Here is a topic close to my heart. Well, close to my frustrations more like it. A question every investor should truly think about before jumping into the world of property investment is – should I be an investor? It all sounds great, buy a house and have the tenant pay off the mortgage, easy money right?
What most people do not consider are the two most common issues that we as property managers come across. I urge you to consider the two below questions before paying that deposit on your first investment.
Can I afford for the property to be vacant for an extended period of time?
If the answer is no, then you should not be an investor. Why you say? Because despite everyone’s best intentions and assuming that the world will always do right by you, bad things do occasionally happen to good people. It scares me how many landlords depend on the rent being in within a week of the due date to pay off their mortgage (or they default on their payment). Did you know that a tenant has 14 days to pay their rent under the RTA (Residential Tenancy Act) before a notice to vacate can be issued?
Or beyond that, what happens if things truly go wrong? Even good tenants can go through a divorce or something worse? It can take 3 months to evict a non paying tenant, then there are extra costs on top of that (VCAT, Lock Change and so on).
So, if you don’t have at least 3 months up your sleeve to cover the cost of a vacant property, then you should not be an investor.
Can I view my investment as a business and not be emotionally attached?
Again, if the answer is no, then you should not be an investor. It is your house, but it is the tenants home. Tenants do tend to do things like get pets, put up pictures and accidentally mark the walls (especially if they have kids).
If you can not cope with the property being treaded to different standards than you’re used to, then investing may not be for you.
An example I have is that a couple spent over 10 years in their property, then, built another one and decided to rent out their long term home that became tenanted by a family. The owners attended every routine inspection and made themselves sick with stress because the tenants had put some family photos on the wall and, despite the application and reference checks stating otherwise, the tenants appeared to have pets. Under VCAT rulings, the property was ‘reasonably clean’. So that meant a few marks on the walls, a little bit of soap scum on the shower and the bench could do with a wipe.
All of these things not at a level to be breached for unclean premises, yet the owners felt this unacceptable living. It would keep them up at night and cause fights between them about how to act moving forward.
Their options are to terminate the tenancy issuing a 120 day notice, or to stick out the tenancy with tenants that pay their rent on time and live in the home by themselves.
Of course, tenants should respect the home they rent and as a managing agent, we need to ensure that they do this, however, if as a landlord you find the thought of a tenant doing something as simple as a picture on the wall a breach of trust that is unacceptable, then maybe investing should not be for you. Think of how you would react if the tenant actually disrespected the house by not cleaning the shower for 6 months or left rubbish lying around (see my property disaster! post) – if this is stress that you don’t need, I recommend either looking at stocks perhaps to invest in or, try to switch off, let your property manager do what they’re paid to do and try not to worry about it!
