Property Hub - Investment Insights & Inspiration - Get Invested: Bushy Martin on property management

Starting point is 00:00:00 Welcome to the Get Invested Podcast, where we share great conversations with experts from all walks of life to uncover their secret know-how and where they invest their time, their skills, and their money, and the benefits that this has created. You see, the truth is that everyone invests. Every minute of every day, we're investing our time, our skills, our energy, and our money in something. Some of us are investing consciously, some unconsciously, sometimes for good, sometimes for bad, sometimes for no impact. Get Invested will help you to start living by design, not by default. I'm going to help you to make it happen, not let it happen. You'll hear the top tips on how you can live with conscious intent so that you can live more, work less, and leave a living legacy by investing now.

Starting point is 00:00:49 Listen to the show to discover the top tips on how to get started, make the most of your investment journey, and ultimately, to be living your dream, not someone else's. More episodes can be found on iTunes or at bushymartin.com.au forward slash getinvested. Thanks for listening, and now, let's get invested. Hi, friend and fighters. Today, I'm going to start with Tom's story. A few years ago, Tom wanted to help out an old friend in need So he entrusted his home and leased it to her

Starting point is 00:01:23 When he had to move in a state for work As he felt he knew his friend well He decided to save a few bucks on employing a property manager And he collected the rent himself directly from Carmen Who was a separated mother with her young daughter Carmen and her new partner reassured Tom That you can trust us, we'll look after your house It'll be better than when you left it

Starting point is 00:01:46 I mean, he was helping a friend through a tough time, so what could possibly go wrong? Famous last words. Six months later, he stopped receiving rent payments, and by the time he managed to get some time off work and return home to his property, he arrived to find it completely trashed by drug users and squatters. The internal walls had been smashed and kicked in, most of the internal wiring had been stripped out, used syringes and shattered glass covered the floors

Starting point is 00:02:17 along with dirty clothes, poles of rubbish, maggots and faeces were strewn from armpit to breakfast time. There was well over $50,000 worth of damage done to Tom's home and to make matters even worse, his home insurance policy had lapsed because he got too busy at work and the tenant forgot to forward the mail. He hadn't bothered to take out landlord insurance because he didn't think he'd need it. so all of the lost rent and all of the repairs

Starting point is 00:02:45 had to come directly out of Tom's pocket. So saving under $40 a week in property management fees ended up costing him over $50,000 that he just didn't have. And for $50,000, he could have engaged a property manager for the next 24 years and still been in front. Tom was penny wise and pound foolish. And unfortunately, this is a common story. now let me ask you three key questions if you're a long-term property investor who's focused on

Starting point is 00:03:19 securing high capital growth properties that are cash flow positive where will most of the time energy and cost be spent on holding and maintaining your property if you spend between 3 and 12 months securing your investment property and then rent it out maintain it and hold it for 15 years plus to enjoy maximum capital growth what key skill is required for the majority of the time to ensure you last the distance? And what property expertise is most needed but least considered and least appreciated? Now, the answer to all of these three questions are the same. Can you guess what the answer is? Yep, it's property management. If you spend about 5% of your time finding and buying your investment property and the remaining

Starting point is 00:04:07 95% renting it out and holding it, then property investment is mostly a waiting and maintaining game. As I've always said, good successful property investment is like watching grass grow or paint dry. It's long, monotonous, and for the most part, very boring. And so it should be. Because if time is your most valuable asset, and you need to use your time wisely in order to get your time back and you don't want to be burdening yourself with a second job when you become a property investor. So if property management is the key core skill that will make or break your long-term investment journey, who's the best person to do it? You as a part-time amateur or a dedicated independent professional property manager? Now given the critical importance of this subject

Starting point is 00:04:57 to your property investment success, today we'll delve into the challenging world of property management. Because if you're like most investors, once you've bought your investment property, you think the worst of it's over and all you have to do is find a tenant, collect the rent, and the rest will all be plain sailing. I mean, how hard can it be? Why would I bother paying a property manager all that money to do something that I can just as easily do in my spare time? I mean, what could possibly go wrong? Surely it can't be that hard. It's just a matter of collecting the rent, right? Wrongity, wrong, wrong, wrong. Why? Because when it comes to managing property, you just don't know what you don't know. And ignorance is certainly

Starting point is 00:05:38 not bliss. It's actually downright dangerous, especially in the increasingly litigious world of property. There's a good reason why over half the first time investors sell their property within the first five years. And a lot of this has to do with the ongoing time consuming and life-sucking headache and hassles of managing the property. So, do you manage your properties yourself, or pay a property manager to do it for you? Let's have a look at the current stats. Depending on who you talk to, somewhere between 20% and 33% of the 2.6 million investor-owned dwellings in Australia, owned by just over 2 million residential property investors,

