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Landlords’ biggest questions answered

By RUN Property CEO, Rob Farmer

As the saying goes, I’d love a dollar for every time I was asked by a landlord about how to improve the performance of their investment property. As the CEO of Australia’s largest metropolitan real estate agency, I come into contact with people who own properties all over the country, so here are my answers to some of their common questions.

My tenant is always late with their rent. How do I fix this?

Properties in areas that have low rents and high vacancy rates tend to have more tenants who pay their rent late than in areas where the rents are more expensive. But the number of tenants who are more than seven days in arrears should be no more than 1 percent.

Your property manager should thoroughly check tenants references, their rental payment history and employment status because selecting a good tenant will help prevent problems later. Put their payments on direct debit because tenants who must organise each payment are more likely to fall behind.

Take action early if the tenant is late paying. Don’t let them think its OK to pay late or in part payments. If the tenant is more than about seven days late (laws vary between states) you need to use the correct documents to advise the tenant and send them at the correct intervals. If this does not happen, it might impact on your success if the issue goes to a tenancy tribunal, or affect your landlord protection insurance.

I often talk with people who have never invested in property because they fear trouble getting tenants to pay. But the number of serious issues with late payment is very small and if handled correctly should not turn into nightmares. Certainly, this should not stop anyone from building a portfolio.

My tenant wants to break the lease. What are my rights?

There are different rules in each state, but generally, it is the tenant’s responsibility to find a replacement tenant and pay any associated costs. The tenant must continue to pay rent until a new tenant takes over the lease.

I always prefer my agent to find the new tenant because they have far better resources to ensure I get a good one. The landlord might also want to end the lease. If rents have risen sharply, the property owner might seek to gain more rent by ending the existing lease and advertising the property at a higher price. If so, the landlord would be responsible for finding the replacement tenant and any expenses of doing so.

Should I put the tenant on a fixed term or let them go month by month?

This depends on how the market is performing in the area. If there are low vacancy rates (high demand) and increasing rents, I am more inclined to allow a month by month arrangement after a lease finishes because it gives flexibility to regularly increase the rent or do improvements to the property.

If there are steady rents and higher vacancy rates I would tend to renew a fixed term lease. This way I know exactly what income I will receive for the lease period and I can manage when to end the lease. Most areas have periods when rental inquiries are higher and it is easier to find a tenant. For example, many people want to live in Bondi in summer so it is best not to have the lease end in winter.

If you are buying a new development it is worth considering having a lease shorter or longer than the standard 12 months. When the building opens, all tenants will move in at about the same time so several might also vacate simultaneously a year later. An unusual lease term will avoid you competing for tenants at the same time as other landlords.

I want to improve my property. Should I do it now or wait until the tenant vacates?

I am a big advocate of keeping your property in excellent condition to attract the best tenants at the highest rent with minimal vacancy. Improving the property is a great way to increase the cash flow. New paint, carpets and taps can make a big difference to your return.

Mathematics should decide when you do the renovations based on how much additional rent you are missing by not doing the improvements and the cost of the work. Have a clear plan of what work you are going to do and how long it will take and have quotes done and tradesmen organised to start immediately once the tenant vacates. Delays cost money.

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RUN Property permits reproduction of its articles provided they are not edited and they include the author’s byline (By RUN Property CEO Rob Farmer) and the following attribution: RUN Property – sales, leasing and property management.