Keeping watch on your property manager

Choosing the right property manager for your investment property is essential, and a vigilant eye needs to be kept on them too.

One of the more lucrative business models associated with the short-term letting industry is for a company to take a long-term lease of a couple of dozen apartments within the one building, and then offer them as short-term rentals on booking platforms such as Airbnb, Booking.com and hotel.com.

There are great economies of scale for a business operating this business model because the cleaning services and changes of linen can all be done by the same cleaners within the same building, without having to send the cleaners all over the city to different buildings.

For instance, a company can acquire a standard two-bedroom residential apartment on a 12-month lease for say, $650 per week. It can then let out the unit on the internet for between $200 to $250 per night, plus passing on costs for cleaning.

If done right, a plucky operator can generate revenue of $70k per annum, and only pay $30k to the landlord. Replicate that in another 15 to 20 apartments and an operator could net almost $1 million in revenue per annum.

What has been discovered however, is that hardly any of the owners of the apartments that have been incorporated into these types of accommodation businesses are actually aware their apartment is being used for short-term letting at all.

Lazy property managers are usually the reason as to why this occurs. The agent lists the apartment for rent, and then does not engage in enough due diligence to work out whether the person that rents it from the agent then immediately relists it on the short-term letting platforms.

Owners of investment properties that reside overseas have repeatedly been targeted by these short-term letting companies, as these owners often do not keep a close eye on what is happening onsite and rely on their property manager to be their eyes and ears.

The unfortunate position that these investment property owners may find themselves in is if the Australian Tax Office (ATO) assesses the activity being run from the apartment as part of a commercial enterprise, rather than as a residential property.

This can impact lot owners’ ability to negatively gear the property, even if they are completely unaware as to what the tenant is up to.

The ATO can also audit retrospectively and assess lot owners for unpaid tax and penalties dating back a number of years.

So, it pays for investors to make the time to carry out inspections themselves periodically, and to ask proper questions of their property managers, and to hold them accountable. •