When you become a property investor, you also become a landlord. It is important to understand your responsibilities as a landlord, as this knowledge will help you avoid costly mistakes, maximise your returns and protect your investment.
Buy a property
It’s no secret that you should buy and develop your own property in a great location set for capital growth, with low vacancy rates and high-quality tenants.
No investment property should sit on the market for weeks unrented if it’s in a good area. When you’re buying or building in an area where vacancies are tight, and where there’s high demand for properties like yours, then it’s easy to get them rented out. You can expect to earn rent and cash flow from day one.
Understand the legislation
There are general responsibilities you take on as a landlord, as set out at the state or territory level of government. It’s important to familiarise yourself with the specific rental legislation and regulations in the state or territory you’re buying and/or developing property in.
Appoint a manager
People ask me, “How can you maintain so many properties? It must be really stressful!” Now they are landlords themselves, how are they to manage their properties? What do they do if they get bad tenants? What if a tap leaks or the air-conditioning breaks down?
I tell them, “You’re not going to be managing the properties yourself. That’s what you hire a property manager for.”
I have never spent any time managing or maintaining a property because I’ve had management in place from the minute I rented out my first property. It’s up to you whether you choose to go it alone or use a buyer’s agent when buying a property, but I firmly believe that everyone should use property managers to manage their properties if they want to build a portfolio.
Managing your own property can easily become a full-time job. If you do it yourself, you’ve got to be on call all the time. If there’s a plumbing problem, you’ve got to organise a plumber or go there and fix it yourself. If you’re in Sydney and a major problem crops up in your property in Tasmania, you’ll have to fly down there and sort it out.
As long as you appoint the right property managers and you buy properties in the right locations, then you can be a truly passive landlord. That said, I don’t recommend being a passive property investor. I’m all about equity creation, which is not passive – you should be refinancing equity whenever the bank allows you to. You need to run your property portfolio like a business.
As a landlord I receive 16 rate notices for my properties – well, in fact I don’t get any. They go to the property manager to pay on my behalf. When you set it up properly, it’s entirely stress free. It’s like setting up a business then leaving the day-to-day operations to a competent manager.
What do property managers do?
1. They source your tenants.
2. They open your property for inspections.
3. They check whether your prospective tenants are blacklisted from rental.
4. They check tenant references to make sure they have always paid their rent in the past.
5. They collect rent.
6. They pay your bills, including council, water and strata rates, from your rental monies.
7. They pay you the balance of the rental income each month.
8. They conduct routine inspections on your behalf and send you reports.
9. They organise any repairs and maintenance that is required.
10. They deal with tenant concerns.
11. They chase overdue rent.
12. They can represent you at a tribunal if you have any issues with your tenants.
How much do you need to pay a manager?
The fee is based on a percentage of the amount of rent that’s coming in. The amount varies, and may be anywhere between 4% and 10%. In a place like Sydney, you can get a property manager for as low as 4% plus GST. But even in regional areas, you should never have to pay more than 7% or 8%. In Brisbane, for example, the going rate is 8.8%, but I’ve negotiated most of the property managers I work with, and who work for my clients, down to about 6% or 7%, which is where it should be.
Some people think they can save money by not having a property manager. But time is money, and if you need to conduct open inspections on a week day, or if you’ve got a tenant who is constantly firing off emails or calling you with complaints, or if repairs are needed that require letting tradespeople in and out, a property manager will take care of all of that. It’s money well spent, and it’s tax deductible. Just be sure you have the right property manager in place.
How do you find the right person?
Your property manager is a vital member of your “dream team”, yet they are often seen as the poor cousins of real estate agents. This is why it’s good to deal with an agency that specialises in property management because, to state the obvious, while real estate agents know about selling property, managers know about managing it.
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