The 5 Steps for Self-Managing Your Property
This is the second session in our series which is focused on the steps that are involved in managing your own property
Thanks for joining for our mini-series 'The Path to Managing Your Own Rental Property'.
This is the second session in our mini-series which is focused on what are the steps involved in managing your own property?
Session 2
A Quick Recap.
In the last session we talked about why there is an opportunity as well as the benefits available to you and we'll just do a quick recap on that and then jump straight into the content below!
We talked a little bit about the change in the market, that there's a shift towards self-management and that 33% of the market is now self-managing their own investment property.
That’s driven a little bit by changing technology and consumer behaviours but it's also driven by the price value matrix and a little bit of an erosion in trust where perhaps people, depending on the value that they're getting from what they're paying for their property management might be feeling like they're getting ripped off and it's not delivering the return on the value they want, therefore they're looking for alternatives.
Then we finally talked about what the opportunity available is for you and we looked at the expense base of an investment property. We found that there are around 17% of expenses that are a there for you to take advantage of and deliver a higher return to get more out of your investment property and at the same time increase the level of control that you have over that property.
Who Owns Investment Properties in Australia?
We’re going to jump in and talk about who are the owners of investment or rental properties in this country.
We lean on stats from the Australian Tax Office or the ATO and deep dive into those who are claiming rental income on their tax returns. They provide some really great insights for us to understand the market because what you'll find is the two things that they helped us to discover.
Breakdown by age bracket:
If you're claiming rental income on your tax income, what age bracket do you fit into? You can see in the chart that there's the under 29’s and then 30-39, 40-49, 50-59 and 60+ age brackets. And you see the spread of these age groups and then there is the two categories - those people who are earning less than $100k a year in income and those that are earning more than $100k.
The first point to make from this data is that that 70%+ of the market or of those people who own rental properties, are actually in the 40+ age bracket. And that makes total sense, as we all know it's not so easy to save up for a deposit and purchase a property. It does take time so it's natural that the older population of this country are owning the investment properties.
If you look even further in you can see that there is a big skew towards the older segment again of the 50+ age bracket. So, the first thing to note is again, that older people tend to be the ones who are owning investment properties and claiming rental income.
The second really important factor here is that this bottom segment, where you see across each age group is around 70%+ of people who are the ones who are in fact earning less than $100k of income and own the property.
This is a really important fact because people believe that it's a sort of a titan or a property mogul who has billions of dollars who owns investment properties and this just really proves that the people who in this country own investment properties are likely to be over 40 and are likely to be earning less than 100k a year. It's everyone's mum and dad, it's the teachers and the nurses and the police officers and the plumbers - it's the everyday people of this country and you don't have to be a billionaire to do it!
We have a really broad participation in the property market in Australia so, if everyone out there is owning investment properties then it's really natural for those people to look for ways to drive up the return on that investment property and get more out of it.
A Short Customer Story.
We want to quickly touch on one of our favourite stories on this topic from one of our customers and it's a great example of how you really can manage your own property in different ways.
This customer was having a less than ideal experience with an agent so she decided that she was going to take over and manage the property herself.
She was quite heavily pregnant at the time and this all happened right when she went the Doctor put her bed rest so the experience that she had was through using the RentBetter platform from her hospital in bed to find tenants, organise the lease agreement, get them set up through the platform, get the payments going and actually secure a tenant for her property - all while literally lying on her back in bed in a hospital.
You see the entrepreneurial spirit of somebody who owns an investment property come out here and of course it's a way to create wealth but there's also that element of managing and taking control of your investment and this is a really terrific example of someone who is taking advantage of the savings and the control that are available to you by self-managing.
The Lifecycle of Property Management
With anything, the first time you do it can feel complex and daunting and like there's a lot of processes, forms, documents and things that you need to keep track of. The whole point of these series and the point of our platform is in fact is to demystify it and help you understand there's a framework and a method to do things.
This will make you feel a little bit more comfortable about doing it and it will help take these actions because they won't feel so foreign and you will very quickly become familiar because there's a guided and structured process for you to follow - and that's the benefit of a framework really.
There is a life cycle to property management that sits within the framework and it starts when you purchase your property and ends when you decide to sell it or do something different with that property. And then again, within that process there is a big macro framework and lots of little cycles and frameworks.
