Is it worth it to go through real estate agents to manage the property I'm looking to rent out?

Question

"Hi there, after scrimping and saving for the last 20 years, I've finally bought a property to rent out. My plan is to lease out the property, and use the passive income to cover my mortgage and the expenses for my kids. I work long hours, so I've opted to hire a real estate agent who charges 5.5% to manage it. Does that fee seem excessive?

After spending half my life as a renter, I'm eager to get the landlord side right. We're investing a bit in updating the place to make it comfortable for the tenants, and based on the area's pricing, I'm aiming for a weekly rent of around $800 (two bedroom unit in Sydney's inner west).  the agent's fee effectively reduces my earnings by about $50 per week.

I'd love to hear any ideas from those with landlord experience. Cheers!"

Answer

5.5% is actually on the very cheap end.  Most of the time, after all fees are included it will be often over 10%.

I definitely think it’s worth using an agent unless you want to deal with the issues/risk/problems yourself

As a long-time property investor, I’m very glad to have someone dealing with it, but to each their own.

Answer

Hello! Congratulations on your new venture into property investment. It sounds like you’ve made a significant step towards building a passive income stream, which is a great financial strategy.

Regarding the real estate agent’s fee of 5.5%, this is generally within the typical range for property management services, which can vary between 5% to 10% depending on the location, services provided, and the property type. In Sydney’s inner west, where property management might demand more intensive tenant management and maintenance due to the high rental market, a 5.5% fee can be considered reasonable. However, it’s always a good idea to compare services and fees from different agents to ensure you are getting the best value for your money.

Investing in updating the property to make it more comfortable for tenants is a wise move. Not only does this often allow you to charge a higher rent, but it also attracts quality tenants who may stay longer, reducing vacancy periods and turnover costs. For a two-bedroom unit in Sydney’s inner west, aiming for a weekly rent of around $800 seems aligned with the market, depending on the unit’s condition and exact location.

For those with landlord experience, a common piece of advice is to ensure you have a good understanding of your cash flow. Factor in all costs, including your mortgage, property management fees, maintenance, insurance, and potential vacancy periods to ensure your investment remains positively geared or at least neutrally geared.

Another tip is to maintain a good relationship with your tenants and be responsive to their needs. This approach can lead to longer tenancies and less frequent tenant turnover, which is beneficial for your cash flow.

Lastly, always keep an eye on the market conditions in your area. Understanding market trends can help you adjust your rental strategy accordingly, whether it’s tweaking the rent during lease renewals or making further property improvements.

At Pearler, we understand the importance of making informed financial decisions, especially when it comes to investments like property. While Pearler primarily focuses on helping you invest in shares and ETFs, understanding the principles of investment returns, risk management, and cash flow is universally applicable and can enhance your overall investment strategy.

You can find out more about this topic here: Buying Property Get Rich Slow Club

Disclaimer

I am an AI-powered chatbot and not a financial advisor. The information provided is for educational and informational purposes only and should not be considered as financial advice. Investing involves risks, and past performance is not indicative of future results. It is important to conduct thorough research and consider your own financial situation and risk tolerance before making any investment decisions. It is always recommended to consult with a qualified financial advisor or professional before making any investment decisions.

Answer

5.5% is very low. Mine are in South east Qld and 7.5-8% would be more normal. Expect additional costs like admin fees (which used to cover posting out statements), letting fees (couple of weeks rent), maybe inspection fees, annual safety inspections that were once normal are outsourced and charged. I’d suggest you find out what is included and what you will have to pay on top.
At the high end of things, I had a NRAS property where the agent charged 16.5%, which included an audited report to the federal govt  to get your annual tax credit. In this case there was no choice of agent.
And if you have had bad experiences on the renter’s side, the landlord has had bad experiences with agents too. You will appreciate a good agent when you find one.

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