Articles

Property Management - October 2011

“If at first you don’t succeed, then sky diving is not for you."

This is one of my favourite bumper sticker quotes and it brings to my mind the horror stories some property investors have faced.

What does amaze me from time to time is how intelligent, sane, literate adults get themselves caught up in the property investment business, only for the adventure to end in tears and a promise “never to invest in rental property ever again.”

How does that happen and what can novice investors do to reduce risk and make sound decisions?

  1. Don’t believe the statistics - What? The problem with published statistics is twofold. Firstly the zones or neighbourhoods are far too loose and have caused investors to assume a rental return out of kilter with the immediate area. The most recent stats I have seen tell me that the median rent for a 3 bedroom house in Rotorua is $250 and that’s correct, but if you buy a 3 bedroom house in an infamous part of town, not only will you not get $250 a week, you might not get a tenant at all. Secondly the stats don’t tell you if the place is furnished, or thermal or includes lawnmowing, so the many factors which create value need to be well known. Remedy? Check with a property manager who is not involved with the sale.
  2. Who is giving the Buyer advice? An old trick we see quite often (sad to say) is a buyer being told “the happy tenants are paying $230 a week” but when the sale is done and the buyer sees the tenancy agreement it turns out they are paying $210 a week plus $20 a week for arrears and damage, so the new owner has to accept $210.00 and that, of course, blows the budget. Clearly a more prudent due diligence should be done, but some buyers seem reluctant to “not believe what they are being told.” Remedy? Check with a property manager who is not involved with the sale.
  3. Investors buying a tenanted property should - after seeing through the house- go back and speak to the tenant in private, and ask some questions about the condition of the house (have they been waiting for repairs and getting the run around?) Do they plan to stay on? What would persuade them to stay if they are not happy?
  4. Ask yourself, “Would I live there or let my married daughter live in it?” If the answer is “not likely” then walk away, because the tenant you want is not the tenant who will say “yes” to that property. 2nd rate houses attract 2nd rate tenants, like attracts like.
  5. Don’t try to rack up the maximum rent all the time - one of my most successful investors, with 17 rental properties in Rotorua, has a policy of keeping rents at 95% of market value, so he has long term tenants who appreciate the privilege of being there- and he delivers a Christmas Ham to them on December 22nd each year, so his arrears and vacancies are virtually zero.

Richard Evans is an Executive Director of The Leading Property Managers of New Zealand Ltd.

Property Management - August 2011

Many readers will have read the recent article in the “Sunday Star Times”-July 24th 2011- about disappearing property management firms in Auckland and Wellington, notably Jericho Residential property management in Wellington who closed down in June of this year and in Auckland, Trump Asset management and City Gardens management (their offices now vacant and stripped bare) allegedly unable to account for unlodged bonds and missing payments to landlords.

And also in Auckland in the past few week, The NZ Herald reported an English couple who signed up for a nice flat with the owner who took a bond of $2,000 from them, but she was the outgoing tenant, not the owner- plus she also forged the owners signature on her bond refund form and collected her own $2000.00 bond without the owners consent or knowledge.

Property management companies have been telling the last 2 governments about the problem created by the 2008 Real Estate Agents Act which specifically excluded property management from legislation, so all the warnings which I, and many others, have delivered are becoming true.

In Rotorua we have a situation where a motel has been sold, which had been converted to rental flats, and the sellers have fled overseas, taking with them several cash payments of bonds paid to them by some of their tenants- so we are advising those tenants that the new owners are not liable for their bonds as they were never lodged at The Bond centre by the old landlord, and yes, that’s illegal, but how can anyone get the money back?

Tenants often use private landlords to avoid paying a letting fee, but I bet that couple in Auckland regret not choosing a reputable company and would happily have paid a letting fee if they could wind the clock back.

