After the hard work is over and the relief is beginning to kick in, there's one more critical decision you need to make before you can sit back and enjoy your new investment property.
Whether your investment property is right next door to your home, or on the other side of the country it's important to appoint a property manager to ensure your new asset delivers as planned.
The good news is that the fees are tax-deductible and the services are much broader than tenant management. In addition to screening and selecting your tenants, your property manager will also be responsible for the following activities:
• inspecting your property two or three times per year and submitting reports to you
• coordinating tradespeople and managing repairs after liaising with you
• collecting rent and determining rental increases
• paying invoices such as council fees from your rent
• preparing monthly statements and submitting funds to your nominated bank account
• managing complaints or issues from tenants or neighbours
• guiding you through the eviction process or representing you at tribunals if necessary.
Each State and Territory has its own Act covering residential tenancies. This legislation protects both you as a landlord and your tenants, and it dictates the correct procedures and behaviours for both parties. It is worthwhile reviewing the relevant Act for your area, and the information is readily available on government websites.
The tenancy Acts also outline each party's rights. Everyone is entitled to a productive and mutually beneficial relationship formed out of a tenancy. The landlord has the right to expect that the rent will be paid and the property well maintained and respected. The tenant has the right to expect that when they pay their rent they will receive a well-maintained and fully functioning property and that they will have 'quiet enjoyment' of the property. This means, essentially, the right to live their lives the way they want and without unplanned or over-frequent visits by the property owner.
A property needs to be maintained to its best standard by someone who understands what and when maintenance issues must be addressed, and the various options, with their associated costs, for doing so.
Regular inspections of properties need to be carried out and a detailed inspection report completed. This should document the current condition of the property and any immediate maintenance required such as leaking taps, cracked roof tiles or painting, as well as longer-term items with a time frame for repair activities.
If tenants cause damage to a property, you as the landlord are entitled to ask them to pay for any repairs. If the damage is not the fault of the tenants, the landlord is liable for it and must have it repaired as soon as possible. Urgent repairs must be attended to immediately and include items such as burst pipes, roof damage, or any fault or damage that makes the premises unsafe or insecure.
Where a repair is urgent, tenants must make a reasonable effort to contact either the landlord or the property manager. If they are unable to do so, they may organise repairs up to $1000 that must be reimbursed to the tenant within 14 days. Where a repair is not urgent, or caused by normal wear and tear, tenants must ask the landlord – usually via the property manager – to arrange these repairs. Generally, they will have 14 days to do so.
Given this is a critical and long-term relationship, at The Property Frontline we advise our clients to choose their property manager with the same due diligence you would for any key advisor. We often start by presenting our clients with a shortlist of property managers with a good track record and obtain a list of the managers' costs and service agreements.
Then the key point is to interview the top two managers. This needs to be done by the client as we stress the importance of communication as the pivotal decision-making factor. If you find a property manager that you trust and can have a good relationship with, then you have a good foundation to a successful investing future.
After you have selected your property manager, there are just a few more items to consider.
• Your property manager should be sending you monthly statements and adding the rent to your account regularly (usually monthly).
• Ideally, put all costs through the property manager . . this way they will record any costs for repairs. I also like to have my council rates paid from the rent by the property manager . .once again, to ensure all costs are recorded and it makes tax time much easier.
• I like to manage my properties via a basic spreadsheet, and each month when I receive the property management statements I take a few minutes to just add the rent paid to the spreadsheet along with the interest I have paid each month and any other costs. Basically, while the general property management is covered by the property manager I have set up this five minute manual process for myself so that I take the time to review the information.
• In a ring binder / hard copy file . . I set up a perpetual section that includes the purchase contract, the building and pest and my loan documents. Then I add the monthly statements, insurance, inspection reports and bank statements for each year. I also have a soft copy folder for each property on my computer and add any relevant documentation to this folder. Note that if you sell your property, you will need to keep a copy of the contract for at least five years after the sale (and it's best to keep copies of any other documents for this period too).
• If you're keeping good records, your accountant will love you at tax time. If you share ownership of a property, you will have less cause to get into arguments with one another as to who is going to pull all the info together each year (I am famous for grizzling at my husband about this because paperwork is not his thing and I always have to do it). Your choice, but minimal regular management of your documents will really be worth it.