In each one of those little cycles is a series of events that one needs to do in order to get the return on your investment which is obviously being paid rental income and then at the same time there'll be expenses and things that you must manage, but you're basically managing a lot of little cycles within the big cycle and that's really important.
We’ll go a little bit deeper now on what those little cycles look like and unpack them a bit.
The 5 Steps - Let’s jump in!
There are five key steps in the process of managing your property:
- Advertise your property
- Find and select a tenant
- Set up your tenancy
- Oversee that tenancy
- Complete the transition of that tenancy
We have numbered them in terms of 1 - 5 but it's really important to note that this is not always a linear process, it’s more of a cycle. You don't always have to go one, two, three, four, five, you may find that you've purchased a property that already has a tenant in there and the tenancy has already been set up.
In this case you're probably sitting between two points where you take over and you just want to make sure that everything's done and then you're going to continue to manage it.
You may take over or you may actually have had a tenant that's leaving in which case you just need to advertise the property and find a new tenant, so you're going to enter at a different point in the loop.
Alternatively and again you may take over the property from a family member or purchase it from someone again and you're going to just transition the tenant out, so they're at the final stages. There are a whole range of different entry points into this cycle but being clear on what's involved in each step is really important and so for the sake of some structure and a way to do things.
We’re going to guide through each of them, one at a time below.
1. Advertise your property
Theres really three components in here for finding a tenant.
Creating the Ad
We typically recommend going on the largest and biggest sites where you'll get the most exposure and that tends to be realestate.com.au, domain.com.au and rent.com.au.
Now each of those platforms will spend millions of dollars each year attracting eyeballs from tenants so there's a lot of value to being on them. There are certainly some other free websites and places where you can advertise, but we've typically found that the quality of traffic that comes through them is less beneficial than that of the mainstream sites so we recommend going to the places where you'll get the maximum number of eyes on your property.
Managing Enquiries
Once your ads are live on those sites you'll start getting enquiries and then you'll want to host inspections. In terms of managing those enquiries, you will do some vetting via email or phone, communicating back and forth. During this time you’ll want to start thinking about managing times for inspections.
Hosting Inspections
You should really think about hosting group inspections which are not advertised. We find that drives less enquiries because people will either just show up if they’re interested or not show up if the the inspection time doesn’t suit them, so we recommend for the first inspection at least, don't put a public time up because it gives you a chance to gauge the audience and gauge the demand for your property.
You’ll be able to see who's enquiring, what they're interested in and really understand what's in what the level of interest is in the market for your property.
2. Find and Select a Tenant
Now once you've got those things going you'll get to a place where you are hosting those inspections and seeing people come through the door so you’ll you want to start to get into your selection process.
This is where you're going to receive applications and start to run tenant checks.
Applications
Applications are basically a form that gathers information about the prospective tenant so that you can make a determination on suitability. It will include a lot of personal information about their living circumstances, employment and income as well as past finances so that you can verify that there is an ability to pay.
You might get multiple applicants and you're going to be able to see on paper who is likely to be able to pay for the property and take care of the property.
Tenant Checks
On the basis that you feel that one of the tenants might be appropriate for the property, you would then go into a process of actually checking them through the national tenancy database which is run by Equifax.
That’s going to give you a sense of whether there's any sort of bad history in terms of black listings, any bankruptcies or any red flags in terms of identity. It also gives you a second source by which you can use to make a decision. The first source is the application and the ‘paper-based’ view and the second one is being able to see an external view which is through that tenant check.
There is also a third source which is using referees or something like an employment check and then making sure that you've perhaps spoken to a past landlord. You will have also likely met the applicant in person so that you can apply your best judgement.
There are three different sources that can be triangulated around to make a decision, and it becomes the control point for choosing the right tenant and the right fit for your property.
Sometimes people ask us well “why am I a good judge?” or “how am I going to be a good judge of who the right tenant for the property?” and the benefit of doing it is that as the owner, you're more likely to be a better judge of who's the right character or the right person to be in your property rather than someone else who's incentivised and getting paid on the basis of having someone in the property.
Most property owners and the customers that we will speak to feel really confident about the ability to use these different sources to make a decision and there's certainly always more sources available if you do have any questions or have any problems.
3. Setting up the Tenancy
From here you're going to get into setting up the tenancy and it's really important that you do this right because obviously from a legal perspective, you want to be covered.
