Good Property Managers ... Help You Reduce Mortgage Interest
- By: Toni Planinsek
Copyright (c) 2014 Planinsek Property Group
Number 1 in a series of short articles for investors on What Good Property Managers Do by a qualified Victorian property investment consultant/educator/licensed real estate agent.
How Can The Interest You Pay Be Reduced? No, your property manager will not be paying any interest on your mortgage for you. However, if the property management company is doing all they can for you, they should be helping you minimise the interest you pay.
When you set up your mortgage loan you should have included an offset account for that loan. The banks charge interest on the amount owing on a daily basis. The balance on the loan is reduced by the amount sitting in the offset account. So as soon as you put rent or any spare cash into that account the daily interest amount owing is reduced and you save money.
When? Unfortunately the not so good property managers aren't in a hurry to put your rent money into your offset account. I have been shocked to discover that some real estate agents only transfer the rental money to their landlords once a month. That means if your tenant paid their rent on the second day of that monthly cycle that rent money would stay in the real estate agent's bank account until the first day of the next monthly cycle. You would have the missed the opportunity to lower your interest charge for 29 - 30 days.
Ah, you say. The real estate agent will be earning interest on that money. Not so. Rental monies usually have to be kept in a Trust Account and in most states the government receives that interest not the real estate agent.
Why? So why don't all agents pay the landlords as quickly as possible? Good question. Ask your current or proposed manager when they pay their landlords. Some think they are terrific because they pay twice a month! I do not think that is acceptable in this modern technological age.
In good companies they pay the landlords the same day the money is receipted into the Trust Account. The Trust Manager receipts all the rents in the morning, any maintenance, rates or other charges against the landlord's account are paid then the balance is forwarded to the landlord the same day.
To me it just doesn't make sense to do it once or twice a month. Not only is it not the best thing for the landlord it also puts undue stress on the office's resources. I liken it to having all the maths teachers teach all the maths only on one day - what do they do the rest of the time? Your property manager will be able to attend to tasks much more efficiently when they are spread across every business day of the month.
Do the sums and work out what the difference might mean to you financially between once a month or the same day. Depending on the size of your loan it could be an amount of consequence. Not many investors think of this when choosing their agent.
Make sure you choose a good property manager.
Residential property investors need all the help they can get to improve the return on their investment. Good property managers do more than collect rent, manage tenants and look after your property. They can help you save mortgage interest on your investment loan as well.
Toni Planinsek, principal of Planinsek Property Group, is happy to answer any queries through social media - Facebook and LinkedIn. She has prepared some free offers to help you on your road to becoming a successful property investor. To access yours go to www.toniplaninsek.com.au