There are plenty of “tricks of the trade” to help landlords protect their own best interests.
Property investors often assume that if they appoint a managing agent, somehow everything will fall into place. After all, the investor is paying the agent to deal with tenants, provide the relevant, current market advice and take any appropriate action to ensure the property owner stays ahead of the game.
Well, that’s the hope. The reality is that managing agents – even the very best of them – often manage hundreds of properties and cannot give the extra attention that would mean you get exactly the income you are due.
As the client, you need to know some tricks of the trade to keep a managing agent fully accountable and your property top of mind.
For instance, the correct process for handling the agent relationship should begin at the time of the property purchase – and before settlement, not after it. Getting it right at this point greatly minimises the gap between waiting for settlement to occur and securing a tenant. The rules of landlord/tenant/agent engagement change again during an actual tenancy, and then there’s another set of actions that should come into play when a tenant gives notice.
Let’s separate these three stages into a guide that helps make the investor’s dealings with a managing agent and tenant a more efficient process.
In the leadup to the property purchase:
Get a conservative estimate of rental value. You are negotiating to buy the property as an investment, so always query the selling agent’s estimate of its rental value. Selling agent rental quotes are often inflated by about 10%. Compare the rents that comparable rental properties in the same location are attracting.
Negotiate inspection access. Arrange access for prospective tenants to inspect the property two or three weeks before the settlement date, especially if the property is vacant. That way, by the time settlement takes place, tenants can already have been selected, and therefore rental income begins much more quickly.
Negotiate access for maintenance. If the property is vacant, again seek access to the property before settlement if some improvements such as painting, recarpeting or cleaning are required. If this is not possible, then at least arrange to have quotes for this maintenance carried out so that work can begin immediately after settlement.
Meet the property manager at the property. Given that agents manage a large volume of properties, establishing this personal relationship from the outset is important. Do this one-on-one with the property manager to set the rent level and discuss any maintenance required.
Timing of the lease expiry. When drawing up the lease agreement, make sure the expiry date is at a favourable time of the year for re-letting the property. Avoid the middle of winter or during the Christmas/New Year holiday period.
During the tenancy:
Annual inspections. Ensure your agent carries out an annual inspection of the property and arrange to accompany them. Keeping close track of the property’s condition is important to preserve its capital value and maximise the rental return.
Forward planning. If there are any large maintenance items on the list, make sure they are scheduled ahead of time, budgeted for and ideally can be carried out at the most convenient time for tenants or between tenancies.
Lease renewal costs. Watch the cost of lease renewals. Some agents charge excessive fees for the relatively simple task of renewing a lease. Ask about these fees in advance and negotiate the cost.
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Rent reviews. Don’t simply accept what is often an across-the-board increase of, say, $10 to $20 a week on most or all of a managing agent’s properties. At rent review times ask a very different question. Namely, what would the property let for on today’s market if it were vacant? A vastly different sum may be quoted in response to that question, and if so, the investor can examine a different set of options, particularly if a lease is due to expire.
Damage and repairs. Make sure the managing agent physically inspects the property if any damage or repairs are reported by the tenants.
Tenants giving notice or lease expiry:
Meet the agent at the property. Arrange this meeting before the tenant vacates, so that any concerns, damage or financial issues can be addressed while they are still in residence.
Improvements. During this meeting, determine what repairs or improvements, if any, need to be done and get them costed and ready to go immediately the tenant vacates in order to minimise vacancy time.
Rent review. This is the perfect time for a rent review. If applicable, ascertain why the tenants are vacating – it may be that the rental level was beyond market tolerances. Again, determine what the rate would be for the vacant property on the current market. Assess the rental yield annually to ensure it keeps pace with inflation and holding costs. If negotiating a new rent with sitting tenants, it will probably be more difficult to raise the rent by the same dollar value as you could if the property was vacant. However, weigh up the value of having good tenants against a large rent hike that may necessitate a search for new, unknown tenants. It is often far more prudent to accept a slightly lower rent to keep a good tenant happy.
Tenant access. Negotiate with the outgoing tenant to allow the agent to access the property for re-letting purposes. It may involve offering them some financial incentive for their co-operation, which could also include their willingness to ensure the property is clean and tidy for such inspections. This type of arrangement is also highly desirable if you are selling the property.
‘To Let’ signs. Arrange to have a ‘To Let’ board placed at the property before the tenants vacate, particularly if it is a house.
If you follow these rules you will successfully manage you property investment and give yourself the very best chance of achieving “market level” rentals. Getting the right income levels is an important aspect in the financing of any property purchase. With rents showing good growth levels, make sure you get your share.
This article first appeared in the Eureka Report.