Starting point is 00:06:18 are self-managed. Interestingly, according to research done by finder.com.au, Tasmania has the highest percentage at 43% of privately rented properties, while New South Wales has the lowest at just 22%. That means that somewhere between 1 in 5 and 1 in 3 residential investment properties are self-managed. In other words, between 400,000 and 660,000 Aussie investor landlords still manage their own properties. Now, these numbers still amaze me given the huge amount of money and risk that is tied up in their investment properties. Because with investment property, everything is fine until suddenly it's not.

Starting point is 00:07:03 Over the 10 years plus that my awesome wife Sonia and I owned and ran a dedicated property management business, we saw the dynamics of tenancies change overnight, like Jekyll and Hyde. great tenants can quickly become problem tenants due to changes in their circumstances like a relationship breakdown or a job loss resulting in non-payment of rent and or damage and degradation to the property and you as the landlord are left holding the can as i've always said it's not a matter of if you're going to have problems with your investment properties it's just a matter of when how big and how often and with residential tenancies legislation and each and every state differing, constantly changing and increasingly stacked in favour of the rights of the tenants,

Starting point is 00:07:49 I always wonder if saving a few tax-deductible dollars on a property manager is worth a very considerable financial risk. Let me share another quick example. You've no doubt heard the old expression, they took everything but the kitchen sink, but in this tenant horror story, they even took that as well. A self-managing landlord found tenants privately on Gumtree and then ended up with a big and expensive shock when they suddenly and unexpectedly did a runner. They had pulled out and taken the entire kitchen, and yes, even the kitchen sink was gone. Now, this may sound extreme, but if you ask any specialised landlord insurer like the team at EBM Rent Cover that we personally use, you'll hear that theft from investment

Starting point is 00:08:33 properties is far more common than you might realise. The other concerning and increasing trend in privately managed properties is the growing incidents of hidden methamphetamine drug labs in properties where tenants manage to bypass professional property managers and they use fake IDs to rent property direct from unsuspecting private landlords who don't play the same screening scrutiny. Not only does this incur massive cleanup costs but it also means loss of rental income for extensive periods of time while the police matters sorted out over months through the courts and in addition the landlords and any future tenants may also face potential health risks from lingering chemical residue.

Starting point is 00:09:14 So when you buy an investment property, you don't want to have a similar current affair or 730 report TV moment. So should you self-manage your property or get a good experienced property manager to do it for you? I think you can guess what my answer is, but let's dig into it a bit more. Let's start by understanding what's really involved in managing an investment property. A lot of first-time investors think it's just about finding a tenant, collecting the rent and then doing the occasional bit of maintenance.

Starting point is 00:09:44 Well, good luck with that. Let me enlighten you on the scope of just some of the tasks involved in managing your property effectively. You need to start by doing a full photographic survey and complete inspection and condition report on the property to document and confirm its current condition and repair any items that are not up to scratch prior to a tenant moving in. Next, you need to advertise your property in order to attract a tenant. This involves arranging professional marketing photos

Starting point is 00:10:09 and writing a description that will attract the highest number of quality tenants. And don't make the mistake of taking dodgy photos with your iPhone, as they just won't cut the mustard when you're competing with other professional rental adverts. Then you need to list the property online on multiple sites. And don't make the mistake of just listing it on Gumtree or similar pages,

Starting point is 00:10:29 because this is where tenants who have had bad rental records and who've been blacklisted by professional property managers tend to prey on the unsuspecting. Next comes conducting open homes for tenant walkthroughs. You also need to determine a competitive weekly rent amount. Then comes the arduous task of tenant screening along with all the checks required including identity checks, criminal records, tenancy databases, credit reports, financial and employment checks, delving into their rental history and taking in-depth references. You then need to prepare and execute all the screeds of lease documentation. Then we have conducting entry condition reports and exit condition reports at

Starting point is 00:11:08 tenant changeovers. You also need to lodge and release bonds from the trust account of the state-based residential tenancy authorities. You have to collect the rent every week, fortnight or month, depending on the frequency. You need to provide statements and invoices for rental payments. Then you need to implement and activate a preventative maintenance program to keep the property in good working order and compliant with ever-changing regulations. You need to field requests from your tenants at all hours of the day and night and quote and book in repairs with reliable trades with professional indemnity insurance as and when required.

