Lets put aside the fact that New Zealand today has a Prime Minister who didn't get the majority of votes. Lets concentrate on the promise by the Labour Party to abolish letting fees for tenants.
Letting fee earnings are over 11% of our annual commission.
It represents an amount that is over 50% of our
profit. Looking at our profit, while
comfortably a profit rather than a loss, isn’t sufficient to make me independently, stupendously, wealthy, which is what I’d hoped for from a business I dedicate so much of my time and energy to. It's a dream many business owners have, but few achieve.
Without letting fees, it would not be worth doing
this work. The work is very
complex. We are expected to be lawyers,
mediators, accountants, project managers, encyclopaedia of knowledge,
tradespeople, valuers, diplomats, forensic inspectors, hostage negotiators,
safety experts, cleaners, researchers, parents,politicians, teachers, administrators, drug
experts, orators, tour guides, HR managers, psychologists, detectives, social hostesses, and
more. And that is just doing the
job. Not to mention everything that
comes with running the business, such as staffing and their needs, sales,
training, payroll, taxation, keeping up with the ever changing legislation
and increasing expectations of tenants and landlords and tradespeople.
The job also has inherent risks, from traffic
accidents while showing properties and carrying out maintenance inspections, catching communicable diseases (one of my team contracted
scabies every 3 months. We worked out it
was from a property she was inspecting. She wore gloves there ever after), inhaling mould spores and pet dander, unwitting
exposure to drugs, allergic reactions to
chemicals in homes (and in one case in our team, an asthma attack from a room
full of party balloons), verbal abuse, violence, and fortunately rare but even more serious, kidnapping, rape and murder.
Now I’ve spelt it out, I’m wondering why I do this
at all. We are certainly not getting
paid enough.
If tenants are to get better quality housing, they
need better quality people managing that housing. ‘Ma & Pa’ investors are rightfully scared
to manage their own properties with the risks landlords face, and many tenants
tell me they prefer the experience of working with a property manager, as we
give a much higher standard of service and professionalism.
To get good people we need to offer a suitable level of remuneration. If budgets are tight, that is very hard to
do.
Most landlords are not ‘well off’, let alone
high-net-worth-individuals. Most are
average Kiwis. That means that a lot of our clients are not earning as much money as a lot of tenants. Most can barely afford to
cover basic maintenance, let alone rising property management costs they would
need to absorb if letting fees were abolished. We’d rather they invest in repairs and
maintenance of their properties, as everyone wins, particularly tenants, when
properties are well maintained. Only the
wealthiest of our clients would be able to cope if we passed letting fees onto
them. I recently announced a modest fee
increase to my client base to reflect the value we provide and to cover the
increasing costs of providing this service.
Several have had to make other property management arrangements, not
because they were unhappy, but because they would be making a loss on their
investment, and would have to get lower quality service as that is what they
could afford. Margins are very
tight. For these landlords, they couldn’t
cope if they had a major issue at their property, such as it being contaminated
by methamphetamine. The financial
burden, plus the stress, would be the end of their self-funded-retirement
plan.
We need more people in New Zealand to invest for
their retirement rather than rely on the state.
Penalising property investors even more is creating more people without a
strong asset and cashflow base to support themselves in their old age.
A great way for tenants to avoid paying letting
fees is to be a long term tenant, or if it is viable and appealing for them,
purchase their own home. We prefer long
term tenants as we like the satisfaction of providing good people with stable
housing. We like dealing with people we
know and have a long history of trust with.
I’ve just had a tenant move out who had been living in my property for
14 years. I am not known for
sentimentality , but I almost wept at the final inspection. He had been an excellent tenant and human
being, and I am searching for someone new who can also develop a good relationship
with us.
When we have long term tenants there are
significantly less costs to the business. There is less work to do, and less stress for
us when properties are occupied by the same people long term. I could cope with lower profits as I’d work a
lot less hours. Our letting fees don’t
begin to cover our actual costs in putting a new tenant into a property. If collecting the letting fees was a primary
driver for us we would not offer over 97% of our tenants lease renewals every
year. If profiting from those fees was a
primary concern we would not spend as long as we do agonising over whether the
tenant and property were the right fit for each other. We would not spend as long with them ensuring
they understand the lease agreement, doing an initial inspection with them
alongside us, getting the property in great condition for them to move into,
answering all their questions about the process and their new home, giving good
service, and generally giving a damn.
And we would have greater tenant churn because we would be terrible,
non-caring, property managers. Like I said, collecting a letting fee isn't worth the time it takes to let a property properly. It merely defrays some of the costs.
A great
year for me would by zero changes in tenants as everyone was happy with us, and
we were happy with them. So in that
sense, yes, I’d be happy with no letting fees. If you can achieve happiness and satisfaction with ones current abode, Labour Party, bring it on. Not sure how to achieve that in a way that doesn't seem a bit 'Orwellian 1984', but hey, I am not a full time politician, I have plenty of other roles to fill today.
