We outline the upsides and downsides of managing your own property as well as insider tips on how to make it work...
Let's face it, sometimes being a property manager is a tough job, catering to the needs of both tenant and landlord. In Australia there are a number of landlords who choose to manage their own property, which has it pros and cons. If you are thinking of managing your own rental, here are some things you should consider.
1. Personality and professional distance
The first question you need to ask yourself is do you have the personality type that can keep your relationship with your tenant a business one? If the tenant is late paying the rent, or damage is found during an inspection, or if a tenant wants to break their lease without the required notice, can you assert your legal rights unemotionally?
Being a DIY landlord means dealing with difficult issues - such as making rent demands, evicting tenants and claiming bond monies. Unfortunately, they are a fact of life when dealing with rental properties. As a DIY landlord, you need to ensure that you are going to be able to do these things without getting emotionally involved in the situation.
2. Legal and legislation
In Australia, there are numerous legal and legislative structures in place to protect both tenant and landlord. These vary in each state.
If you are a DIY landlord you need to get up to speed with the relevant Acts and legislation. It is recommended that you complete a short course in property management run or recommended by the Real Estate Institute in the state where your property is located.
As a DIY landlord, you will also need to obtain access to standard agreements and documents such as lease agreements and bond lodgment forms. It is not uncommon that disputes involving rental payment, lease conditions, and bond claims to end up in a tribunal and the judge will take into consideration whether the landlord has taken the appropriate steps and can provide the appropriate records as evidence that this has occurred.
For example, if you wish to evict the tenant you need to be able to demonstrate that you have provided the required reminders, notices and applications at the correct intervals in order to get the demand you require issued. If you cannot do so, the judge may not provide you with the order you wish, and the tenant will be allowed to stay in the property.
3. Rent collection
One of the most important property management tasks is rent collection. It is extremely important that a clear process is followed in this regard and that the full rent amount is paid on the specified date. If you are not clear on this you may find your tenant is constantly late or the money is trickled to you in multiple payments over the course of rent period.
These days, professional property managers use direct debit to manage rent payments. This is the best form of payment as the control is with the property manager. At the commencement of the tenancy, the tenant signs an authority so the rent can be debited from the tenant(s) account on the day it is due. One of the great things about this form of payment is that if there is no money in the tenant's account, you know about it straight away. With other forms of payment, it may be 3-7 days before you know there is a problem.
If you are a DIY landlord, be clear that rent must be paid in full and on time. Don't drop in to collect rent, avoid part payments and ensure there is one party that is responsible for communicating any issues with rent payments.
If your tenant does not pay their rent in full at the designated time, I would recommend you need to commence written reminders that rent is due.
Dependent on the state, you can start more formal proceedings from around day 10-14. Be careful that you complete all steps in the right order, keep records and don't harass the tenant. In some states, for example, there is a limit to how many reminders you can issue.
4. Leasing your property
From time to time your property will become vacant and you will need to find a new tenant - preferably someone who will care for the property and pay their rent on time!
Depending on which state you are in, your tenant will be obliged to provide between approximately two and four weeks' notice before vacating. There is a lot involved in leasing your property. If you are going to lease your own property there are some important steps involved in the leasing process you need to follow:
Advertising is all about creating competition for your property. You want as many people as possible to want to live there. This will maximise the number of applications you get for your property. The more applications you have, the better to choose your perfect tenant from!
You should develop a marketing plan, including how you are going to advertise and what type of tenant are you wanting to target.
In Australia, www.domain.com.au and www.realestate.com.au are important to be in.
The way you write your advertisement is very important. Go online and see what others are doing as this will provide you with some great ideas on how to structure and word your ad. Make sure you include the location, any important facilities nearby such as schools and transport, include all the features and benefits of your property and don't be afraid to be detailed about it. Be sure to include as many pictures as possible that show off your property.
This is an important part of the leasing process. You need to make sure you are accessible and that you manage this process professionally. Tenants may not feel comfortable renting from a DIY landlord if you don't understand what to do and don't act professionally.
It is really important to have a thorough tenant screening process. Remember it is easy to put a tenant in your property but can be potentially very difficult to remove a bad tenant from your property. Make sure you have a list of questions to ask and don't be afraid to ask them more than once; the same question asked in different ways can often help to identify a discrepancy with what the tenant has previously said.
