I’m often asked about the best way to choose a tenant. This question pre supposes that you intend to manage a property yourself and, in my opinion, this is not a good idea.
Part of the process of property investing is to ensure that you have a professional approach – you’ll probably spend many long hours ensuring that you do the research and buy the right kind of property. Once that’s done, trying to save a few tax deductible dollars each week by managing it yourself makes no sense, and it’s definitely a job best left to the professionals. If you value your own time, you’ll know that what you pay to a property manager for the few hours a week they will devote to looking after your property is most likely considerably less than you can earn yourself doing something else!
Don’t settle for second best
Having said that, not all property managers are equal and, rather than thinking about how to go about choosing a tenant, you should instead be considering how you should choose a good property manager. Once you have done so, don’t make the mistake of choosing the manager and then forgetting about your property. Be sure to keep a close eye on them so that they continue to do a good job for you.
A property manager must do more than simply act as caretaker for you. If you are not happy with the manager you have now, get another one – and another one if you are not happy with him or her. It is very easy to cancel a property management agreement, and it is your job to oversee your manager to ensure he or she is doing the best job possible for you.
When choosing a property manager, don’t merely settle for the one attached to the agency from which you purchased the property. Taking care of your new investment requires skill and, as with any job, you must now interview potential candidates so that you can choose the one you feel can best fit the bill.
Ask the right questions
The issues you should be covering before you proceed with any manager include:
- How many properties do you currently manage, and what number of staff do you have to manage them?
- How often are inspections carried out, and what is the cost of these?
- What is the actual percentage that represents the management fee, including all sundries, postage, telephone, leasing costs, advertising, letting fees, linen, laundry, cleaning and maintenance? (note this is different in each state)
- How often are disbursements to the owner made? (While a minimum of monthly is most desirable, especially where you have borrowed to invest and must make regular mortgage repayments, don’t be afraid to ask for fortnightly disbursements.)
- What action does the manager take when a tenant is behind in rent?
- How does the manager monitor tenant care of the premises?
- Has the manager any past cases of complaints from owners?
- What is the vacancy rate across the manager’s rent roll?
- Has the manager experienced any past financial difficulty?
- Has the manager been involved in any failed companies or ventures?
- What strategy would the manager use to seek a tenant if your property experienced vacancy?
- What plans does the manager have to attract tenants to your property?
- What plans are in place for staff to manage the job when the manager takes annual leave?
- How many tenants on the books are currently in arrears?
- How many cases of serious tenant damage have been experienced in the past?
- What process does the manager use to screen tenants?
You will probably think of more questions you can ask, but the above represents the minimum amount of information you need to make an informed choice.
Treat it like any other job
When you retain a manager for the job of managing your property, the process should be taken seriously and treated in the same way as you would to recruit someone for any job. If, and when, the performance slips, waste no time in putting in place an action plan for the improved performance of the manager, or for his or her replacement in the event that this can fairly easily be achieved.
An important thing to note
Having said all that, even the most thorough of interviews cannot guarantee that you retain the best possible manager. However, there is one more step you can take to ensure that, if you end up retaining a manager whose performance is not what you had hoped, you can swiftly terminate them. This step is to ensure that the notice for termination period in your management agreement is very short. It’s likely that, when you receive the contract, the period of required notice will be already included, pre- typed in black and white. These periods are normally a minimum of one month but, depending on the state, can be as long as ‘till the end of the current lease’. You certainly don’t want to be stuck with a poorly performing manager that long, so be sure to strike out any pre-written clauses and write in a period that better suits – I suggest two weeks. A good manager should not be scared off by even a one day clause and if the manager you are dealing with refuses to accept a shorter termination period, then you should refuse to retain them.
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.