Starting point is 00:11:41 You need to inspect the completed repairs. Then there's fielding tenant concerns and complaints. You need to be able to moderate and mediate issues with the tenants. And depending on the state, three to four times a year you need to conduct a full routine inspection of the property and provide the advance notices to the tenants within the required timeframes. You need to deal with any and all tenancy issues and rent arrears. Then there's following and complying with the ever-changing and restrictive legislative requirements.

Starting point is 00:12:10 You need to keep appropriate detailed written and photographic records of all communications and associated matters for insurance or legal disputes. You need to book regular smoke alarm inspections and swimming pool compliance if this is applicable. Then there's the invoicing of tenants for excess water usage, etc. There's dealing with body corporates and strata bodies, if appropriate. You also need to pay bills for rates, water or insurances, etc. You need to issue appropriate notices for anything associated with the property in accordance with strict legislative procedures and timing. You need to claim bond releases in alignment with strict policies and procedures.

Starting point is 00:12:46 And then there's preparing and attending tribunal hearings when tenant disputes arise. You need to follow very strict and detailed procedures when evicting tenants, if and when necessary. then there's finding new tenants when vacancies occur and the whole circus starts again. And of course, every year you need to collate and prepare all of your income, expense and depreciation documentation in readiness for accountant and tax return preparation. Now, this is just scratching the surface of what's required to manage a rental property so does this sound like something you want to do or even have time to do

Starting point is 00:13:19 on top of your work and family commitments? So, before you decide to crimp a few bucks and give yourself another job, ask yourself the following question to determine if self-managing is the right option for you. Firstly, are you in a position to be on call 24-7, day and night? Are you prepared to evict tenants who seem to have good excuses for non-payment of the rent? Can you keep your cool and remain professional with tenants that are being unreasonable? Are you prepared to give up your personal time and weekends when required?

Starting point is 00:13:51 Do you have the time to learn the ins and outs of the ever-changing local legislation and how to manage a rental within the strict confines of the law? Now, this is particularly important and will help ensure that you don't get yourself in a difficult and expensive predicament without even realising it. So, when you're deciding whether to self-manage or use a property manager, you need to consider a whole range of factors, including the time and effort required to manage the property, the costs, and most importantly, your legal requirements, obligations, and protections.

Starting point is 00:14:23 Now, I can't stress this strongly enough. If you're an owner who's self-managing or considering it, you need to be fully aware of the applicable rental laws and understand their full obligations. Because as far as the law is concerned, ignorance is no defence. And many states and territories have recently amended and or are implementing changes to tenancy legislation that's increasing the protection and rights of the tenant. This means that if you're leasing property, you need to be intimately aware of the changes and how they're going to apply to your situation. It's all worth noting that adequately maintaining a property in accordance with all laws, compliance codes, policies and procedures is also an expected requirement for landlord insurance.

Starting point is 00:15:07 If you don't follow the letter of the law, then your landlord insurer is unlikely to honour or pay any claim. This includes fining and contracting the right tradies who have suitable business and liability insurances in case something goes wrong, setting up suitable times with the tenants in accordance with the required notice periods, checking the work has been done satisfactorily, and then paying the invoices, all within certain stipulated timeframes. and this is one of the biggest reasons to engage a good dedicated property manager to ensure you're getting access to all your legal protection as well as access to specialised landlord insurance policies that are only offered when a property is professionally managed. Now don't get me wrong, for some investors being a hands-on landlord and self-managing

Starting point is 00:15:54 the property suits them, particularly if they live close to their rental, have a good long-term tenant and can spare the time to arrange maintenance and repairs, rent collection and inspections. It's also an option for those who wish to have total control over their investment which aside from their own home will be the biggest financial investment that they're ever likely to make. But as I've already said a number of times self-managing comes with some inherent risks and lacks the legal and insurance protection offered when the property is being managed by a recognised professional. And this is one of the major reasons why landlords choose to go with property managers in addition to their expertise and connections. Because as a landlord

Starting point is 00:16:37 choosing to self-manage, the onus is entirely on you. From finding tenants to making sure that all legal obligations are followed, the ball's in your court. Landlords who hire a property manager, while being informed of issues, don't have to single-handedly manage situations. That's why, when deciding to self-manage or not, it's important to weigh up all of the risks involved. And in this regard, other risks of self-managing your rental property include the following. While a private landlord can place ads in the local newspaper and online,

Starting point is 00:17:12 the prospective pool of tenants is much smaller than property managers, hence the potential to find the right and best available tenant is much smaller. And as I've already mentioned, tenants who look for private rental ads that don't involve a property manager quite often don't have the best rental history. Because these prospective tenants understand the ins and outs of the rental process, they opt for private listings to avoid background checks that could turn up quite unsavoury information.

