Pitfalls of property management

VICKI HOLDER outlines the pitfalls of property management and how best to avoid them.

Like any business venture, buying a second property as an investment must be approached with caution. Its success relies on the ability to get good tenants and manage the property with the minimum of hassle.

People can choose to manage their rental property by themselves, but there's a lot more to it than meets the eye. It pays to know what you're getting into, how to screen tenants and how to deal with all sorts of scenarios. Landlords have many statutory obligations to fulfil and it's essential to be aware of what's involved before heading into the minefield.

Do-it-yourself landlords

First off, visit one of the 21 Tenancy Services offices throughout the country, or visit www.tenancy.govt.nz
which tells you everything you need to know about renting, bonds and solving tenancy disputes. Join one of the 16 property investor associations in New Zealand. As well as publishing a magazine, they give advice and support, run monthly meetings and hold regular conferences with good speakers.

If you decide you want to do it yourself, check your prospect's credit worthiness with a reputable credit organisation. Ask for references from previous landlords and check them - gut instinct goes a long way. It's important to keep accurate rental records. If the rent falls into arrears this needs to be followed up immediately. Bonds must be lodged with Tenancy Services. If things go wrong, either party can apply for a Tenancy Tribunal hearing.

The pitfalls

Sylvia Lund, of Just Rentals in Auckland, says there are all sorts of pitfalls for do-it-yourself landlords who don't know their rights and responsibilities, nor those of their tenants under the Residential Tenancies Act 1986.

"They risk getting bad tenants because of poor checking facilities," she says. "Bad tenants won't come near a real estate agency. They always target private landlords who are easier prey.

"They often make mistakes in their paperwork when doing inspections, reports and tenancy agreements. They charge for the water and don't send off bonds. Repairs are not done. They go onto the property without giving tenants sufficient notice. Their lack of documentation may subsequently impede mounting a case against tenants in a Tenancy Tribunal case."

Lund notes some landlords make the mistake of getting too close to their tenants, which lessens their chances of achieving a good market rate for bonds and rents. "Complacency is common in a relationship that is too friendly," she says. "Such landlords are too amenable to tenants' demands. They have trouble controlling arrears and organising the eviction process."

Employing a professional

Martin Evans, a property manager and vice president of the New Zealand Property Investors Federation, says people purchase investment property as part of their investment portfolio. They do not necessarily want to manage their investments.

"Property management can be very risky and most risk can be avoided by using a property manager," he says.

"Professional property managers have experience in selecting and handling all sorts of tenants. They always check the tenant's credit rating before selection."

Members of the NZ Property Investor Federation have a list of bad tenants - people with tenancy orders against them - that they can refer to in a bid to avoid problems.

They know the market rents and can set a fair rental and prepare the tenancy agreement. They monitor rental payments daily. Statements are forwarded to owners and/or accountants.

Andrew Crocker, of Bayleys Property Services, says his company follows up missed payments immediately. "We regularly take over properties from landlords who are having problems with rent collection, which causes them a lot of stress and anxiety."

Management companies undertake to inspect properties regularly to see how well the tenant is keeping the property and check maintenance issues that need to be addressed.

Just Rentals has a property manager on call 24 hours a day for emergencies, such as tenants losing keys, burst hot-water cylinders or possums damaging property.

A good property management company invests in staff training, which is particularly important given that the Residential Tenancies Act provides for monetary awards against landlords who breach the act. Proposed changes to the act impose even more obligations on landlords. If a dispute does arise, your property manager should be trained to handle the situation.

Property management is a time-consuming process. To employ a professional to do it costs, on average, 7.5 per cent plus GST on rent collected, as well as $30 an inspection and an hourly rate for tribunal hearings. This is tax-deductible, and it frees up owners to do other things.

To select your property management company, ask if they handle your type of property and whether they specialise in executive homes or student flats. Get references from some of their customers and make sure they have adequate staff for the number of properties they maintain. View their services and charges.