How my property manager cost me $10,000

By
15/05/2014

Choosing the right property manager is just as important as choosing the right investment property. Helen Collier-Kogtevs explains what can happen if you pick a shonky property manager

Your property manager is crucial to your success as an investor. So when they do the wrong thing, the impact can be significant, not to mention costly. 

I was recently reminded of this when a client contacted us at Real Wealth Australia about some serious challenges she was facing with her property managers in Queensland. For legal reasons, I won’t mention her real name (there is court action pending due to her PM’s misconduct), but for the purposes of this article I’ll refer to her as Kelly. 

Kelly and her partner Tim own a property portfolio, and around half of the properties are located in Queensland. All of those properties were being managed by the same agent until, over the course of the last two years, the situation began going downhill. 

“Basically, we’ve had our property manager really take advantage of our situation. We don’t live locally to where our investments are and they have taken advantage of that distance and mismanaged our properties,” Kelly explains. “We had also been travelling interstate and we weren’t paying close attention to our accounts and paperwork while we were away, which has made the situation worse.” 

It’s almost the case that everything that could possibly have gone wrong went wrong, with Kelly and Tim facing the following setbacks at the hands of their incompetent property manager. It’s likely that one of these situations may crop up for landlords at any point in time, but to have them all happen at once? Well, that’s the sign of a seriously unprofessional and unqualified property manager. 

(Are you unhappy with your property manager? Find a better one right now!)

Here’s the rundown:
1. Their tenant did a runner – and the PM botched the aftermath
“Our tenant bailed on our property and the property manager didn’t follow the right rules, in terms of issuing the breach of contract. They also didn’t conduct themselves properly in their correspondence to the tenant. As a result, because our PM’s paperwork wasn’t up to scratch, we actually lost our court case to get the bond back off that tenant,” Kelly says. “We are also claim the difference on our landlord’s insurance policy, as insurers require property managers to follow the correct procedures in relation to breaches.” The lesson for investors: You need your PM to have their office procedures up to scratch, Kelly advises. “We’re out of pocket $10,000, money that we’re legally owed, because of our property manager’s sloppiness and unprofessionalism.”

2. Their property manager failed to lodge their tenant’s bonds correctly
Australia-wide, there are cases of property agencies not lodging tenants’ bonds within the required timeframes, preferring to keep the monies in their own trust accounts for as long as possible. This is not only illegal but, as Kelly points out, it can also leave landlords in a world of financial pain. 

“If there’s no bond lodged on your property, you may be at risk of not being insured – it is often a condition of your policy as many insurers expect certain costs to be met from the bond before they’ll pay a claim,” she says. “We were fortunate that our PM lodged all of our bonds eventually, but it was never within the required timeframes and only after we caught them out that they lodged them.” 

The lesson for investors: Find out the bond lodgment deadlines for your state. In Queensland, it’s 10 days after the tenant has paid their bond. “You can always ring the RTA or other authority in your state to find out if bonds have been lodged, and if you have any issues go to the Office of Fair Trading for help and guidance,” Kelly says.

3. Entry and exit condition reports were rarely completed
Out of all the properties Kelly and Tim had under management with this agency, only one had a professional and complete entry condition report completed in its file. As a result, most of the remaining properties sustained damage by the tenants and it was up to Kelly and Tim to foot the repair bills. “Without a valid condition report, we had no evidence that the property damage was new,” Kelly says. “We also weren’t notified of any damage until we started questioning some of our repair invoices.” The lesson for investors: Property is not a ‘set and forget’ investment class, which means you need to diarise your own dates to follow up entry condition reports, mid-tenancy inspections and lease renewals with your PMs, on all of your properties.

4. Their property manager paid rental monies into the wrong account
When their PM paid rental income into the wrong account (the account of a completely different landlord!), Kelly and Tim were in a state of panic. “They put over $20,000 of our rent money into a different bank account and we didn’t get it back for months,” Kelly explains. 

“They did eventually compensate us, but it didn’t come willingly; we had to drag it out of them.” If this were to happen again, Kelly says they would take immediate legal action or get the property manager to make a claim against their business insurance for the loss. 

“We thought we were doing the right thing by trying to resolve it with them; however, it didn’t do us any favours.” The lesson for investors: This experience made Kelly realise that as investors they had to “up the ante on our admin system”, she says. “We’ve since created spreadsheets for all of our properties as we realised the buck needs to stop with the landlord. It’s not about doing your PM’s job; it’s about being in control of your own investment because you’re ultimately responsible.”

5. A tenant was three months in arrears before Kelly and Tim were paid rent
For three full months, Kelly’s tenant failed to pay any rent, and it wasn’t until the tenant entered their fourth month of unpaid accommodation that Kelly was finally paid. Whether the property manager knew about the arrears and failed to communicate it to Kelly, or whether their internal invoicing systems were so sloppy that they didn’t even realise the tenant was behind, is unclear. 

What is clear is that Kelly and Tim were financially disadvantaged as a result of their property manager’s unprofessionalism. The lesson for investors: Ask your property manager what their rent collection and arrears policy is. “Your property manager should let you know if your tenant is behind, after seven days’ notice to remedy the breach has been issued,” Kelly advises.

6. Their PM engaged in illegal advertising practices
When all of these issues began emerging, Kelly and Tim started to pay closer attention to their property manager, which is when they discovered the PM was trying to bait potential tenants using illegal advertising practices. “It’s okay to list a property as ‘$500pw neg’, but to say ‘$500+++’, ‘$600pw or closest’ or ‘$800pw make an offer’ is just not acceptable,” Kelly says. 

“It’s breaking the rules of RTA advertising guidelines in Queensland as it’s illegal to bid the prices up or down in the rental market.” The lesson for investors: Make sure your property manager is not engaging in these activities, as those who do so enter a legal grey area. “If you list a property as ‘$600pw or closest’ and someone offers $200 and that’s the closest, are you legally obliged to accept it? “It’s a terrible format to use and comes across as desperate. It hurts the industry and the rental market as a whole.”

7. Their PM failed to produce monthly management statements consistently
Throughout the time that Kelly and Tim were with this agency, they always had to chase up management statements; some wouldn’t appear for months, and when they did arrive there were usually problems. “We’d find things like overcharges for agreed management rates, doubled-up invoice charges, and charges that were from other landlords’ properties,” Kelly says. It’s not only unprofessional, but being overcharged for commission as per the signed property management agreement is illegal and can be taken up with the Office of Fair Trading. 

The lesson for investors: Keep a good tracking system in place to ensure you are receiving all your management statements and can reconcile them with what is going into your bank account. “You shouldn’t have to chase your property manager for statements, and if you are, be aware: bad books can mean bad business.” Kelly and Tim have since transferred all of their properties to a new agency, and legal action is underway with their previous property manager. Despite the challenges these experiences have created, Kelly wanted to use this as an opportunity to warn other investors about the potential pitfalls of dodgy property managers. 

“Sometimes property managers take advantage of people’s fear of not finding tenants, which results in landlords being willing to put up with and support poor PM procedures,” Kelly says. “I think it’s important to expect more. Don’t talk yourself into putting up with it. Take action to rectify the situation and move agencies if you need to. 

“As soon as we moved agencies, our cash flow situation improved and our new managers are so competent that they found us $6,000 in back rent that our previous property manager failed to charge one of our tenants. “It was a nice reward after such a bad experience, and now we really appreciate what proper property management is about.” Doing extreme due diligence on your property managers, she adds, is vital. “It will give you that control back over your investments and the peace of mind that you are working with ethical people with a good track record.”

Helen Collier-Kogtevs is an active investor and director of Real Wealth Australia

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