Starting point is 00:17:41 Without access to the most accurate and full information, private landlords are often forced to make decisions based on gut instinct and this can prove very costly down the track if the wrong tenants are chosen and the rent goes unpaid or the condition of the property decreases drastically. And getting the right tenants into your rental is imperative. A good tenant will pay their rent, not make endless trivial demands and look after the property as if it were their own. A bad tenant, on the other hand, can be your worst nightmare.

Starting point is 00:18:11 Rent arrears, damage, illegal activities, the headaches and the hassles can be endless. Then there's the risk of not following all the required procedures to the letter of the law. It's not uncommon that disputes involving rental payment, lease conditions and bond claims end up in a tribunal or court hearing and the judge or mediator will take into consideration whether you as the landlord have taken all the appropriate steps and can provide the appropriate records as evidence that this has actually occurred. For example, if you wish to

Starting point is 00:18:45 evict the tenant, you need to be able to demonstrate that you provided the required reminders, notices and applications at the correct intervals in order to get the demand that you require issued. If you can't do so, you may not even get the order you wish and the tenant will be allowed to stay in the property. Then there's the risk that if you become friendly with the tenants, which often occurs, enforcing the lease agreement can also become complicated. And breaches of the lease agreement can be detrimental to you as the landlord and in some cases may void your insurance if, for example, your tenant's sublet will run a business from the rental.

Starting point is 00:19:23 On the flip side, here are some of the other reasons why I believe it's worth investing in a good, dedicated specialist professional property manager. When it comes to sourcing tenants, good professional property managers can tap into databases that give you access to a much larger pool of quality tenants. In addition, property managers have access to thorough screening procedures which can weed out applicants that are simply not suitable for the property right off the get-go. Property managers also have access to blacklisted tenant databases for tenants who have bad rental histories, and property managers in an area often talk with each other to share

Starting point is 00:19:58 details on bad tenants to protect their landlords. This is information that private landlords just never get to hear. Property managers also perform all the time-consuming tasks involved with a rental. They arrange repairs and maintenance and usually have a panel of preferred suppliers on hand to perform the work. Property managers also deal with tenant requests and any complaints from neighbours 24-7. They conduct the rental inspections and provide a comprehensive report to the owner, ensuring important matters are raised with landlords and resolved to comply with legal and duty of care requirements. Next, professional property managers give

Starting point is 00:20:34 you access to specialist landlord insurance policies that are generally not available to private landlords because the insurers are protecting their interests and reducing their risk by only dealing with properties managed by property management professionals. For example, the common inclusions in landlord policies are loss of rent and tenant damage. However, one that's sometimes overlooked is denial of access. If the tenant refuses to leave the property and you have to go to court to get them evicted, denial of access will cover this and you should be able to cover and claim for loss of rent while you go through the eviction process. Often we see landlords really struggle when it comes to loss of rent.

Starting point is 00:21:16 If they don't have specialised landlord insurance and the tenant has defaulted on their rent, they quickly discover the bond is nowhere near enough to cover the missing rental income and then the clean-up when the tenant vacates, which is what most landlord insurance policies provided by the major general insurers generally rely on. And while the bond is absolutely there to protect a landlord, the time frames to legally get a tenant out of a property when they default on rent can really stretch out. Depending on the state it generally takes somewhere between 8 to 12 weeks to get into tribunal, sometimes longer, and then there's a 14 day period when the tenant needs to vacate.

Starting point is 00:21:54 So you can be looking at 10 to 14 weeks until you get possession of the property and you'll be holding the cost in the meantime. So you can see that the four week bond is nowhere near enough to cover this and this is where specialised landlord insurance via reputable property managers really comes to the fore. And making sure appropriate records are kept is super important especially when it comes to making a claim against your insurance and in our experience it's not a matter of if you'll ever make a claim it's just a matter of when. When you do need to make a claim you often need to submit a pile of paperwork including the tenancy application, lease agreements, bond lodgements, details about property inspections, notes on repairs and maintenance

Starting point is 00:22:36 and of course the ledger of payment collected. Reputable property managers are required to have a trust account and they usually have all of this information right at their fingertips. And if things go pear-shaped and the tenancy needs to be ended, a good property manager knows precisely what to do to meet statutory obligations. For example, issuing notices, applying for termination orders and appearing at tribunal. And if you do end up in tribunal and you will at some point during your investment property journey you need to have professional representation