After the tenant has completed a tenancy application you should screen them by phone and then interview them in person; this is really important as your gut instincts will play an important part in your decision making. Make sure you clearly understand who they are, why they left their last rental, do they have pets, when do they want to move in, will they live alone, what do they do for work, how much do they earn and what references can they provide.
Make sure you verify all these details independently and call previous landlords or agents they have rented from. You can also check the tenant register in your state to ensure that they have not been identified as beingpoor tenants.
Google the prospective tenant and you may be surprised at what you can find out about them. Be careful, of course, not to breach any Privacy laws that are applicable by ensuring you have the appropriate permission.
Once you are comfortable with your choice of tenant, approve them quickly before another landlord does. Book a time to sign them up on a lease and accept the appropriate bond and deposit monies. It is critical that bond monies are held with the appropriate bond authorities in each state.
Move in day
This is where the ingoing property inspection is agreed upon and the keys are handed to the ingoing tenant.
As a property investor, apart from getting a good yield, making sure your property asset is looked after is really important. In each state, there are rules on how many times you can inspect a property per year and how the inspection process should be conducted. As a general rule, an inspection occurs three months after initial occupancy and every six to 12 months thereafter.
If you are a DIY landlord, you will need to ensure that you adhere to the legislation in your state regarding inspections, particularly in relation to the frequency, notification and entry process.
Keeping thorough records and photographs is strongly recommended.
6. Rental appraisal and rent increases
If you are going to become a DIY landlord, you need to commit yourself to ensuring you are going to keep up to date on what is happening in your area. You also need to make sure you only increase rents in line with the terms of the lease and the legislation in your state.
One of the most important tasks that a property manager provides is independently determining the market rent for your property. Due to the amount of property they manage in a particular area, they should have an excellent knowledge of what rent your property can achieve. At different times, the market can be stronger than others and this can also vary between different property types.
A good agent can often obtain thousands of dollars a year more for your property in rent because they understand the market.
7. Repairs and maintenance
One of the most common traps for DIY landlords is not understanding tenant rights in regards to repairs and maintenance, and in particular repairs deemed as urgent as defined by the relevant legislation. For instance, if there is no hot water or operating toilets, the tenants have the right to have these items attended to urgently, in most cases they have the right to pay for these to be repaired and claim the money back from the landlord.
If you are a DIY landlord, you need to make sure you have a range of tradespeople who can respond to your calls quickly and cost effectively. One of the advantages of a property manager is that because they deal with so many trades, they have better access and control of quality and cost competitive tradespeople. These relationships can save you hundreds if not thousands of dollars.
8. Availability and time
If you are considering being a DIY landlord, you need to ensure that you are always readily accessible and have the time to deal with situations when they arise. It can be costly and frustrating if you are working or are on holidays when a property needs to be leased, when the tenant doesn't pay their rent or if urgent maintenance work is required. Be aware that some of these things are time consuming, particularly if you aren't sure what you are doing.
DIY landlords would be wise to consider a family member or close friend who can assist should you not be available.
Managing a property can be time consuming. On average, it takes about one full-time person to manage 90-100 properties. When interviewing property managers, ask them what their ratio of staff to properties is, to ensure they are not overloaded.
9. Technology, tax and record keeping
If you are going to become a DIY landlord, it is important that you have the appropriate technology and systems to support you. You will need access to the internet, e-mail, mobile phone, a financial reporting system and electronic files for all your record keeping.
One of the advantages of using a property manager is that they will receive, check and pay all of your bills. At the end of each month you will receive a statement of all the transactions, and at the end of each year you will receive an End of Financial Year statement detailing all revenue and expenses.
There are now some advanced agencies that provide landlords the ability to log-in over the internet to view details of the property. For example, at RUN Property, landlords can view everything to do with their property such as tenant details, copies of important documents, photos from inspections and copies of all financial statements and payments.
One of the key reasons that a landlord may consider a DIY option is to save money. Keep in mind that these costs are tax deductible so you should be claiming these to reduce your taxable income.
When you look at the cost of employing a professional property manager, it is certainly good value. If you compare these costs to other professionals, such as accountants, the cost is very reasonable. These costs are often more than offset by the additional rent an experienced manager can get you, better deals on repairs and, of course, the cost of your expenses and time.
With interest rates at their lowest for more than 50 years, there are some great rates available. The best thing to do is to compare rates from all the lenders. Let us help take the leg work out of doing this - Compare Home Loans now