OVERVIEW: It’s very tempting to believe you can manage your own property investment. Of course you can—but unless you REALLY know what you’re doing, you can easily lose money or land in trouble! Rent in arrears and vacant property are the two big problems that plague DIY managers.
You’ve bought an attractive investment unit on the fringes of the city, made some repairs and painted it throughout. Good! That’s all done.
The only thing left to do is advertise for a tenant. Nothing to it--especially as you consider yourself a good judge of character--or is there?
Unfortunately, this is where a lot of DIY property management schemes come unstuck. Why?
Simply that professional property managers (PPMs) have access to a wider pool of renters, and have better means to screen applicants. It’s what they do every day, after all.
For a start, PPMs can maximise enquiries in many ways. In addition to newspaper advertising, they have an office where window advertisements can be displayed to catch attention. They can add your property to various databases accessed by interested people, including major relocation companies, and advertise your property on their website. They can quickly put a professional sign up on your property, directing applicants to their office for processing.
Then there’s all the documentation to chase up—time-consuming, but absolutely vital!
The application form is the first line of defence. PPMs would have their own, honed over perhaps many years. This document is where potential renters establish their bona fides with information about current and past employment and addresses, income level, and referees and contact details.
Contacting referees is time-consuming, but is the key to avoiding problem tenants. A tenant’s rental history will quickly reveal their character. But there is a fine line to tread: as a private person you may breach legislation without realising it, and thus leave yourself open to legal action. The PPM will have up-to-date information and training to avoid this risk.
Nor will you, as a private individual, have access to a national tenancy database. This gives more details about a potential tenant’s rental history such as broken leases, property damage and any matters that ended up in court—even such information as criminal records.
Having carefully selected a tenant, the PPM will then generate a property condition report, to be filled in, signed and dated by both parties. Again, it is possible to do this yourself, but the PPM has the advantage of long experience, a trained eye to know what to look for, and ready-printed forms. At the end of the tenancy, this report provides a reality check when assessing the property’s current condition for damage beyond normal wear and tear.
The Real Estate Institute of Australia’s John Hill has this to say: “Unless you have impeccable systems, plenty of time on your hands, and are prepared to work hard to look after a property and your relationship with your tenant, managing your own property generally turns into a bad experience.”
One reason for this dire prediction is that you become personally involved with your tenant, when your relationship should be businesslike and unemotional.
Here’s what a good property manager does to earn their (tax-deductible) fees:
Still feel like doing your own property management?
No matter what other policies you carry for your investment property, you are vulnerable to three big risks:
Just to get this cover into perspective, landlord’s insurance is NOT expensive (averaging a few hundred dollars annually). It has special inclusions and is provided by very few insurers. Landlord’s insurance covers the above three risks and more besides, so it’s definitely worth having. (Always make sure you check the extent of your policy’s cover, however.)
LOSS OF RENT: If your property is damaged, making it uninhabitable (just think of floods), you will lose rent because of this damage. Landlord’s insurance will insure you against this contingency. (Note: it doesn’t cover downturns in the market that result in vacancy.)
RENT DEFAULT AND TENANT THEFT: What’s worse than a tenant being in arrears? When the tenant skips out with some of your property. The landlord’s policy will cover the arrears up to a certain amount or a certain period, and also the cost of replacing the item/s (with the usual excesses applied).
DAMAGE: This means damage caused by the tenant BEYOND normal wear and tear, whether wilful or accidental, and not covered by house and contents insurance.
ORDINARY HOUSE AND CONTENTS: The policy has a component to cover normal loss to your building or contents--the same as your personal house and contents policy. No furniture in your rental property? Fine, but what about fixtures and fittings? If your rental property is strata-titled, check the extent of any existing cover.
PUBLIC LIABILITY: If a tenant or any visitor is injured on your property and sues you for big damages, you’ll be glad you have this in place.
NOT having landlord’s insurance is false economy. Simply include it in your calculations when assessing a property for cash-flow. It is possible to cover yourself for loss AND still gain a positive cash-flow.
As a landlord, when you sign a lease, you legally commit yourself to providing safe premises for your tenant.
The lease binds BOTH of you to your undertaking for whatever is the agreed term.
So you can’t kick out your tenant just because, say, a family member gives you a sob-story. And your tenant can’t simply walk out, for example, if they get a job in another state.
However, if you both agree, then the lease may be ended when you choose.
Some states have an arrangement to compensate you (for lost rent, advertising costs and re-letting fee) if a tenant breaches their lease.
And some state tenancy authorities may allow your tenant to break a lease if it causes them hardship to complete it.
Changing your property manager is easy!
If you’re unhappy with your current property manager, perhaps because your property has remained vacant too long, don’t get mad; simply find another one! (Read the story titled Good? Bad? Indifferent? These 16 questions will help you rate your next property manager! in this section.)
All you need to do is inform our office that you would like to change to our services. We will draw up a letter for your signature and then rest assured all other details will be handled by our agency. We take the hassle out of sometimes a painful exercise.
After picking up the keys, the new manager will take over the balance of the existing lease, and prepare a new one when it ends. They will also draw up a new management agreement with you.
This is where having a professional property manager (PPM) really shows its worth!
Unlike you, the investor, PPMs are not emotionally attached to the properties they manage so they’re in a better position to handle disputes. Besides, they will also have had training in negotiation.
With a PPM, disputes can usually be settled without involving you, the investor. If a dispute goes to a tribunal hearing, then senior and properly accredited property managers can easily draw up the necessary documents for you, and even appear at the tribunal on your behalf.
And that may not be the end of it!
If the tribunal finds in your favour, the PPM can follow up to make sure the tenant complies with the finding, including recovering rent arrears and compensation for damage done.