When choosing a property manager investors should ask lots of questions (and in my experience most do) but specifically ask which organisation do they belong to, if any; are the bonds lodged as required; ask for a reference from another investor; meet the business owner; ask to view any other houses they might manage in the area; ask independent people like their lawyer, tax advisor, for their opinion or advice, and generally be a bit sceptical of any puffery or hype!

The good firms have solid reputations and generally don’t need to exaggerate their importance.

Richard Evans is an Executive Director of The Leading Property Managers of New Zealand Ltd.

Property Management - 4th June 2011

Landlords Can Make Mistakes Too

Property managers see lots of things that can go wrong with a tenancy, and its not always the tenant’s fault, so here are some things that should be “no go zones” for landlords.

Getting too friendly - very hard to get tough with an erring tenant if you have become friendly- even if the house is professionally managed its important that the owners do not get involved with the tenant. Often we will reprimand a tenant for some breach of the agreement (such as having a dog on the premises) only to be told that the owner agreed weeks ago, but failed to tell their property manager.

Too many visits There are rules about tenants having the right of peaceful enjoyment but some owners feel compelled to stray on site, and pop in to say hi, and just checking the fence. Owners and agents have to get consent and/or give notice of such visits, and if they are too frequent than that can be seen as harassment.

Too lenient with arrears Trying to maintain a relationship above the commercial one is always a mistake- business is business.

Not making inspections We recently took over a flat that had not been inspected by the owner for 7 years (we didn’t like to invade their privacy) so we discovered a cess pit of filth and rubbish and drugs- you can imagine the loss to the owners who were trying to be nice!

Ignoring repairs Amazingly we came across an owner who told the tenant that if the blocked drains and sewer were his (the owners fault) then he would re-imburse the cost of clearing them to the tenant. The roots of an adjoining tree was the culprit, so the owner took the view that it wasn’t his responsibility, so the tenant, with our help, took the owner to The Tenancy Tribunal and won full reimbursement, costs and damages. That owner thought he was so smart and clever, and failed to listen to the advice of a property manager, so it cost him much more that it needed to have done.

Property Managers know the rules, and times that we see bad blood it has been caused by an owner behaving as if they had a different set of rules to everyone else.

Richard Evans is an Executive Director of The Leading Property Managers of New Zealand Ltd.

Property Management - April 2011

Selling a tenanted property- traps and pitfalls.

Despite the weakness of property sales, there will always be landlords keen to get a sale and whilst that is their right to do so, they can often overlook the rights of a tenant to peaceful enjoyment, so there are some strategies that can be used to make the process smoother.

The sale process can be very unsettling for a tenant, and most property managers have seen their fair share of tenancy disasters arising from unthinking or unfeeling sellers and sales agents eager to promote a sale. Some of the things we hear about are; turning up with a buyer unannounced at 5.30 on a Sunday evening, threatening to evict the tenant who refuses access (yes that happens quite a lot): buyers turning up on their own to look through without the owner or agent present; owners taking heaps of interior photos for advertising, including pictures of the tenant’s possessions; and general disregard for the tenant’s rights.

So any unpleasantness or confrontation can be avoided by including the tenant in the process- such as agreeing on set viewing times and /or open homes; agreeing that no unannounced viewings will take place; maybe a reduced rent during the process and treating the tenant as a real person and not an obstacle. A popular idea is to offer the tenant a cash incentive to stay and be co-operative, so when the sale happens a nice little cheque is handed over - we have seen sums from $500 and upwards pass from owner to tenant, so that can be a very useful idea.

Some tenants react well and some not so well. They will either go out of their way to be tidy and co-operative so that a new landlord will want them to stay and not put the rent up, or they will be very negative-“the rats are a real nuisance” or “the house leaks like a sieve in winter so we would want compensation for the damage to our clothes” and, my favourite, “you know the place is haunted after that murder here 4 years ago?”

