[Eight Reasons] WHEN you should SAY NO to a Rental Property

Thursday, November 16, 2023

Property Management is hard enough…so why would we want to MAKE IT HARDER for ourselves?

One of the biggest GROWTH mistakes we see property managers and BDM’s make when signing up a new business is not having a CRITERIA of when to say NO.

When we take on a property that will cause us issues and extra difficulties, later on, we end up with a TOXIC portfolio, NOT FIT for human habitation!

It’s like a ‘slow poison’. Taking on a few wrong properties you may be OK, but after a while that 10%-20% of bad properties give you 80% of your difficulties and issues.

The job of property management gets too hard with high staff turnover, ‘off the chart’ stress levels, and basically, a business where people just don’t want to work in it.

So instead of saying YES to ‘anything with a roof and front door, here are some criteria that you can use to select what properties you need to avoid should you want to grow a healthy and profitable portfolio.

#1- What’s your minimum rent before you say ‘no’?

Just because you may sign up for ‘full fees’ means the business will still be unprofitable or under ‘break even’ if the rent is too low. You may end up managing property for a third of the total fee income you could be getting with an ‘average rent’ property.

What’s your average rent for your portfolio? Don’t sign up for anything less than your average rent amount.

If you feel you need to sign up a lower rent property, then adjust your management fee % to ensure you get the management fee income you would get on an ‘average rent’ property.

Also remember that the lower in rent you go, the more difficulty the tenancy dynamics may get for you.

If you feel you need to sign up a lower rent property, then adjust your management fee % to ensure you get the management fee income you would get on an ‘average rent’ property.

Also remember that the lower in rent you go, the more difficulty the tenancy dynamics may get for you.

#2- Get full fees and know your fee income target (per property).

This is an easy one to get. Get the rent amount right (see criteria #1) and then get your full fees and if you’ve done your sums right you should then be signing up a profitable property.

What’s the fee income you need to earn from each property per year? Is it $1500, $2000, or $3000 per year? Make sure your fee structure delivers the fee income you need to achieve, on a per property basis.

If you’re under pressure from discounting, get good with effective points of difference and overcoming fee objections instead of relenting and dropping your fees.

With the right guidance, you shouldn’t need to do this NO MATTER how aggressive competitors are with discounting. It’s all in knowing what to say and how to say it.

#3- Don’t drive more than 30 minutes from the office.

When you take on too many long-distance properties you’ll end up working ‘part time’ sitting in a car travelling, and then part-time managing property.

That makes for a stressful role not being able to give your portfolio a full-time focus.

A good guide is don’t take property further than 30 minutes drive from the office.

#4- Don’t take on a property in ‘bad areas’.

USA readers- please ignore this one because this will breach your discrimination laws.

However, for everyone else outside the USA taking on property in low-socio areas, this means less income (because it’s low rent areas) and you SUBSTANTIALLY increase the property management difficulty factor too.

If you want stress in your life, then say ‘yes’ to these properties.

And if your office is located in an area surrounded by these types of properties, you’ll just need to be selective on what you take on. Choose better management for you, and leave the real difficult ones alone (or even better, let your competitors manage them).

#5- Don’t take on WRONG property types.

There are certain types of property that attract a certain tenant type. What we call in Australia ‘flats and units’ are usually low rent anyway and can attract a more difficult tenant. A former government property can still attract a low-socio tenant and it’s just harder to attract good tenants.

If a good tenant doesn’t want to live there and they are hard to attract, then avoid that property type.

#6- Don’t take on a property in a LOW state of repair.

Do I need to explain this one in the day and age of litigation and risk?

Besides, a good tenant doesn’t want to live in a property that’s not well maintained!

#7- Furniture is the ‘F’ Word!

That’s right. If you’re doing short-term or student accommodation or you’re looking after holiday rentals than this criteria and reason to say ‘no’ doesn’t apply to you.

Otherwise having furniture, (and crockery, cutlery, plates etc) and in a traditional suburban rental property completely limits your good tenant supply, increasing the difficulty and time taken at inspections and just causes problems.

Payouts by the company are also higher with items going missing and getting damaged, and difficult owners not wanting to pay to replace items.

Also, you have the added difficulty of a tenant that’s not respecting other people’s property too.

It’s best to keep your properties unfurnished.

#8- Avoid C-Class Owners.

Typically a C-Class Owner fulfils 50% or more of these characteristics-

  • ​They are unreasonable and over-demanding.
  • ​They take up a lot of your time.
  • ​They want above-market rents.
  • ​They want to have discounts or complain about your fees.
  • ​They place little to no money into their property for repairs and upkeep.
  • ​They have a low rent property (which means low fee income for your agency).
  • ​They generally have a ‘crap’ property that attracts a ‘crap’ tenant.

These owner types WILL likely ‘blow out’ your time.

In training sessions with PM teams, we regularly do a time study on these types of properties.

Here’s what we look at. If a tenant moves in and out in the same year, with leasing, inspections, repairs, chasing late rent, lease renewal, and vacating it usually comes out at around 20 hours of work and staff time.

However, if you add the ‘C-Class Owner’ property to this, then your time can also blow out to double.

And when you’re likely to have a low rent property too then you could be earning half to a third less in fee income, than an average property on a per hour basis.

Adding the double-time it takes to manage it you end up earning far less than what your expenses are simply to maintain the management.

You’re bleeding money with these types of owners and properties. It’s best to say ‘no’ to these where you can.

All these EIGHT reasons will help you steer through the maze of property management.

John West, the popular ‘seafood’ company, says in its branding "It’s what John West rejects that makes them the best."

Be smart. Be like John West!

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