Our property management team were recently working with some brand new, soon-to-be residential rental providers (aka landlords if you live outside Victoria). Their off-the-plan townhouse was about to finish construction and they had a lot to work through; frantically finalising settlement, arranging payment transfers, liaising with their mortgage provider and conveyancer, organising the pre-settlement inspection, teeing up the handover of keys, interviewing potential property managers and so on – it’s an exciting, and busy, time!
Like any proud first-time investors, they had a few questions for our rental team – queries that you probably already know if you’re a long term property investor or a seasoned rentvester, but that you might need some help with if you’re in the middle of successfully settling your very first investment property. After all, that’s a pretty huge milestone!
So, we decided to create a reference for all of our other brand new investors, by assembling the very best questions in one place. We hope they satisfy your curiosity, and – better still – ease your journey into becoming a professional investor busy creating a healthy and growing property portfolio. Let’s start with the biggest question first…
Question One: How are condition reports and inspections undertaken and communicated? And how often?
Entry condition reports
Condition reports are undertaken before the renter is handed the keys to the property. It’s usually done a few days prior to the lease commencement to allow for any cleaning that needs to be completed prior to the new tenant moving in. This is to protect the property and ensures your property management agency (and the owners) have a record of the condition the property was in before the renter moved in.
As part of this process, our team take photos of every single room, including the doors, windows, skirting boards, blinds, lights, garden and so on. Depending on the size of the home, this can take a couple of hours, sometimes more…and that’s just the physical inspection! We then complete the administration side, accurately describing each room and its corresponding photos; for example, the paint colour, any scuff marks, doors, handles, kitchen appliances, fittings, outdoor areas...the list isn’t (quite) endless, but it’s extremely comprehensive and is completed with a keen professional eye for the smallest details.
You will receive a copy of the condition report after the renter moves in and returns the report to us. They have five business days to complete their side of the report, make any additional comments and take extra photos should they wish.
Routine inspections
Our property team conducts routine inspections of each Victorian property they manage, twice a year. We undertake the first one around three months after your renter moves in, and every six months thereafter. Note that every state has its own number of routine inspections that need to be conducted each year.
The routine inspection serves a number of useful purposes. First of all, it serves as a general check up on your property so we can ensure it’s being well kept and maintained in good condition. We can also check on the renter to make sure they’re happy, and take the opportunity to determine if they are hoping to sign another lease (if it’s falling due) with a view to a rent increase depending on market conditions and comparable properties at the time.
Sometimes the renter is home while we conduct these inspections, sometimes they’re not; however we notify you (as the landlord) via email as soon as the inspection is scheduled as property owners are more than welcome to attend. Routine inspections generally take around 10 or 15 minutes – again, depending on the property size, but also dependent on any major issues that may need to be noted and recorded.
Exit inspections
When the renter ultimately vacates the premises (although a key part to buying and holding your investment property is also finding and keeping quality tenants), we conduct an exit report.
We compare the exit report with the initial condition report, pointing out any concerns (whether this is damage caused by the renter, or just general wear and tear). If there is any damage we inform the renter so they can rectify any issues. This is communicated with you as the rental provider. You will receive the exit report for approval, as this determines if the bond is released to the renter or not. If there is a dispute with the bond, we would try to negotiate this between parties but, as a worse case scenario, the Victorian Civil and Administrative Tribunal (VCAT) may be the only option to determine the bond release/compensation.
When we find a new tenant, you will receive another condition report. This is essentially the exit report from above, with any additional notes the new renter may make. This process continues for each new renter.
Communication
Rental providers receive a copy of all reports via email. Depending on the situation we may also call directly, however we email everything so that it’s in writing for all parties. We also use a program called PropertyMe where you can access and find all your property details – including any maintenance issues, monthly statements and EOFY statements.
Question Two: Are inspections part of the management fee?
There are four types of inspections. The three mentioned above, and also open for inspections (more on that below):
Entry condition report As part of leasing feeRoutine inspections As part of your ongoing management feeExit inspections As part of leasing feeOpen for inspections As part of leasing fee
As you can probably appreciate by now, these inspections are a huge part of any property manager’s role – both the time it takes to travel to and carry out the physical examination of the property, and the administration and documentation of the inspection results.
