The Spark of Curiosity

If there was a Pub Quiz on property issues, I'd bet our team would win it hands down. Why? We are absolute slaves for learning. We don't go a week in our office without a long and detailed discussion on some aspect of property investment. It might be about structures, mortgages, calculating yields, adding more value, why we buy what properties we do, which books are useful, maintenance issues and how to resolve them. In fact, this list is just things that spring to mind from office discussions in the last few weeks.

When our tradies come in to return keys and report on the jobs, they often give detailed explanations (complete with drawings) about what the problem was, what caused it, and how it was fixed, along with what we should look out for in the future. It is incredibly valuable as the team can know what to keep an eye on when doing inspections. No one wants their property to get damaged from ignorance on the part of the property manager.

Today we visited a property to see a new gizmo in action - an infra-red moisture detector. We had to resist the urge to grab this fancy thing off the technician and test out how long our foot prints stayed visible on the carpet and other interesting CSI-esque investigations. Even without our extra-curricular experiments, we did discover where insulation had been missed, the difference in temperature between inside walls and outside walls, and yes, even where the suspected leak was. I've been a property manager a long time, but this just does not get old.

I love sending the team to conferences to learn more as investors as well as property managers. There is many an 'a-ha' moment as something that confused before is illuminated. It might be an understanding of one of our clients investment strategies. It might be a better understanding of their own risk profile. Or realisation of different communication styles and how to work better with someone who seems to speak another language.

We belong to professional associations - the Independent Property Managers' Association (IPMA) and the Wellington Property Managers' Association (WnPIA) and the team regularly attends these meetings. Why? We love learning all there is to know, it makes us better property managers.

Sometimes at a professional development opportunity we encounter someone who we hope hasn't been in property management long, because every time they open their mouth some nonsense spills out. If they are your property manager, there is hope, come see us!

Earthquake Strengthening

In the last year Earthquake Strengthening has become a big issue for landlords and tenants alike. Many landlords in Multi-unit residential properties are having to get the building assessed by an engineer and hopefully removed from the "Potentially Earthquake Prone Building" list without too much cost involved. Other landlords may be faced with costly strengthening work which may result in large periods of vacant properties, the building may get stickered which would put off potential tenants or as a worse case scenario insurance companies may refuse to ensure the building.

We are dealing with several owners where the Body Corp Committee or chairperson was left in charge of dealing with getting the building assessed. In all but one case the Body Corp has dropped the ball and are totally unaware of the implications of not getting the process up and running as soon as possible. These building are all due to be stickered during peak letting season and I will hate to think what impact this will have on rents and vacancy levels. We believe in being open with tenants about the building they will be living and will be discussing with them the status of the building. Unfortunately there is a lot of fear out there when it comes to Earthquakes. Just because a building is stickered does not mean it it will fall over in an Earthquake. Getting a tenant to understand this is another matter.

Buildings that are currently on the "Potentially Earthquake Prone Building" List are typically buildings that are over 2 storeys high are commercial or multi-residential and were built prior to 1976. Your building could still at risk if it is a single unit dwelling or a house that has been split into several units. The Council will be moving on to creating a list for residential dwellings in the next phase of their Earthquake Prone Building Policy.

So as an owner of an investment property how can you mitigate your risk? As a designer in a previous life I came across many people who renovated their homes. They replaced old scrim walls with plaster board, made small alterations and additions and removed wall in the home with out getting building consent. (After all the walls weren't load bearing) On properties where I was asked to design and prepare consent documentation I always found it difficult to comply with the current building code in regards to earthquake and wind bracing with out relining several walls. If you are considering any work to your property, especially if you are relining or painting walls, take the opportunity to upgrade the bracing of the building and bring it up to current code. You may find that it is cheaper to install the required bracing now then do it down the track when the council requires it to be done.

Transparency Rules

Someone I know had a property manager taking care of their property while he and his partner were in the United Kingdom. While out of the country they assumed things were going fine, and didn't open up the statements they were sent each month to see what had been spent. They did know the property manager fairly well, and trusted them as a friend.

When they returned to New Zealand they prepared their tax returns for the previous year and opened up those statements. They were not happy with what they found. They knew their property had required repairs and maintenance. They did not know their friend the property manager sourced the parts needed from Trademe auctions. What's wrong with that? Goods sold at auction do not carry any warantee or guarantee, they are strictly 'as is, where is'. If you are paying for a trades person, you want to install parts that will last in order to justify the skill in installing them. That wasn't the case here.

They had assumed their friend the property manager had attached copies of their invoices to those statements. When they opened up the attachments they found all the invoices had been generated by 'XYZ Property Management', rather than the trades person who did the job. This is a problem because a) they do not know what the trades person charged or what had been added onto it by XYZ b) they don't know who worked on their property so future call backs to set right are impossible c) they don't know if the trades person was suitably qualified. The latter is important as you don't want your insurance invalidated by dodgy wiring, right as your house burns down.

