Self Managing Your Investment Property
I recently read a Facebook post asking the questions .. “ … just brought an investment property at X location, thinking of self managing or should I hire an agent..?”
This is a very valid question! This new investment property owner would have had to make sacrifices to save for the initial deposit and then spend/borrow a very large sum of money to buy the investment property! They have accomplished so much already right? And how hard could it be to self-manage an investment property??
Let me give you some food for thought..
"Everything Is Fine, Until It's Not" - a few years ago we took over management of an investment property that was previously self-managed. The landlord advertised in social media platforms like Facebook marketplace… he had success with house-sharing in the past and thought everything will be fine..
He was able to secure a tenant quickly, obtained 2 weeks rent and handed over the keys with the promise of the bond to be paid shortly.
I understand, it took this landlord over 3-4 months to “kick” the tenant out, only after obtaining a tribunal order. The tenant did not pay any more rent since the initial 2 weeks rent and also had x 4 large dogs locked inside at all times…
In order to be able to place the unit back on the rental market – the landlord had to repaint all the walls PLUS replace all carpet in the unit as the pets were not toilet trained and then had the place professionally cleaned.
Why Hire An Agent – a good agent should complete the following, TICA or some form of a national tenancy database check to ensure the applicant/prospective tenant is not blacklisted. Some agencies may also complete police checks.
A thorough review of rent ledger and rental reference – we like to take that one step further and annoy/call the property manager whenever possible to have a “honest” property manager to property manager chat.
Work reference is so important, to determine a person’s character! Is this person honest, good at communication, responsible and takes accountability for their actions or negligence? Also are they actually employed where they said they are employed PLUS we check for pay slips or employment contract and determine – can this person actual pay the rent comfortably?
Self Employed – we check their social media and google reviews. Yes, a little bit “stalky” but we want to give everyone a “fair go” and also request either payslips or letter from Accountant to confirm their salary.
Have Never Rented Before – some of our best tenants are new to the rental market! Why? Because they are open to feedback and take action on our guidance on property maintenance and care. And YES, we have spoken to the odd mum letting their son leave home for the first time to the local soccer club president to kick boxing coach for that character reference too!
FURTHERMORE, we don’t accept applications until someone has come and inspected the property! Why? Because how can you tell if the property is right for you unless you physically come and see it! We want the property to become someone's “home sweet home” and be house proud rather than be someone’s temporary accommodation!
The tenant selection process is so important! Whilst we don’t have a crystal ball to guarantee a great tenant.. we do go out of our way to make sure we do everything we can to ensure the application has the potential and all the right signs of being a great tenant!
Leasing to Family or Friends! Whenever, I hear this, I cringe.. the closer a tenant’s relationship is to a landlord, the more critical it is to have someone that is impartial, unbiased and objective working for and on behalf of the landlord. What happens when your “cousin” doesn’t pay the rent for 4 weeks straight or decides to allow their friend or sister to come and stay temporarily which then turns into a permanent stay or decides to add some extra modifications to the property and thought to never tell you, as they thought “you wouldn’t mind”. If things get a little ugly … can you imagine the next family Christmas gathering?
However, the biggest issue I see over and over again is that the rent is always way under the market rent! So in the event of trying to save money on an agent and in the hopes of putting a good tenant (ie family or relative) in the property.. in the long term, the landlord has actually lost the potential income on the property by putting unnecessary hardship on themselves.
Why Hire An Agent – a good agent will build a relationship with both the landlord and the tenant. A good agent will also review the rent for the landlord and present a market review of rent to discuss and determine the rent increase and then send out a formal notice of rent increase to the tenant.
I have to pause here and say – it is important to communicate with your agent that you (the landlord) must be part of the rent increase review process! Unfortunately, all too often, I have heard stories time and time again, where the agent very proudly completed a rent review and renewed the lease for another 12 month term, without any discussion with the landlord, who as you can imagine may be furious with the undesirable outcome!
A good agent will be able to negotiate between the tenant and landlord to produce a win-win situation. Tenants moving out has a financial impact to the landlord with the cost during vacate period, let fees and general repairs and maintenance completed to make the property more presentable. However, securing a rent that is way below the market also has a financial impact to the landlord. A good agent should be able to present all such factors, so the landlord can make an informed decision they are happy with.
Ingoing Inspection – in its simplest term, an ingoing inspection is a report that captures the condition of the property as at the start of a new tenancy agreement. It usually is a combination of photos accompanied by words to describe the condition of the property on a room by room basis. One of the most common pitfalls of self management is the landlord states “ I know exactly what the property condition was or what this room looked like…its all in my head”. At best a few dozen photos are taken of the property but generally speaking, we have not come across a landlord that has completed a thorough ingoing report.
Why is this so important? Well this ingoing report is sent to the tenant at the start of the tenancy and they have 7 days to return this same report with their comments to either agree or disagree. If they don’t return the report, then the agents copy of the report with its condition comments becomes the default condition report.
This report is used in 3 most common areas :
During Tenancy – during routine inspection, there can be “disputes” in regards to certain unintentional damage – often the ingoing reports is reviewed to demonstrate to the tenant the condition at the start and the reason why the agent may ask to address an unintentional damage in an allocated period of time.
During Vacate – at the end of the tenancy, we encourage our tenants to review the Ingoing Report and provide a checklist of areas to clean and instruct the property to be returned in the same condition as the Ingoing Report minus fair wear and tear. We extensively use the Ingoing report to show with pictures the condition at the start of the tenancy and the condition at the end of the tenancy – this reduces the number of disputes as its clear in the photos. As an example, if the ingoing report shows window tracks were clean and the vacate/outgoing report shows the window tracks are not clean – this is not wear and tear, its just not cleaned.
Tribunal and Insurance – whether you are taking a matter to tribunal or claiming insurance.. photo evidence of the property at the start of tenancy and at the end of tenancy is crucial in clearly demonstrating the landlord’s case or claim.
So if the condition of the property is all in the landlords head -how are we going to extract this to use in any of the above scenarios ?
Why Hire An Agent – A good agent should complete a thorough Ingoing Report for the landlord as part of their letting process. For a 4 bedroom + 2 bathroom + 2 garage house, it is not uncommon for the Kora Property team to have x 2 agents spend over 3-4 hours taking photos and a further 1-2 hours reviewing and writing up the report by the lead agent. Yes, the hours sound excessive but if the job is done properly at the start, we know we have captured 99.95% of the exact condition of the property at the start of a tenancy and we have protected our landlord to the best of our ability…
So next time someone asks the questions, should I self manage my investment property.. think about the time and cost implication outlined above. Not to mention all the legislative requirements that a landlord is required to fulfill and understand – but that we will leave for next time.