The routine inspections, because they are ongoing and regular, are included in your management fee, taken out monthly from the rental amount received.
The exit inspections, open for inspections and entry condition reports take the most amount of time, so that's why we include them as part of your leasing fee.
Open for inspections
The fourth type of inspection is the open for inspection, or private inspection. These inspections help us find the best tenants for your property in the shortest possible time. Our property management team also use a separate program for open for inspections to book in and communicate with prospective renters, and for sending rental providers a report after each open for inspection is held. The time spent on open for inspections (for example, lease preparation and application processing) is included as part of a separate leasing fee.
In addition, if your property is advertised on leading real estate sites like domain.com.au and realestate.com.au, this will be included separately as part of any advertising fees at the time, as we are charged to use these portals.Sometimes this happens…alternatively, we may have three inspections booked for the week, people may register (and then cancel), or people apply for properties (then withdraw at the last minute)…and we have no prospective tenants at all (or no suitable candidates). It can be an unpredictable process. That’s why we tend to schedule convenient times of the day for people to attend and we hold private inspections where necessary.
Question Three: How are maintenance issues dealt with?
All maintenance issues are communicated with our landlords, seeking approval. If there is an emergency requiring urgent assistance we let you know, but we also need to create a work order for immediate action to fix the problem. We update you throughout that process. Note that for brand new properties we reach out to the builder or their warranty team first (an advantage of buying new or off-the-plan!)
Question Four: Where and how is the bond kept?
The bond is lodged through the Residential Tenancies Bond Authority (RTBA). The renter pays their first month’s rent, along with the bond, and we lodge the bond through the RTBA. When it comes time to refunding the bond at the end of the tenancy agreement, the refund is processed online. We can’t just take money from the bond, all parties have to agree. If there’s a dispute and no mutual agreement, the matter may end up in VCAT, or the equivalent body in the relevant state.
Question Five: What is the benefit of having council rates paid via a property manager? What is the process?
We can arrange for rates and bills – such as council rates and Owners Corporation fees – to be sent to us so we can organise payment for you. For example, when we receive the council rates notices we note when each instalment is due and deduct this from the rent. This is then shown on your monthly statement.
While most of our rental providers prefer us to pay these invoices directly from the rent received for the property, some opt to pay the bills themselves. It’s entirely up to each rental provider, but if we arrange the payment then not only does it reduce your workload, it’s also shown on the statements we generate for you throughout the year…and at EOFY it’s shown on the all-important statement for your accountant too!
This service is at no extra cost, it’s just something we like to offer and it’s one less thing that our landlords need to worry about.
Question Six: How are water rates paid?
In some states, the water bill is separated into three parts and the landlord is responsible for sewerage rates. Is it the same in Victoria?
In Victoria, regarding water, if the property is separately metered then we set up an account for the renter with the relevant water provider in the area, and they are sent the bills directly (usually quarterly). Alternatively, for example in older apartment complexes, sometimes the landlord pays for service charges, while the tenant pays for actual water usage and sewerage disposal charges. If there is no separate meter, then the landlord must pay for all charges (including water usage).
Question Seven: What is the cleaning and maintenance process when property is transferred from one tenant to another?
Is the tenant responsible for cleaning the home and how do you determine a reasonable standard of cleanliness? What happens if the tenant hasn’t left it up to scratch?
Using the initial condition report as the defining guide, the renter must leave the property in the same state as they entered it (general wear and tear aside). So, if there are carpeted areas, the renter must have the carpets professionally cleaned. Unfortunately general wear and tear, like scuff marks, paint chips on wall edges, wear to high traffic areas and so on can’t be avoided – any property, no matter how new or well maintained – will suffer these types of issues over the years.
General cleaning
Regarding general cleaning, Victorian legislation means we can only ask the renter to have the property professionally cleaned if it was professionally cleaned prior to them moving in (and an invoice proving this must be provided). This is something of a grey area when it comes to brand new properties – most will receive a “builders clean” prior to settlement, but this is not something you’ve paid for, nor would an invoice be provided. As to what a “builders clean” entails…as we said, it’s a grey area!
That’s why we strongly recommend to our landlords that a professional cleaner attend once the property has been leased to give it a wipe over, dust, vacuum and mop throughout. We note this on the condition report and have an invoice on record as proof. We are happy to organise a cleaner using our professional network of industry contacts, or you can arrange the service yourself (just make sure you send us the invoice as proof!)