Starting point is 00:23:08 as the legislation in all states is slanted in the favour of the tenant and the courts look more favourably on your case if it's been professionally managed. And property managers' intimate knowledge of the legislation and their ability to follow due process to the letter of the law will end up saving you thousands, a lot of stress and a lot of sleepless nights. So understanding all the laws and obligations is a key benefit of engaging a professional property manager. They're required to keep up to date with legislation

Starting point is 00:23:37 and all of the regulations and compliance codes that apply to rental properties, not just the residential tenants authority, but also other applicable legislation including building safety, strata laws and short-term accommodation. Now no one wants to fall foul of the law and having a competent property manager handling your investment property can help ensure that this doesn't happen to you. So in my humble experience the costs of engaging a good property manager are often more than offset by the additional rent an experienced manager can get you, the savings enjoyed by reducing tenant changeover and vacancy periods and property managers save you maintenance money because they generally get better deals from

Starting point is 00:24:19 tradies they use regularly on repairs and of course there's the considerable saving of your time which will be much better spent on earning additional money through your work than saving a few measly bucks on property management. With property management being around the cost of a large coffee a day you need to ask yourself whether it's really worth putting your highest price assets at risk by trying to save this measly amount. So what are the approximate costs of using a property manager? Well, in return for relieving you as the owner of all the time-consuming and sometimes onerous obligations of leasing, managing and maintaining a property, the agent of course charges you fees. And they generally charge commission which ranges from somewhere between

Starting point is 00:25:04 6% to 15% of the weekly rent and other fees can apply for various services such as letting and lease renewal, admin fees, tenancy database checks, file preparation and tribunal attendance, end of financial year statements, lease transfer fees and insurance claims. Some will charge a flat fee or a flat percentage. And often it's the ongoing fees involved that are the reason why some landlords then choose to self-manage. However, property management fees, just like landlord insurance premiums, are generally fully tax deductible. And remember, it's never about cost, it's always about the value achieved. achieved so don't get caught chasing the lowest property management rate. Again the difference

Starting point is 00:25:50 between the cheapest property manager and the most expensive is often only a cup of coffee a week so if you're prepared to put your highest price asset at risk for the cost of a cup of coffee then you need to think seriously about this. Being penny wise and pound foolish can end up being very costly as Tom found out in my opening story. We understand that managing a rental can be complex especially in terms of legal obligations and requirements and for all of these reasons we believe a great property manager is worth their weight in gold. So while self-managing might be the preferred option for those who can't who do and can cope with the workload and have the time to fully understand the legal liability risk that's involved with do-it-yourself, engaging a

Starting point is 00:26:37 property manager can be a wise move to ensure you achieve and maintain a good return on your investment. So again, in my humble opinion, in the context of the ever-changing legislative environment that's increasingly favouring tenants, I don't think it's ever been more important for an investor to engage a good, dedicated property manager. This is because a property manager can help you navigate all the changes in the latest legislation and make sure you don't inadvertently do anything wrong without even realising it. I also think it's important that there's a professional distance between the owner and the tenant.

Starting point is 00:27:13 Sometimes this relationship becomes a little too cosy and it can be a lot harder to issue a breach notice or have a discussion about upping the rent if there's a friendship involved. So if getting a good dedicated specialist property manager is so critical to the success of your investment journey, how do you go about ensuring that you find and engage the best one available? well this is what my wife Sonia does for all of our know-how investor clients and this is exactly

Starting point is 00:27:42 what I'll help you with in next week's bush bite I'll give you the lowdown and share with you all of the questions you need to ask and performance benchmarks that you need to know to ensure you're engaging the best available property manager in your area because it's often what they don't say that is just as important so being able to read between the lines is really important here and for more deep dives on the importance of all things property management look out for my great conversations on both Realty Talk and Get Invested with Dennis Youssef from Inspired Growth Training that's more food for thought have a great week and I look forward to sharing with you again soon to get a summary of all this investment gold in the show notes just email me on

Starting point is 00:28:29 hello at khgroup.com.au. That's H-E-L-L-O at khgroup.com.au. Or check us out at www.bushymartin.com.au forward slash Get Invested. I look forward to joining you next week for another episode of the Get Invested podcast. So thanks for listening. And as always, dream as if you live forever and live as if you die tomorrow. Thank you.

Property Hub - Investment Insights & Inspiration - Get Invested: Bushy Martin on property management

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