A frequent reaction by tenants, when an owner decides to sell, is to re-locate and give notice immediately, leaving the owner with no rent and a possible long wait for a sale. Sometimes owners will say “but I can’t have the place vacant, I need the rent to pay my mortgage” well that is not the tenants problem of course, so some simple and sensible arrangements can make the whole process smooth and stress free.

Richard Evans is an Executive Director of The Leading Property Managers of New Zealand Ltd.

Property Management - March 2011

The Christchurch Earthquake has been a terrible time for the folks who live there, and the incredible pressure being loaded onto Property managers as a result has given all of us in the property management business a wake up call.

The tenants who can no longer live in the house are having to relocate; landlords will need to check they have suitable Insurance; property managers will have to liase with out of town owners and try to help existing tenants, and on top of all that there are dodgy characters impersonating officials and robbing houses, so we are very lucky in Rotorua- long may that be the case.

Enquiry levels from people wanting to leave Christchurch have risen dramatically, and who can blame them wanting to leave.

We are also seeing landlords who live in Christchurch wanting to come back to their home here, and we are sure that will be happening all over the country, so that will tend to ease the oversupply here and and add to the chaos of the Auckland rental market.

The red hot rental market in Auckland has not been reflected in Rotorua and as the level of available rental housing has continued to creep up we are seeing rent levels settle down a bit. Its called "The marketplace" and property managers have no control over that.

Property investors continue to buy well, we are seeing buyers getting terrific bargains, and the present buyers market seems set to run for a while yet, so tough times for sellers and great opportunity for buyers. That is also called " The market" and nobody has yet figured out a way to change or influence it, but a fortune awaits the person who does.

Richard Evans, Rotorua Rentals

Property Management - February 2011

The great summer rental meltdown is back again with the usual suspects unable to control their holiday budgets and the consequential surge in applications to mediation and tribunal has peaked again.

Its an annual event.

Property managers and investors know its coming and brace themselves, and, more importantly, some plan to reduce the possibilty by using several different strategies.

My favourite one is suggesting to a tenant that they pay an extra $10 a week, so that after 12 months they have about 2 weeks rent in credit, and that works well for several tenants who have large family gatherings to cope with at Christmas; other landlords use Christmas gift baskets or Christmas Hams, and rent holidays are popular too.

The increasingly depressed sales market keeps sending more houses into the rental pool, and once again owners in that situation are having to grasp the reality of supply and demand, and my favourite investment philosophy of "cost doesn't equal value" becomes increasingly relevant.

For example I went to a fantastic house in early December which had been on the market for 10 months with 3 different agencies- the owners had spent squillions renovating and creating a real beauty, but is was still only a 2 bedroom home with one bathroom and that largely determines its rental value. Tenants don't care about the cost of the carpet and wallpaper, or state of the art bathroom taps and shower, so my appraisal was about $150 a week below their expectations. Now no property manager is going to spend time and effort trying to achieve the unachievable so the owners have spent more money advertising it themselves- at their figure- and you've guessed it- its still unlet.

Thats an extreme example of course, but it highlights the issue and rams home the fact that like it or not, the market sets the price.

Winter is on the way- sorry to remind you- and the www.hotswap.co.nz scheme from EBoP is proving very popular, so landlords with vacant, unheated houses will be well advised to take a good look at the offer and take action soon as the various installers are already flat out.

Richard Evans, Rotorua Rentals

Property Management - December 2010

In other words, what I really meant to say was.................

The two recent South Island tragedies in Christchurch and Greymouth highlight the frailty of humans and our structures, when we come into conflict with nature-nature will always win. Expect the best, but plan for the worse.

Its very much the same with residential tenancies, except that very often a rental disaster could easily have been avoided by prudent actions by all parties before and during the tenancy.

Property managers have probably heard every excuse under the sun for missed rents or broken windows or unmown lawns, and tenants have heard every excuse from owners about why they won't or can't fix a certain job that the tenant wants dealt with, and that will probably never change.