After the tenant has vacated the premises and returned the keys, our team conducts the exit inspection and completes the formal exit report. If we aren’t happy with the condition of the property…we will ask for it to be cleaned again. Most professional cleaners have a 48 hour guarantee on their work, but if that’s not the case for whoever the renter may have engaged (or they haven’t used a professional), we can arrange for our own cleaners to attend. Many renters opt for that option regardless. This way, we also have that all important receipt as proof of cleaning and your property will be up to standard!
Question Eight: What are the red flags to note in a rental application?
Renters, take a look at this one!
There are many red flags to look out for in a rental application…however there are two main qualifying concerns:
Can they pay the rent?Can they maintain the property to the standard required?
Naturally if the prospective tenant has no income that’s a huge issue, as is having no job or being in a probation period where they’ve only just started.
Likewise, no rental history, or a rental history only through a private landlord can be a red flag. A private landlord may not keep adequate records regarding late rent payments, or may not have conducted regular inspections…even worse, they could be a friend posing as a rental provider.
Our team take investigations into a prospective renter’s suitability very seriously, as a poor tenant can not only jeopardise an extremely valuable investment, but be difficult to deal with from start to finish for everyone concerned!
And that’s why our team will look up prospective renters on social media (LinkedIn, Instagram and FaceBook); that’s why we call their references (their employment manager, their previous property manager); if possible we speak to their previous landlord directly. We obtain payslips and proof of other income along with a balance of any savings.
Sometimes it’s the small things that can make a big impression (or otherwise); like their general presentation, their demeanour, their general manner and courtesy, their behaviour at the open for inspection! It’s the little things that can signal if a tenant is going to pay their rent on time or make their overall tenancy a nightmare from start to finish.
Question Nine: Is rent collected by the property manager from the renter?
How many payments are legally able to be missed before it should be noted as a problem?
We arrange for renters to pay their rent via BPAY into our trust account, and all payments made are also recorded on their tenant ledger.
If they fall a couple of days behind, we send them a text message reminder. Some simply forget or it’s a one-off oversight, or it’s immediately after a weekend or public holiday which can add in and extra day or so before the payment formally hits the account.
If a few days elapse, then we send them an email, and then phone them if we haven’t heard anything and no money has been received. We will also phone their emergency contact if we cannot contact them.
Here in Victoria, if our standard reminder procedure hasn’t produced results, and the payment is 15 days in arrears, we can issue a formal Notice to Vacate (NTV) to the renter. The renter has two weeks to pay, and if they do so then the Notice becomes null and void. If they fall into arrears again the following month, we adhere to the same process – that is, wait for the fifteenth day, issue the NTV, and wait two weeks. If the payment doesn’t come through, we can then apply to VCAT for a possession order.
All of this aside, if the rent is more than a few days in arrears our team will let you know. We’ll also let you know if they contact us first to advise their rent will be late, so you can then plan for any payments you may need for your mortgage.
As a general recommendation, we encourage our rental providers to have at least a few days buffer from when the rent is due, to when the mortgage falls due.
Question Ten: Do I really need a professional property manager?
If, after reading the above you decide you do want to manage your own investment property yourself, that’s one thing. All being well, then we understand that the time and administrative requirements might not seem overly onerous right now.
However, if you have more than one property, or if you have an older property with higher maintenance requirements, or if the property is located in another state with different legislative requirements, or if your tenant proves to be a bit of a handful, or there is a dispute, or you’re not sure about how to implement a rental rise, or you need to find a new tenant in a hurry…
…have we made our point? Then self-managing one of your most valuable financial investments may not seem like such a great idea after all. This is where the small amount you pay to a professional will seem like extraordinarily good value, and you probably won’t make the same mistake twice. (Have we mentioned tax deductions and negative gearing yet? Then click here for a super simple explanation from Luke Harris, CEO of The Property Mentors).
If you have any other questions, or you’re thinking about changing property managers, or you’d just like to make absolutely sure that you’re earning the right rent from your properties, then request your free rental appraisal today or just give us a call!
Like to learn more?
Check out our blog article on how easy it is to change property managers here.
Or listen to our Investor Intelligence podcasts on property management here.
