental income and rental properties. We've used percentages here because it's a lot easier to understand rather than absolute numbers so if you were to think about what you spent on your investment property in the last 12 months, you might like to apply these percentages.

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We'll first look at the biggest category and this is what we'd call 'uncontrollable expenses'. This is going to be the bank costs or the borrowing costs so that's the interest that you're paying on your mortgage or on the funding that you've received in order to buy your property.

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This comes in at about 40-45% on average and truthfully there isn't a lot you can do about it. You can obviously go and pay cash for your property and buy it outright but most people will have some sort of mortgage or loan against their property and this cost is just a very big part of what it costs to buy a property.

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The second category which is at 15% is either your body corporate fees or your land tax fees. So depending if you've got a freestanding or strata property you're going to pay those. Yes, there's probably ways around the edges to minimise body corporate fees sometimes but in terms of land tax you're always going to pay it and so again an uncontrollable fee, it's just there and part of the cost of ownership.

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You could perhaps get some other tax advantages from depreciation or from capital expenditure and depending on your property and its stage in the life cycle, that's going to be either higher or lower but again we would sort of see that as a fixed cost that's not that controllable. So now you're already up at about the 75% mark of your expenses that are not really controllable.

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You're going to see council rates come in at about 3%, and you've got to pay those rates so they're not really controllable either. Insurance once again, some people might say well “I can negotiate”, “I can get a better deal”, “I don't even think I need landlord insurance”. We would disagree respectfully and think landlord insurance is a really important part of protecting yourself and your property.

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You've spent all this money on your investment to make sure that you've got a future nest egg, insuring and protecting it against certain events is a really worthwhile expense.

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You'll now see we're at almost 80% here with not a whole lot you can do. When it comes to water and rates this is the first one that has a foot in both the controllable and uncontrollable categories. Some landlords, and depending on your metering and the actual setup of the property, are able to pass on that utilities cost. In some parts of the country it's more common to do that than others so potentially there's a 3% in water rates that you could pass on the cost of but it still most likely sits in that fixed expense base.

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So, now we've got ourselves up to about 83% of expenses that are 'uncontrollable' or 'fixed cost'.

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‍The next part accounts for around 17% and this is the part where you're able to see some opportunity and benefits in terms of controllable expenses.

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Controllable Costs & Opportunity

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We'll start with talking about advertising and we hear this question all the time “what is the actual rack rate for advertising?”, “what's the standard costs?”, “why am I being charged this, why am I being charged that?”.

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Sometimes the fees that you're paying through a third party can be more expensive than what the actual costs are but there's a way to minimise and reduce that cost so there's an opportunity here on that 2% and advertising the property if you keep your tenant for longer, you obviously reduce that cost even further so that's a really important part of this analysis.

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The second part is agent or management fees, and the number here is around 8%. Depending on where you are in the country that fee may be as low as 5% or as high as 10%. It typically relates to the actual rental amount so in some of the eastern states where rental prices are quite high, that percentage tends to come down a little bit because the absolute number that you're paying is going to be a little bit lower when rent is high.

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When you're on the perhaps the west cost of Australia or in parts of Queensland and even South Australia you do start to see that rate go up quite a bit because the actual average rental price tends to be a bit lower so when you multiply that out the absolute number or the cost of a property manager needs to be set somewhat similar and so therefore if rent is lower, the rate that you're going to pay is going to be higher.

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So again, across the country this amount to be from 5 to 10% and that in itself is just a huge chunk. It's the thing that you always hear people say well “I’m paying a high price I’m not sure what my value is that I’m getting in return” so there's a real opportunity there on 8% of the expense space.

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The next one is repairs and maintenance and this comes out to about 7%. When you're managing your property it's not to say that there is no need for repairs and maintenance there will always be a need for it. Depending on how old the property is or where it's at that's going to change a little bit but we definitely see amongst our customer base and those that we speak to that they'll report that they need maybe one or two repairs and maintenance events a year and they tend to be quite small because they're essentially just maintaining the property.

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What we often hear on the other side when speak to agency groups or property managers they'll typically come in at five to six maintenance events a year and it becomes a questionable expense at 7% so there is an opportunity not to neglect the property, not to avoid things that need to be done but just to control that expense on how much is paid and how frequently and in the way that it's done.

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So when you look at the three of these together that's 17% of your expense base. If someone you knew who has an investment came out and said that they could improve their returns by reducing their expense base by 17% , you would most certainly say to them that it's absolutely worth looking at.

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Depending on your circumstance, this can amount to a few thousand dollars a year in savings if you look at it over the course of the lifetime of the investment - it's really meaningful and in fact, if you've got multiple properties it's even more meaningful!

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In terms of the opportunity here about saving money we're really diving into these areas and what we're going to start to talk about in the next session is not just why this is important, not just the fact this is a real opportunity and a benefit for you but we're actually going to get into 'what does it mean to do these things right?' and what are the steps involved? and then, further down the track we can get into how to actually do them. 

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The next session in our series will be focused on what are the steps involved. There are five steps that we'll focus on but for now thank you for joining us and if you've got questions or comments then feel free to email us at info@rentbetter.com.au.

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If you'd like a deep dive into the video for this session with RentBetter CEO Jeremy, take a look below:

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