Number 4 in a series of short articles for investors on What Good Property Managers Do by a Victorian educator/real estate agent
The amount of rent paid for a property is called the rental return. This figure is often quoted as a percentage. This percentage is calculated by dividing the annual rental return by the current value of the property and multiplying by 100. Sounds complicated?
Here is an example: The weekly rent is $300 therefore the annual rent is approximately $15,600. The property is currently worth $350,000 so 15600 divided by 350000 = 0.04714 multiplied by 100 = 4.71%. Take note that we are using the current value of the property not what you paid for it.
If property values take off quickly, i.e. rise in price the rental return percentage may drop because you can't increase the rent every couple of months to keep up with the market as you would have a lease in place with the tenant.
A good property manager will keep an eye on the market and will ensure when the lease does need to be renewed that the appropriate increase in rental return is applied.
A good property manager will always look to increase the rent when the law allows. This can also work in the landlord's favour for a while with a long-term tenant. At Planinsek Property Group, we often are achieving above market rents because we have increased the rent each year for a particular tenant and when they leave the rent has to be lowered to match the market conditions at the time.
A good property manager keeps the landlord informed of where the rental amount is compared to what is happening in the same area. There should be no surprises.
A good property ensures the rent is paid on time. This can be achieved by making sure the tenant can really afford the property.
Ask your manager what percentage they use to determine if the tenant can. Pay the rent being asked. The 33 percent rule dictates that the amount of rent must be at 33 percent or less of the total household income. With anything higher than that, the chances of delayed payments is higher
Define the terms and rule explicitly - While the paperwork may cover all the rules and terms, a good property manager is sure to explicitly discuss it with tenants before sealing the deal. They will be informed of your expectations regarding the payment dates, frequency, and penalties that may follow the breach of those terms.
A good property manager will have a reminder system in place. Delays are not always intentional. Sometimes the tenant might forget the date. With modern technology it is both easy and helpful to send your tenant a reminder email or a text message a few days prior to the collection date.
With Internet banking now so wide spread a good property manager has some system of electronic payment system in place.
It is important that your manager treats all tenants the same and no concessions are given. A zero tolerance for rent arrears needs to be part of the manager's culture and the manager needs to be act immediately within the law when rent is late.
Make sure you choose a good property manager.
Toni Planinsek, principal of Planinsek Property Group, is happy to answer any queries through social media - Facebook and LinkedIn. She has prepared some free offers to help you on your road to becoming a successful property investor. To access yours go to www.toniplaninsek.com.au