If you are building a real estate investment portfolio with an eye to funding your retirement, hiring a professional property management firm can be one of the smartest investments you can make, ensuring that you enter your retirement years worry-free and not working harder than you did at the beginning of your career.
Property management decisions are driven in large part by the location of an investment property, says Teresa Casella, senior vice president of business development for Veranova Properties Limited, a national real estate management firm.
“To realize the largest return on their dollar, many investors are now looking outside of their own city or neighbourhood to up-and-coming areas where they can watch their real estate investment grow in value over time,” Casella says.
This means a real estate investment is no longer the convenient property next door; it might be several hours away. “A lot of investors in high-priced real estate markets such as Toronto and Vancouver are shifting to surrounding cities,” Casella says. “This way, if they have 10 or 15 years until retirement, they are able to realize a strong return.”
Casella stresses the importance of finding reliable professionals to manage an out-oftown property investment. “You want to hire someone who is affordable and who will deliver real value,” she says. “When you can’t be there yourself, you need a trusted professional who will watch out for your investment and report everything back to you. Many real estate investors are still working and have a lot of money tied up in their property portfolios. They may have their own home, kids going to college – there’s a lot of pressure on them. It’s a stretch for them to effectively manage all their properties.
Casella notes that condo units, which are an increasingly hot product among real estate investors (“We’re seeing investors purchasing two or three smaller condo units for students because there’s a guaranteed turnover of tenants,” she says), have their own management challenges. While some of these investment opportunities offer turnkey property management services, it’s often more cost-effective for real estate investors to use a private property management firm.
“You always want to maximize your returns and make sure that your monthly cost outlay is fully covered,” Casella says. “Ideally by the time you retire, these investment properties are fully paid for, and the monthly rent you are collecting represents an ongoing revenue stream.”
The professional difference
So why not turn to a relative, friend or neighbour to manage your investment property? Casella warns that there are some significant risks associated with this approach – particularly when disaster strikes.
“We frequently counsel our clients around liability,” she says. “If the hot water heater fails and the basement floods, or the pipes freeze and there is an insurance claim, insurers will not accept the word of a property owner that their parents were looking in on the property every day. This may result in an insurance claim being denied.”
However, when real estate investors use a professional property management firm, they are assured of rigorous reporting and comprehensive audit trails. “There’s monitoring; there are sign-in sheets; there’s a monthly invoice that shows exactly when the property was attended and what services were rendered,” Casella says. “This paperwork provides the necessary documentation to prove to an insurer that the property manager was exercising proper due diligence.”
Casella adds that while a friend or family member’s intentions may be very sincere, these individuals typically do not have the skill set needed to do the full and proper mechanical inspection required by insurers.
“An untrained friend who is tending to your property may not have the ability to check all the necessary mechanicals,” she says. “If you have an issue such as water intrusion, an experienced professional property manager will know what to do as soon as they catch the problem. This way they can minimize the damage to the property and the costs to you as the owner.”
There are additional liability issues and considerations when a property is tenanted versus when it is vacant. Professional property managers will do an initial inspection and follow up with quarterly inspections to ensure the safety of the property. They will also provide a property owner with a list of recommendations to ensure the property is properly maintained and safe for tenancy.
In addition, they will keep a watchful eye out for illicit behaviours, such as a tenant who may be using the property as a grow-op or as a base for other illegal activities. “We keep a careful eye on the property to ensure everything is on the up and up,” Casella says.
The bottom line
Professional property management does have its costs. For a real estate investor, however, a portfolio of investment properties often represents a significant financial outlay that demands a certain level of protection.
“The benefits and peace of mind that come with knowing one’s portfolio is professionally managed and cared for are invaluable,” Casella says. “When you compare the monthly costs of engaging a property management firm with the damage that can occur, the decision is quite clear. A property or property portfolio is probably the biggest investment you’ll make in your life. It may even be your retirement plan. Is it worth putting all of that at risk?”
Veranova is Canada’s trusted partner in real estate asset management and legal support services, with a comprehensive portfolio of services to help real estate investors protect their most valuable real estate assets. To learn more about Veranova’s services and additional benefits of using a professional property management company, visit veranova.ca.
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