29 Jan Is your rent up to date? – Cate Bakos
I guess it’d be fair to say that probably what a lot of investors don’t do when they’re looking at property investment is treat it like a business. Cate Bakos has some tips as to how you can do this successfully.
Kevin: I guess it’d be fair to say that probably what a lot of investors don’t do when they’re looking at property investment is treat it like a business. Here’s a classic example of how you need to think about your portfolio. Joining me to discuss this, Cate Bakos. Cate has written so many articles about this. I’m really looking forward to having a chat to her about it. Good day, Cate. How’re you doing?
Cate: Hi Kevin. I’m good. How are you?
Kevin: Very well indeed, thank you. Cate, of course, a very talented buyer’s agent from CateBakos.com.au. All the links if you want to reach Cate are on this interview. Cate, the importance of investors understanding whether their rent is up to date, I know that’s just a small portion of what we’re going to talk about, but it’s so important to look at this like a business. What do you see are some of the things that they should be focused on?
Cate: I think people need to be very mindful of what sort of rent they’re actually getting and, in particular, where their rental arrangement is. For example, if they’ve got a fixed rental arrangement with a tenant, they’ve got to understand when that lapses. They need their property manager to be on the front foot with not only reinstating a new lease but also recommending where the rental amount should be set and whether the property deserves any upgrades or whether there are any issues that can be bothering a good tenant. At the end of the day, nobody wants a vacancy. Everyone wants their property to be returning them a dollar value that represents its worth. When property managers let that lapse and when the investor isn’t keeping tabs on it, they can find that they’re shortchanging themselves. They’re also setting themselves up for a little bit of an upset with the tenant when the tenant finally has a commensurate rental set. It might be a really hefty hike and it could really put their nose out of joint.
Kevin: I guess the temptation is there when you’re very busy and you’re building a portfolio for you to give it to a good property manager and then abdicate responsibility. You should really delegate the responsibility. The difference between the two is that, while you’re giving the responsibility to a property manager, you’re still going to keep your hands in the deal so you can understand what’s going on.
Cate: Absolutely. I think people lose sight of the fact that they’re running a business and the property manager is an employee. That’s how they should look at it. Just because you have appointed a property manger doesn’t mean that you can walk away from your business responsibilities. You need to make sure that you’re getting the right performance out of them and they they’re delivering their service in a way that suits your communication style and your available time.
Kevin: I guess you’ve got to be in a position, too, to … I mean, you employ them for a reason and that is that they’re experts in their field. You seek their advice, but then you’ve got to challenge it sometimes and really question where it’s coming from to determine if you’re really comfortable with that advice. As an example, I would think, we’ve been confronted from time to time where a property manager has said to us, “Well, look. Let’s just leave the rent where it is. You’ve got a good tenant. Let’s not go for an increase.” You need to challenge that, I think.
Cate: I think you do, too, particularly when you’re in a market where rents are moving solidly. A recent example for me was actually taking note of the changes that are swooping through Hobart. We’ve got two properties down in Hobart. They’re residential properties and It was a little bit of a surprise to see just how much rents have been climbing in the city. That’s a reflection of a stock shortage and also the rise of Airbnb, which is eliminating a lot of long-term available rentals. We suddenly realised that we’re significantly under on one of our properties. For sure, we’ve got a good tenant who we’ve given a little bit of a rent rise break to, but we’ve really set ourselves up for a fail when we do decide to bring that rental into line for them. It was a mistake that I made myself. That was just not paying attention to how rapidly the rents were moving in a particular city that I had property in.
Kevin: Just on that point, too, it’s also worthwhile mentioning that even the term of the tenancy is important when it expires, what’s happening in the market at that point in time. How long do you want the tenancy to go? In a rising market like Hobart, it might be beneficial to only have a 6-month lease as opposed to a 12-month lease so you can review it.
Cate: That’s a really good point. We actually have had legislative changes sweeping through Victoria. It does put a spotlight on how often you can increase rent. Understanding the legislation in any state that you’ve got property in is really important. Chatting to your property manager and getting that information is vital. Also, considering not only the timing of the lease but also the seasonal time. If you’re looking at finding a new tenant in the winter period in a cold city, you might have a hard time. Getting your leases in sync with the seasonal height is a really important thing to try and do.
Kevin: You want to make sure that your lease is not expiring at a time when it’s going to be difficult for you to find a tenant because there’s so many other properties on the market. So many things to consider. It gets back to the point that we opened with, Cate, doesn’t it? You’ve got to look at this as a business. You’ve got to stay involved in it, and for goodness’ sake, do not abdicate responsibility. Delegate it, but then keep your hands in the deal.
Cate: Absolutely. I think the last and most important point is understanding what your property is actually worth. You’ve got to approach that with a bit of science. It is actually easy to do. If you look online and just go onto the rent tab on a search engine and have a look at what other comparable properties are renting for or what the rents are that they’re commanding, then maybe make a phone call or two to verify how much a particular property actually rented for, and make sure that you’re comparing the right area, the right dwelling style, and size and number of bedrooms. That should give you a pretty good idea of what yours is worth. If you find that stock is really limited and you haven’t really got anything to compare to, you will need to talk to your property manager and ask for some examples. If you’re doubtful about the rent that you’re getting, you might need to speak to other property managers. You do need to take responsibility.
Kevin: Great advice, always, from Cate Bakos, buyer’s agent. Cate, thank you so much for your time.
Cate: My pleasure, Kevin. Talk to you next time.