The Lease Agreement
A Lease Agreement (or Tenancy Agreement) is a legally binding, written agreement between a landlord and a tenant. The agreement captures the terms of your lease between you and your tenant with the amount, frequency, and duration of the payment schedule and any additional items or inclusions.
The Condition Report
A condition report is a document given to your tenants at the beginning of their tenancy that records the general state of the condition of your property on a room by room basis, including fittings and fixtures and needs to be completed within the first 7 days of the tenancy.
The report is used as a reference point when tenants move out of your property to determine if there was any damage caused in the property while they were living there.
The Bond
This is a security deposit that's paid by the tenant to the bond authority and depending on your state there's different bond authorities and different processes, but ultimately, it's used as a way to protect you as the landlord should there be some damage or something go wrong during the tenancy.
Typically, 4 weeks rent is held for the bond on that basis so in the process of setting up the tenant tenancy you want to do the Lease Agreement the Condition Report and then set up a bond.
4. Overseeing the Tenancy
Now that you've actually set up the tenancy you're going to want to jump to overseeing it and there's a couple of really important things to do here.
Rental Payments
The first obviously is that you’re getting paid your rental income - it's why you bought the property. You didn't do it to sign documents and follow legal agreements you did it so that you can get a return on it which comes in the form of rental income.
It’s really important that number one, at the beginning you and your tenants set up a rental payment schedule and it's really clear what that is. Whether it's weekly, fortnightly or monthly, it's really important to set that out and to set up the schedule and the dates in which payments are expected.
We'll sometimes hear people say “oh my tenant just tells me when they want to pay me and then I get a lump sum and hope that that covers it for a certain period of time”.
Now, that may work and if there's a relationship that accommodates then that that's fine but ultimately, as a landlord, if you thought of your property as an investment you want the return based on the agreement that you just signed which is a legal document.
If it’s going to be fortnightly it should be paid fortnightly and it should be receipted and be documented in a ledger. There should be a record of that payment made so it's really important that if you expect sort of professional behaviour from your tenant that you are able to act in an equal and reciprocating way where you are professionally handling rental payments and income.
Expenses
The next two parts are really around the expenses which is being able to track it and have a place where you can capture those expenses.
This becomes important for things like your end-of-year report so you don't want to miss any expenses captured through the year such as locksmiths or a plumbing or electric job.
Whatever it is you don't want to forget about that come tax time so it's really important to record that somewhere and make sure that it's in the list.
Maintenance
For your tenant it's really important for them to have a method and a way to send through a maintenance request and have it documented. And it’s equally important for you as the landlord to be able to deal with that request whether it's saying “that's not necessary or it's not required” or “I’ve got that and we'll sort that out tomorrow”.
It's really important to track it and again those maintenance or repairs events will typically have an expense attached to it so you want it recorded for tax time.
So, overseeing the actual tenancy is going to involve a combination of the payments the expenses and maintenance and then again you'll typically do a routine inspection so you’ll have the condition report come up again.
5. The Completion and Transition of the Tenancy
Assuming you've done all of that you're going to move into the completion or the transition stage of your tenancy.
When you’re exiting the tenant you’ll look at the ledger and that is the document captures all the payments and the records which are receipts of those payments.
You're going to want to review the condition report document you created in the first and early stages of the tenancy where it's got a record of the state of the property and how it should be returned.
You’ll then conduct a final inspection of the property and complete an exit condition report and review if there's damages or if there is anything that needs repairs. This can be noted there, so having that well documented and easily accessible is really important.
And then finally, your tenant's probably going to want to have some sort of ledger that they can take away with them so it's going to be really important for them to have access to that as well.
As you can see, we’ve broken down the 5 steps to managing your property but theres a tonne of detail within these steps so if you’d like to read more we have extra information available in the form of help articles and blogs as well as videos on our YouTube channel.
We also have an eBook available to download which is useful in terms of learning more about the processes involved.
In next part of our series we’re going to focus on the next level down which is “How do I go about doing that?” or ‘How to Successfully Self-Manage’.
Thank you for joining us again and if you have any questions or comments please feel free to chat to us through the website or email info@rentbetter.com.au.
If you'd like a deep dive into the video for this session with RentBetter CEO Jeremy, take a look below:
To view the previous session again click below.
