18/11/2011
Selecting and buying property is only half the battle in this game, so it’s important to have your property management strategy in order if you intend to avoid becoming the victim of the latest tenant horror story.
But it’s not only your tenants that could end up giving you nightmares, a poor property manager too can end up giving you sleepless nights.
Picture the scene: you have a carefully budgeted property investment plan, your property manager has installed a tenant and all’s going swimmingly – until all of a sudden rent day arrives, your bank account’s missing that all important rent payment and you haven’t heard a word from your property manager about the issue.
You chase them up, they visit the property for the first time in months to speak to the tenant and notice broken windows, a heap of rubbish in the front yard and a burnt out car to top it all off. The tenants refuse to pay up and your property manager has no idea how to go about evicting them.
Of course, this extreme scenario can be avoided by screening your property manager rigorously in the first place:
- Check their tenant selection process
You should quiz them on their tenant selection process, says Ayda Shabanzadeh Grow Consulting director. “You have to get at least three references, so if someone has rented before, you send a form to the previous manager which asks if they’ve ever been behind in rent, if they’d rent to them again, if they’ve been clean and if there have been any complaints. Then you get a personal reference from a friend. We’d also confirm the employment of the prospective tenant and get payslips to ensure that the tenants are working.”
As a rule of thumb, your prospective tenant’s income should be at least three times the rent that they’ll be paying.
It’s equally important to get a copy of the application form,” adds Brendan Kelly, RESULTS mentor and property author.
“When a tenant applies for your property, what information do they hand over? Because if it’s not an in depth series of questions and answers then, there’s little due diligence on the tenant.”
You should also ask the agency how they go about advertising their rental properties.
- Do they dedicate a window in their shopfront to rental vacancies for example?
- Do they have a pool of prospective tenants in their files? Do they make use of internet listing sites?
It’s also worth asking them to provide upfront information their services and fees and provide an example of the agreement they use between themselves and their clients. This includes:
- Legal tenant checks (which should always be done through national databases)
- Tenant income stability and reference
- Required maintenance and repairs
- The storage and return of bonds/security deposits
- Disputes with either tenants or landlords
- Emergencies (who is called for what emergencies)
It’s also worth asking whether your prospective property management company will always run their choice of tenants past you before installing them in your property.
For example you might have a two-bedroom apartment and they say that they’ve got four people moving in – two couples.
“You’d probably want to know what their background is: are they all students for example?” says Shabanzadeh. “If you have four people splitting the rent and they’re not all professionals it can be quite difficult.”
- Check their company policy
As well as examining a management company’s tenant selection process, another port of call is to delve into their policies and protocols regarding staffing.
“Unfortunately it’s a bit of a transient industry at times, so you want to make sure that if Mary is handing over to Jane as your property manager, that the company has the procedures in place where everything is going to be the same – even though it’s a different person who’s now looking after you,” explains Jonathan Fordham, Guardian Property and Asset Management licensee.
Find out what sort of training and support the property management agency puts in place for its managers and ask your property manager who will be doing various jobs around property management.
- Do they do inspections themselves or do they delegate it out to a tradie or office lackey?
- Who will manage your property if they go on holiday or leave?
- Do they have an inspection checklist?
- If they can legally do two inspections a year, do they do two or one?
- Do they only inspect when the tenants leave?
Maintenance is also a big policy issue. Ask your prospective manager:
- What’s their process on maintenance?
- When do they inform you about maintenance?
- How long until they carry out the work?”
- Ask what the maximum amount is that the company will spend on a maintenance issue before asking for your permission, and whether there’s a service charge that you’ll incur over and above the cost of labour and materials.
“Generally you’ll have a line in the sand for a limited spend on maintenance at their discretion,” says Kelly. “Some companies will charge at cost and take it out of your rent, some will charge a percentage surcharge on top for organising the maintenance. It’s standard in New Zealand, for example, to charge cost plus 10%, and there may be agencies in Australia that do the same.”
Ask what the company’s policy is on collecting rent. Nowadays internet transfers will be the norm, but does your prospective property management agency also offer EFTPOS and over the counter services – and will they go knocking on doors to collect the rent manually if that’s what the tenant requires?
Ask what their policy is for late payments. How soon after rent day do they respond to the issue? Kelly suggests that you want your agency to contact the tenant within 24 hours of a non-payment, and this should be in the form of a phone call rather than email or letter – as it’s an urgent issue.
“When do they communicate to you that rent’s late?” he adds. “Do you want to be bugged every time it’s a day late? If not, what’s the policy for communicating to the landlord? Getting these policy descriptions is all part of your due diligence process.”
- Check references
Always seek references from other landlords who use their services. If the company that you’re considering won’t divulge the details of existing customers for privacy reasons, then there are a couple of steps that you can take.
One is to give them your contact details and ask them to pass them on to a client who is willing to give you a call to discuss the service that they’ve received. Of course, the company will want to choose one of their most satisfied clients to give you the best possible impression of their services, but you’ll still be able to grill them with your list of essential questions.
Questions to ask:
- How long have you used this property manager? (if it has been a long time, ask whether the manager continues to provide great services)
- Why did you choose this property manager? (make sure it wasn’t purely price related)
- How often do they provide you with updates and progress reports?
- Have you ever had any problems with the tenants your property manager has recommended?
- Have you ever had any issues or conflicts with the property manager? (if so, enquire about their nature and how they were resolved)
- What are the best and worst points about this property manager and the agency they work for?
- Would you recommend I use them as a landlord to manage my rental property?
The other is to seek out property investment groups in the area to quiz the members on the best local property management agencies.
“Property networks aren’t always easy to find, but they are out there,” says Kelly. “You could maybe go to local real estate agents and ask about local meetings for property investors.”
He also suggests a clever but sneaky means of checking up on a property management agency’s service.
“Go into the agency, or get a friend to go into the agency, fill out the application form to become a tenant, and see how well you’re treated,” he says. “Take a secret shopper approach and put them to the test through their own processes.”
- Check their background
You can tell an honest person if their answers match up with the responses from their references. You should ask questions like:
- How long have you been in the industry as a property manager?
- What was your role or profession before that?
- Why did you decide to go with the agency you are with now? (commission driven reasons can be a bad sign, as they may put their own desire to make money over your best interests)
- Have you ever been involved in disputes with tenants or landlord clients? If so, what were these issues and how did you go about resolving these?
- What are your strengths and weaknesses as a property manager?
- If you were a landlord, would you pay for the services you provide and why?
- Check their workload
Ask how many properties a manager oversees personally to get a feel for their workload and how much attention your property will receive. While it’s difficult to quantify exactly how many properties is too many – as this will depend on various factors such as the competence of the manager and the amount of backroom support they have – you’ll need to make a judgement call as to whether you think their workload will put your property at a disadvantage.
Kelly suggests that vacancy rates can help you out here. For example, if the area’s vacancy rate is less than 1% and your property manager has 100 properties in their portfolio then the chances are they’ll only need to deal with a minimum number of vacancies at any one time – freeing up their time for other management issues.
“It’s not going to be hard to fill vacancies if the rate is tight. So the time requirement in a low vacancy rate area to re-tenant a property is low, and the amount of energy required from a property manager to do that is quite low,” he says.
If the area’s vacancy rate is 5%, for example, and they have 150 properties to look after, then they’re likely to spend a larger portion of their time dealing with open for inspections and tenant applications.
