So you’ve bought the property… What’s Next? (Part 2)
The next step is, “Well, ok, once I’ve settled, the next biggest anxiety I’m going to have is whether or not I’m going to get a tenant.” So you really need to start thinking about property managers and interviewing a range of property managers. Ask them some key questions because they are going to be in charge of looking after your asset. For me, the number 1 thing to think about is, when you are talking to them, service is number 1 because the biggest cost that you would have bar none when it comes to an investment property is vacancy. So don’t get caught up by the minutiae of, “They are charging 5.5%, they are charging 6.5% and they are charging 9.5%”. To me, once you’ve actually worked out what that percentage is in real dollars, you realise that you are actually focusing on the wrong thing because if you are vacant for one week that is going to cost so much more than those little percentages along the way. So make a call to the property manager and see how long it takes for them to call you back because service is everything. Are they being proactive in making sure that they minimise the vacancy or is it just another property in their rent roll that is inflating the value of their asset and they don’t necessarily care about you. Also, think about the ratios that the property managers have. How many properties does a property manager need to look after? And therefore, how much time will they be able to spend on yours. Obviously, the smaller the ratio, the better. Lastly, if you can find a property manager that is close to ownership (of the agency) or got some form of skin in the business because they are going to be more proactive around managing your property compare to simply someone who is just doing it as a staff member and can’t wait to knock off at the end of the day. So there are a few things that you need to think about when you are interviewing your property managers.
Of course, before you settle, you get a pre-settlement inspection and that’s really where the caveat comes in, “Buyer beware”. You need to walk into the property and make sure that everything you had on the contract and everything you find through that initial inspection still exists. So that, pre-settlement property inspection is just to make sure everything is still there. Walk around, see if the air conditioner works, see if the dish washer works, see if you’ve got all the keys to all of the locks to make sure that they all available at settlement. Ultimately, in my view, you have zero leverages at settlement. If you’ve settled and you try to get some of these things done, the incentive is actually gone from the key players and you’re often left standing on your own trying to get this stuff done. But with settlement approaching, you have maximum leverage. Everyone is on high alert to make sure that the property actually settles. So it is important to think about that pre-settlement inspection.
I also encourage investors to think about the rent that they are going to actually ask for. Ask your property manager that you appoint, “How much do you think my property is going to get?” and let’s call it $500 (per week). Have a think about whether you want to rent it our for $490 pw in the lead up because for that $10 less than market rate, you might attract a larger pool of tenants which means that you can then get to cherry pick the best tenants who are likely to stay longer, so less turn over. They are also more likely to protect your asset, so less maintenance and ongoing cost. So that $10 that you lose upfront might means that you save a lot more money going forward.
Be really really proactive around what you actually want to ask for the rent rather than just trying to get every single last cent because if you’ve got a vacancy, you are discounting at a 100% anyway because you’ve got no one paying the rent.
So it’s important. A little tip with that is in the contract of sale that I put together, I always put a clause in there that says I can 3 things. One, advertise prior to settlement. Two, use the sales photos from the campaign so that we can entice renters. Three, get as many inspection as you can prior to settlement. Typically, you can only get one but maybe try to get two inspections prior to settlement so that again, you can minimise the vacancy that you have once you settled to getting your first tenant.
Of course, you need to think about the keys at settlement. So if you’re owner occupier, of course you are keen to pick up the keys, go through, check it out and get that feeling. But as an investor, it is unemotional. As soon as your keys are available, get your property manager to go and pick up they keys and rent it out as quick as possible. So start thinking about they keys at settlement.
My last point is around review. You know, you’ve done all these great process to decide to buy a property then you found a property, then you’ve done all these things post. The number 1 thing that I see people often forget is to regularly review the property. At least every year. Is there any properties around the area that is actually getting more rent than mine.What about if I put a dish washer in, would that impact on rent? What about an air-conditioner, will that mean my tenant is likely to stay longer? It needs to be an ongoing review on your investment properties so that you can maximum or optimal performance out of them. So ultimately, you can enjoy whatever it is that the financial goal was that you bought the investment property for in the first place.
My message is clear, there’s a lot of things that go in the decision to buy. There is a lot of things that is going on in the decision from Yes, I’m going to buy to actually choosing one. But don’t forget about the really critical things that you need to do post buying the property.