The Benefits Of On-site Management
The Benefits Of On-site Management
April 7, 2018Admin Team

A case study on the benefits off on-site management versus off-site management, and the value adding services to investors within the Brisbane rental market.

Preface
The purpose of this article is to address the benefits of on-site management of residential letting complexes.
On-site management is often quoted as being a more effective way of leasing and managing investment units, however there is no empirical evidence to confirm this. With the benefit of some complexes we are familiar with, we provide you with the following discussion.From our experience in valuing such complexes we have seen our fair share, and we have been able to develop a sample which can provide a worthy analysis of “on-site” versus “off-site” management.This discussion will focus on the investment of strata titled investment units within the Brisbane metropolitan area, and how with the benefit of on-site management, other services can be offered to generate a higher return to the investor.

On-site Management
For a newcomer to the property industry the concept of on-site management is usually new. Assuming some readers will be new to the industry, we will provide a brief background and summary of on-site management and the terminology of “Management Rights”.“Management Rights” is an expression used to describe the business of on-site management of an apartment building or unit complex. Whilst functioning as a caretaker, the on-site manager also performs letting duties within the complex.

In most circumstances there is no obligation to use the on-site manager, however they should be considered prior to the appointment of a local real estate agent. Consider the following;
• The manager lives on-site and knows the building intimately.
• The manager has a vested interest in having the building fully occupied.
• The manager is usually mature enough to deal with “life problems” with tenants should they arise.
• Economies of scale with the purchasing of materials are also available to be passed on to the investors.
• A real estate agent’s main focus is on selling property. An on-site manager is different, and has a core business of letting units. Consequently many agents view a rental property as a future property to sell. The on-site manager sees the rental property as an income producing asset for his business.
• By virtue of being an outside agent, that agent is usually not aware of the recent leasings in the complex and what rental is now achievable in the market place.

Vacancy & Letting Up Periods
In addressing the period of vacancy and time to lease the units, we have reviewed some apartment buildings and townhouse complexes which when new used both the on-site manager and outside agents.
Listed below are some of these examples.

The first Inner City apartment complex comprised 41 units and was completed in February 2004 with the first settlements occurring in March 2004. Within the first 2 weeks the On-site manager was given 21 letting appointments (PAMD 20’s). An outside agent was given 4 letting appointments. By week 6 the on-site manager had leased 15 units, whereas the outside agent had only leased 2.

The second Inner City complex of 29 units was completed in 2003. The on-site manager has a letting pool of 19, and by week 6 the on-site manager had leased 14 units whereas the outside agents had leased 2. Four (4) of the remaining units were offered to lease to both the on-site manager and outside agents, and all 4 were leased by the on-site manager.

The manager of the complex in the Eastern Suburbs had a stage of 40 units released onto the market in a period of a week. He sought the assistance of outside agents to help lease up the units. Five (5) weeks later the on-site manager leased 34, the 6 outside agents collectively had leased 6.The first Inner North complex had 44 apartments with the on-site manager responsible for letting the majority of the units. The on-site manager leased all 24 units within the letting pool in comparison to the outside agents who leased 5 over the same time period of 4 weeks.

The Inner West complex had a total of 70 apartments. The on-site manager was responsible for the letting of the units. Within 10 weeks of opening, all 55 units within the letting pool had been leased. An outside agent had 1 unit, and that was leased in week 5.This discussion is best seen graphically in the accompanying chart where the average letting time of the on-site manager and outside agents are compared.Another factor for an investor to consider, is the location of the agent the investor appoints. We often hear how a unit sits vacant for a long period of time with very few inspections being undertaken due primarily to the fact that the agent is located more than 5 kilometres away.

Timing
When you speak to most on-site managers they can usually tell you the busiest and quiet times of the year. Since they have the greatest number of units in the complex they are usually up–to-date with the latest market movements in price and also demand.Each State is different, however in Brisbane the “hottest time” in the market is January and February. Most interstate re-locations occur in the period before school starts, while businesses are still in holiday mode, and before university starts. Consequently the greatest demand for rental properties is in the months of January and February. It is no surprise that these are the months with the highest letting volumes and also the months when high rental rates occur. An astute property manager is aware of this, and the on-site manager usually has the advantage based on the number of units they manage in the complex. On-site managers will often seek to have a lease expire in January/February to capitalise on this demand/supply imbalance. Leasing in January and February can often add another $10-20/week to the weekly rental.

Rental Values
Obtaining empirical data on rentals is often difficult. When performing our valuations we undertake a cursory analysis of the rentals being achieved within the complex. It is common place to see many on-site managers achieving rentals above the rates being achieved by outside agents.In the above example of the Second Inner City Complex, the on-site manager has achieved a rental range of $340 to $360/week for Type “A” style units, whereas the outside agent has achieved $320/week. Type “B” units have been leased by the on-site manager at $330/week whereas the outside agent has achieved $310/week.

Target the market
The investor and property manager need to know the target market of the property. The on-site managers generally have a better “feel” of the market within the complex due to the number they managed.An easy way of value adding to the rental return on a residential unit is to receive a rental for furniture if there is a requirement for furnished accommodation. The best examples are overseas students, and corporations seeking accommodation for workers from interstate. In the inner city, furniture can add another $70 to $100/week and can show a return of around 50%. This may all sound very attractive, but the agent needs to know the market. There are plenty of furnished units which have high vacancies due to the apartment targeting a limited market.It is our experience that about only 1 in 3 furnished apartments actually achieve the desired average rental returns. To maximise the return the furniture needs to meet the demand of the market. Second-hand and out of date furniture will be detrimental in leasing the unit, but also in achieving the rental return required.

The most common mistake we see is summarised as the following: “since grandma’s gone into the nursing home, we’ll put her furniture in”. We strongly advise against using second-hand furniture.We need to reiterate that the furniture should target the market and provide accommodation where there is a void, and not an oversupply. If the end market is business professionals on interstate projects, a desk in the second bedroom, not a second bed is warranted. If the unit is targeting a family relocation (such as the Defence Forces) where a three bedroom unit is required, then there is a strong likelihood of children, fragile and non durable furniture are not recommended. Again the on-site manager is best to advise you. The furniture should be replaced every 4 to 5 years.

Summary
Applying all of the above strategies will maximise an investor’s return. In most cases the on-site manager will have the greatest command of the market. Their core business is leasing property, it’s in their interest to keep the property leased, and generating income to the investor. On-site managers are usually pro-active and with the use of signage and their hours of operation will usually generate more enquiry to a letting complex.Outside agents on the other hand will usually have a broader command of the rental market within the suburb, and they are the most appropriate to use when letting houses or units where there is no on-site letting agent.

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