The question has become so common, it's basically a new way to say g'day and yet over-and-over, some of the most experienced landlords end up in ugly situations with their tenants. Fortunately some landlords with decades of experience, don't seem to have the same problems as the others. What are their secrets?
Over the last six months, I've spoken to some of these lucky individuals to find out what they have in common and here's what they said:
Change the Way You Inspect the Property Regular inspections are an absolute must but the way they are done is far more important than the frequency with which they are done. 'Stephen' from Hamilton (not his real name) says, "I do a DIY meth test every single time I go over and the next thing I do is make sure none of the taps are leaking". Successful landlords have a habit thoroughly checking on their investment and not on their tenants. One of the landlords I spoke to inspects every two months and insists (before she arrives) on having her tenants tell her one thing they think could be improved, whether it's something that needs fixing, updating or something more vague. "It encourages tenants to value the relationship," says Aroha, who just replaced the 20 year old tiling in the downstairs bathroom, "And it's a good way to keep the place modern, without having to chuck people out for renovations" In Aroha's case, it also helped her spot a change in her tenant's relationship status, that came with a criminal element. "I knew there was something funny about that girl as soon as I saw her," she says. "It was the plumber that actually tipped us off in the end." Aroha's close attention was able to prevent a problem before it started, and her relationship with her tenant's is still strong.
Remember Rule #1 of Investing The greater the risk, the bigger the reward. I can't count the number of times I've seen a landlord sit on a risky investment for years at a time. They certainly pay well for sure, but most investors prefer not to hold on to risky positions for very long and certainly not for years! Residential property can be manged in such a way as to bring a very high return on investment but every step taken to improve that return, brings risk. We all know this, so why are people surprised when it turns to custard? Perhaps one of the reasons for this attitude, is the long held myth that landlords won't be challenged. The reality is, this is mostly true...but only 'mostly'. Hold onto a risky investment for long enough and Murphy's Law will kick in. "My rent is about 30% below market," says Neil. "When we went into a stage four lockdown, my landlord gave me a week off and I didn't even ask!" Neil's eldest daughter lost her accommodation and came to live with him shortly after quarantine ended. He came home from work early one day, to find her smoking on the premises. "That's it I said! I'm not risking my home just because you can't take a break from the wacky-backy for five minutes and I tossed her out. No wonder she got kicked out of the last place." We've all heard it before and property managers will be the first to tell their clients: If you want to get rid of a bad tenant, raise the rent. So what do the landlords say? The overwhelming consensus is that tenants expect more, as the rent increases and are more likely to complain about difficulties. So what do we do if we want to keep a good one? It seems obvious now. Interestingly, you'll never hear a property manager telling you to lower the rent, which brings us to our next point.
Ditch the 'Property Manager' Property managers can be found in every corner of the world and Aotearoa New Zealand is no exception, what does make us exceptional however is our complete lack of regulation over the industry. For those of you who have a property manager, stop for a moment and ask yourself what exactly their qualifications are. For many of them, the answer is 'none' and many more were in unrelated industries before becoming the person in charge of your investment. Just scanning a property management company's website will show you that they almost never have any qualifications in law or even real estate. Are these the people you want to pay 10% to? And when things go wrong who foots the bill? I've seen property managers cry in court, scream at judges and I've even seen them implicate their clients in order to shift the blame from themselves. Worst of all, I've seen them get promoted after provoking civil action from a tenant. Who pays for that? These are middle-men that insert themselves into your life, take a commission and then levy fees on either you or your tenant whenever possible. Then, when your tenant gets upset they show up smiling, convincing them that they are the good guys. That leaves YOU as the bad guy. Just remember, every cent they take from your tenancy, is coming out of YOUR pocket. But not all middle-men are bad and in some cases it might be necessary to engage a property manager (particularly if you're going to be out of the country for an extended period) but if you're going to get one, rather stick to a member of the Property Managers Institute of NZ. At least then they'll be held to some standards outside of your ability to sue them. The very vast majority of local landlords manage their own property, maybe they're onto something?
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