Negotiating fees

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Don’t decide on a property manager to look after your $800,000 + investment based on the lowest fee you can find. Offering the lowest fee is a lazy man’s game to getting customers. Offering value is harder to do, and is worth infinitely more than a 7.5% management fee. Professional property management will manage the risks involved with tenants, and enables your property to grow your wealth against inflation year after year.

Any property investor should have his assets professionally managed. Just as any business man should have a professional accountant and lawyer on his team.

Where are we in the Property Cycle

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The property market has slowed after the introduction of the 40/60 LVR rules. The effect is that deposit requirements have doubled for investors, which is a set back for most new investors. Leaving first home buyers and mature investors as the main buyers in the market place. The overseas investors are waiting to see what happens with the market, once they decide that there is still positive growth, they will jump bak in. As a new investor, this can be an opportune time to buy, if you can get the finance. Before the overseas investors jump back in.

A group of property investors I am apart of identified the opportunity as being the lower level of buyer competition. Leaving good deals to be found, if you can manage to buy under the new LVR rules. There are non bank lenders out there whom can still lend 80% on a house, but their funds are limited, so they can take their time in approving applications, and they will typically change about 2% more then the mainstream banks.  If this is the way you decide to go, a short term strategy would be best. After a year or two, I would refinance with a main stream leander.

The rule of thumb is that property doubles in value every 10 years. Based on that, we should be at the end of this cycle by 2018. However, in 2008, the last downturn in the cycle, we had an over supply and a high vacancy rate. At the moment we have high demand, and strong immigration. So this cycle might not “dip” so much, as “slow down”. In order to meet demand, Auckland council have put through the new unitary plan which opens up Auckland for high density housing. All the new stock already in the pipelines wont be complete for another 2 to 5 years, which is when we see the demand and supply balancing out again. Also all the builders are in Christchurch, the ones in Auckland are flat out in the outer Auckland areas. Leaving central Auckland suburbs with high demand and limited supply. So Im going to invest in Auckland areas like Mt Eden, Mt Albert, Sandringham, Ellerslie and so forth.

Following the global economy is a good idea. The global economy and the state of currency is something to keep an eye on, it seems to be a house of cards thats been stacked up too high… As other countries experience instability, Auckland could look more attractive to people who can afford to move here. Our primary industry should help us through any global issues. The most exposed industries would be the secondary industries whom process and manufacture primary resources. Also, It’s hard to tell what the 1% will do to manipulate things, so focus on yourself and make sure you are as secure as you can be.

Smart property investing

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If you have invested in a lower socioeconomic area, then landlord insurance is a must. Don’t be the landlord who didn’t need it until it was too late. It can save you loss of rent of between 3 weeks to 8 weeks, and also cover the cost of damages due to intentional tenant damage.

If you have landlord insurance, then having a fixed term tenancy agreement will maximize the claim value you can make.

As a property manager, landlord insurance secures rental income for your clients, which is income for the business. So its a win – win for all involved.

As a landlord, you also need to make sure your building insurance covers meth contamination. It’s all over the place at the moment. As a property manager, I’ve never been this busy managing meth risk. Insurance companies I have dealings with are flat out handling claims. I have had 3 houses decontaminated, the cost would have been between $10K and $15K each. From what I have herd in the industry, this is still on the cheaper end. I now have a preferred decontamination company and also a preferred tester, as there are cowboys out there.

If you are still managing your property investment yourself, please message me as I am here to help. For a small fee per week, a professional property manager is essential to keeping your investment running smoothly. Freeing up your time to increase your wealth and buy more property.

Work for Blessings

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Most people say “why put in the work if the money is not good?” Well, everyone starts somewhere, usually at the bottom, and the money at the start is not whats going to get you to the top. It’s the blessings you earn along the way that will get you to the next level, and earn you the respect. Its the blessings that buy you what money cant.

This is something I have always done, to a certain point, without even realizing it. When starting off on a new job or building a new skill, the money doesn’t matter, as long as there is a learning curve to lean in to. Im doing it for blessings. When I’ve mastered a skill or the job, is when money starts to be the main focus. Thats when I’m no longer working for blessings. Thats the point where I’ll find a harder job to do, I’ll grow to the next level. I’d look for a new learning curve to lean into.

I started off as a waiter and bar tender. I’d be on time if not early, and cheerfully do the work to my best emotional and physical ability. It wasn’t about the money, it was for the blessings, the connections, the people, the difference I made. The money paid for my gas and my Nike’s. The blessings got me the better job, it got me respect, connections and free beer whenever I’m at that bar. The blessings provided the platform for me to find the next learning curve to lean into.

In property management, I remind myself this when I’m meeting an owner on a weekend, or dealing with a crisis that requires emotional labour far beyond any monetary compensation. This is when the blessings are on time and a-half! Working that extra mile, is for the blessings fund. Blessings will buy you what money cant.

 

Negotiate to Win-Win

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In my opinion, the only way to negotiate and win, is if both sides win.

Basic negotiation starts with positional negotiation. For example, lets say we have one orange and two people who equally want the orange. In positional negotiation, the two parties are fixed to a position, and argue that point regardless of their interests. Each party want’s the orange, thats their position. Without looking into their interest’s, or why they want the orange, the mediator would decide to half the orange between the two parties. But what if half an orange would not satisfy the parties. We would have a standoff, and relationships would falter.

A better alternative is principled negotiation. This encourages the parties to use creative problem solving, by looking deeper into each position. Behind each position, lies the parties interests. In the example with the orange, we will look into why each party wanted the orange… we find that one party wanted to make orange juice, and the other party wanted the peel for orange zest. Now that we know each parties interests in the orange, we can have a better outcome and build a good relationship between the parties.