What can make a difference however is a thorough process of information and recording before the tenancy starts so there is no ambiguity or misunderstanding months later when you get a "he said" "she said" situation. Very often the same words will have two different meanings depending on your opinion, such as"tenant to maintain lawn and garden" which the owner thinks means "keeping the garden the same as when I lived there" but the tenant just thinks its "lawn mowing", and certainly not spraying roses or weedkiller on paths and driveways.

The banning of "Family gatherings" and "Noisy parties" is all very well but noisy parties have many levels of perception and family gatherings could be just a reading of the Will or an 8 year old's birthday party, so words need to be well thought through and explained at the begining.

Some of the cases which property managers are asked to untangle are caused by complete misunderstandings rather than deliberate offending by the landlord or tenant. The owner who tells the tenant "I'll be putting a heat pump in before easter" then later decides not to do so, which results in retaliation by the tenant by withholding rent, or the tenant who wants to paint the bedrooms "at his cost in a tradesman like manner" only to drop paint over everything except the walls. Clear written agreements should be in place for all cases of that nature, including photographs and written quotes. The owner who promised the heat pump told me he met the tenant after they moved in and told him that he would consider a heat pump, but the rent would go up $15 a week- quite a different version; and the tenant who had problems with the painting, was using an eidl gloss without knowing he couldn't wash brushes and drips with cold water- he simply had no idea.

The silly season is almost upon us which for property managers means a busy January chasing rents missed over Christmas and New year, and a surge of applications for Mediation and Tenancy tribunal by mid January and into February- its the same every year and it can be very sad to see families being broken up by "seasonal revellry" and the consequences of overconsumption. Property managers see that every year, and become a little cynical about human behaviour and how those consequences could have been avoided- unlike the recent natural disasters which we had no control over.

Richard Evans, Rotorua Rentals

Property Management - November 2010

Daily Post readers would have recently read the dreadful story of a Paradise Valley property being trashed by a tenant, with associated arrears, leaving the owner with a terrible mess. In that particular case the alleged bad tenant was well known to Rotorua property managers, having been evicted some years before, so the simplest of checks would have saved that owner from the disaster.

Property managers are familiar with these sorts of events, indeed very often an owner who has had that experience will turn to a property manager for help, and hand over management to them.

I though it would be useful for me reveal some of the tricks pulled by scallywag tenants against private landlords we have heard about over the years, which have ended up costing an owner lots of money and heartache.

High on that list is the Phoney Reference - provided by a close relative or a shonky landlord wanting to get rid of a bad tenant. Yes there are landlords who do that, just to get rid of them and pass the problem to another landlord.

The Phantom Tenant - ie not the one in occupation- The legal tenant will have been paid by the real occupant as a front for either illegal activities or because they couldn’t get a rental in their own id.

Promise of Future Funds Either for the bond or advance rent payments, usually ‘bond coming from last landlord” or “ACC Compo due on the 28th for several thousand as result of a workplace injury”, could be true, but why not check first!

Work For Rent - “I’ll repair the fence and paint the ceilings in return for 2 weeks free rent” and very often the job is botched or another job reveals itself that the owner had no idea even existed!

My bank has mucked up again! Very rarely true- the bank can’t pay an automatic payment from an empty bank account.

My flat mate takes the rent in to you every Tuesday, so I can’t be in arrears! Well your flat mate has to walk past the TAB to get to my office!

I was waiting till you did an inspection before telling you about the holes in the wall. So the holes in the wall were there when you moved in, or they appeared overnight like magic?

I’m only looking after my sister’s dog for the weekend. So why have the neighbours been complaining for 2 weeks now about it?

I tried to get the stains out of the carpet, but it only got worse. So it wasn’t you that spilt the hair dye then?

The annoying thing is that we have never heard an original excuse, so we look forward to that, and they say property managers are a cynical lot, I wonder why?

Richard Evans, Rotorua Rentals

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