At Rental Results we know how important these things are. For our clients peace of mind they get copies of all original invoices emailed to them with their statements. They can see exactly what the trades person said, charged for, discounted etc. We don't inflate the bills, and in fact we look for discounts and pass those on where-ever possible. Our invoicing is very clear.

All our tradespeople are suitably qualified, it is one of the many things we discuss with them over a two-page induction process. We like that you know who we are using - reputation is important, and shonky tradies don't get called back.

At the end of the financial year we send a summary to our clients, which makes it easier and cheaper for your accountant to prepare your taxes. Our clients can email their accountant the invoices as well should there be any questions about what was done.

If you are considering property management, do ask how transparent their processes are. The more transparent, the better.

No Children, Thanks.

Did you know some people deliberately break the law? Yep, they utter those words 'sorry, no kids at my property'. Sounds innocent enough, but it is contrary to the Human Rights Act 1993 Section 21 (1) (l). Doing so could result in prosecution and damaged awarded.

From time to time clients instruct us that they don't want children at their properties. That's nice, but no dice. We won't follow unlawful instructions. Most of our clients are pleased to learn we are protecting them from their own ignorance of the law. Some decide to look for another property manager who will not allow children in their properties. To those I say 'Good luck!'. I know there are some property managers who will attempt to defend themselves with 'I was just acting on my clients instructions'. It is no defense. And worse, they did not educate their client, so both are likely targets for prosecution.

If you don't want children in your property, don't buy property that would suit them. A three bedroom home in the suburbs is going to attract families. If you don't like that, then get something else, perhaps a hostel as they have more power to discriminate. Frankly, I'd prefer to deal with a family with a whole bunch of kids than the young or disenfranchised.

So what can you discriminate on?
Number of occupants. You can limit the number of people living in the house. A rule of thumb is one person per bedroom. Don't try to say only 2 people in a 4 bedroom house, you won't succeed if challenged.
Ability to pay. If they can't afford it, you don't need to take them. This is different from being unemployed. Our rule of thumb is 1/3 of income is the maximum spend on housing.
Smokers. Yep you don't need to take them.
Pets. These aren't children, no matter how much they are a part of the family. Wolf children are a grey area. If you encounter any, let me know how you go.

Generally speaking, take the best applicant on merit. And that's a topic for another blog.

The Cascade of Errors

I was talking to a DIY investor last night about an issue they were having with tenants in a property. I suggested a solution to their problem, and they said ‘yes, that would work, except…’ and then added a bit more information about something else they had done which meant they couldn’t do what was suggested. “In which case, you’ll need to do this instead” I suggest. “Will that work if I have also done...?” asked the landlord. Yep, another issue to complicate matters. This went on until there were about four or five issues all of which impacted on or complicated the original issue. I offered what help I could, but I came away thinking “We don’t get compacted issues like this, why not?”.

A big part of the answer is experience. We have the ability to avoid a lot of issues by simply anticipating what could go wrong and acting to prevent it. That’s not to say our psychic abilities are such that we can predict every outcome. But, we have been around the block enough times to identify recurring themes.

One of the problems for the landlord above was she didn’t put things in writing. We have this down to an art-form, with many standardised letters for just about every issue, from breaking leases to being late with the rent payment. What do tenants think of this? They like that we are professional and consistent. They know where they stand with us. In many of our letters regarding a breach of agreement we cite the part of the Residential Tenancies Act which applies and we encourage tenants to call Tenancy Services. Could you be so confident with your process that you can encourage a tenant to get independent advice? We can.

Another thing that makes us different from this DIY-er was that we look at the big picture, the lease overall, where she reacted to the situation at hand. She wanted to keep her options open (only for the sake of having the options there, in reality she was not going to exercise them in the timeframe created by the lease duration) which meant she wasn’t decisive when she needed to be, and that led to complications. It is a relief to limit your choices and live with the decision made than be indecisive and be railroaded into a bad situation or be overwhelmed by the choices before you.

The final difference was that we don’t care if we are liked. Sure, we like to be liked, but we would rather do what is right than popular. We don’t need the tenants to like us, we do need them to do the right thing. Our DIY Landlord did care. The relationship was important for her, and she would rather compromise her rights than have a difficult conversation.

Ask yourself:
Are you experienced enough to foresee potential problems and head them off at the pass?
Do you put agreements in writing every time?
Do you consider the big picture when you make decisions, and can make decisions without regret?
Can you tell tenants ‘no’ without feeling bad about it?
If you have answered ‘No’ to even one of these questions, consider getting help from someone who can say ‘yes’ to all four of these. You'll be much better off.