Friday, September 19, 2014

The New Property Management Investor Food Chain

We are seeing a growing trend in the property management market at the moment and unfortunately, it is the consumer that is often being eaten up and will ultimately be paying the price. 

The average size of an agent's property management business has grown from 375 in 2009 to 508 in 2014, which is an increase of 35%. New agencies are jumping on the investing bandwagon and through the use of specialised banks are obtaining the relevant funding for acquisition of rental businesses. This is making it easier than ever to acquire, yet these businesses are harder than ever to run!

This latest trend has created two distinct types of agencies in the market. 

'Size matters' agencies are borrowing big to buy rent rolls and are 100% focused on obtaining mass numbers of rental managements in the market. These agents are new entrants, who want size, quick.  

Then there are those that can best be described as the 'sandwich board agent'. These are opportunistic real estate agents who are advertising unsustainable low fees on sandwich boards, billboards and even neon signs. These agents are emerging across the country taking advantage of the 'size matters' agencies, who are buying up big (and paying top dollar). They are proactively drawing in clients with incredibly low fees to list quickly, ready to be packaged up for sale. It is made to look very attractive to investors, who are unaware of the actual game plan.

Dan Evans, national head of real estate in Macquarie's business banking division, has said in an interview with the Residential Property Manager online, that "the growing importance of property management to agencies is leading to greater demand for these  properties, causing downward pressure on management commission rates as agencies compete for business". What has failed to be mentioned is that many of these real estate businesses are being forced into taking short cuts, reducing the quality of management. 

The piece of the puzzle that isn't obvious to investors is that the emerging 'sandwich board' agencies are looking purely at the capital sale of those investors managements. There is no sustainability in the 'managements' but the resale is very lucrative indeed.  

With 30 years' experience in residential real estate, we have seen trends and fads come and go. So what does this one mean for the consumer?

Tread carefully.

A standard clause of Residential Management Agreements is 'Assignment'. This provides the agency with the ability to assign their interest to another party in the event of the sale of the rent roll, liquidation, etc. Should a client not wish to go with the new agent, standard restrictions on termination applies, such as a minimum notification period or termination fees.

With the lowest vacancy rates in the country, currently at 1.65%, Adelaide's rental market is holding strong. Investing in residential property is becoming more and more popular, and ensuring this is done correctly, is increasingly important. 
When looking at your agent, longevity is key to survival.

Suzannah Toop

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