In property management we are negotiating every day. We negotiate move in dates, payment dates, letting fees, management fees, meeting times and even our weekends. Its an awesome platform to practice your negotiation skills. Always look behind the parties position, and find out what the interests are, thats where your solution lies. Ask lots of questions, upon questions, upon questions… until you have all the info you need. As a property manager, you are usually on one side of the negotiation. When dealing with tenants, be very firm and fair. You usually have the power and can dictate the outcome, don’t give up your power or be weak. Owners can do that themselves, they pay you to be a firm property manager. With owners, you will usually be on the weaker end due to client relationships. But be firm when it comes to your time after work and on the weekends. Sometimes sacrificing an hour or two on the weekend, will help foster those relationships. So it’s still win win.

A great book on Negotiating is “Getting to Yes” by William Ury. I also follow Ramit Sethi who wrote I will teach you to be rich. Check out his website here. http://www.iwillteachyoutoberich.com

 

 

 

Managing a Positive Meth Test

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I’ve had three houses come back with positive tests for meth contamination over a two week period. If you manage your own property and work full time, this will be tough for you to manage and deal with in terms of stress. I’ll explain what I had to do to manage this situation. For two if these cases the properties had existing tenants at the time whom had to be vacated immediately. Under the Residential Tenancies Act, the landlord can serve a 7 day notice to terminate a tenancy if the property is uninhabitable. I’ve used this notice in the case of fire, flooding and now in this instance meth contamination. The way this meth problem is escalating in New Zealand will mean there will be a lot more of these cases coming up, and landlords will need to tread carefully, so educate your self as best you can and get someone with experience to help you along the way.

A positive test and insurance

Once you get a positive meth test. The next step is to contact the building insurer and lodge a claim for meth contamination. The policy holder will be claiming for loss of rent while the property is being further tested and decontaminated. Before a final test is done to prove the house is clean. The policy holder will also be claiming for the cost of the full test which can range from $1000 to $2000. This is because all the rooms need to be thoroughly tested using multiple kits, each testing kit is about $175 including the lab test. Then decontamination can cost from $5000 to $50,000 depending on how bad the contamination is. This may involve a thorough cleaning, or the cost can include completely stripping rooms of the wall boards and replacing them. Also plumbing may need to be stripped and replaced in the case of manufacture, where chemicals have been flushed down sinks.

While the insurance company work with the policy holder on the claim, they will need all the inspection reports done to suit the terms and conditions of the insurer. Some insurers want inspections done every 3, 4 or 6 months. Depending on which insurer it is. They will also want the tenancy agreement and the tenant application form. From my experience, the insurer will arrange the next test to be done. Which will indicate exactly how contaminated the property is before they indicate any cover for the policy holder.

Managing the tenant

The other risk you will have to deal with is the tenant. If the house has been let to a tenant whom then complains about health problems and gets a test done to find the property is contaminated. The landlord is potentially open to the tenant claiming for a full refund of rent paid during the term of the tenancy, and also replacement cost of any cross-contaminated items of the tenants. Not to mention moving costs and health checks. To manage this risk, get the property tested before any new tenancy starts. Its better for the landlord to do the testing, as they keep control of the situation, however bad it is, it could be worse if unexpected.

In two cases I have had as a property manager. I suspected the tenants were at least using meth in the property. The test was done and the properties were highly contaminated. I suspect the tenants caused the meth contamination in these cases. Both houses were severely contaminated to levels that indicated manufacture of meth. The tenants guilt was clear in their facial expressions and behavior upon receiving notice that the tests were being done, and also when they got the 7 days notice to vacate the property due to it being uninhabitable. The moved out without any hassle. In hindsight I would have managed this differently, which I will outline in my ebook coming out soon. So back to these tenants. We did not have any substantial and/or undeniable evidence that they did cause the contamination, so we have had to manage this situation very delicately. The tenants in this case vacated and went back to live with family while the owner was stuck with the problem. Without a baseline test done before the tenancy starts, and no proof of drug use or manufacture, we cant prove these tenants were responsible.

Another case I managed, involved taking over a new management from a previous property management company. Its always a good idea to get a brief on what the previous tenants were like. When I took over, the house was clean, empty and ready to re-let. I discussed with the owner the option to get a base line test done while it was vacant, to which she did not decide on until the last minute. I secured tenants to move in, and then the owner decided to get a test done. By that time the tenants were ready to move in. By the time the results came in as being positive for meth, at levels well above the MOH guidelines, the tenants had been in the house for 4 days. I then had to serve them the 7 days notice to terminate the tenancy due to the property being uninhabitable. These tenants were not happy. We ended up paying for their moving costs and to have 4 of their household items tested for cross contamination. We also offered them alternative rentals that were available. This landlord is now dealing with insurance and going through the decontamination process.

There are more tips around this situation in my ebook, “Manage your own property and save $1000’s on fees” where I give more tips on when you should do a meth test and how to manage the tenants. Follow my blog to know when the ebook will be available.

Frequently Asked Questions

Q. How often can I increase the rent?

A. Every six months with a 60 day notice of rent increase.

Q. How much notice must be given to a tenant before inspection of the property.

A. 48 hours. Make sure its communicated to the tenants and documented for future reference.

Q. How much notice must be given for access to make repairs.

A. 24 Hours. Make sure its communicated to the tenants and documented for future reference.

Q. Do tenants pay the total water bill?

A. The tenants only pay for metered charges. The owner will pay for fixed monthly charges which are outlined in each monthly water bill.

Q. How much bond can I charge?

A. 4 weeks is the maximum legally allowed. If there is a dog, I will also get one weeks rent as a pet bond.

Q. How much notice must a tenant give before they can vacate.

A. 21 days.

Q. How much notice must a landlord give to terminate a tenancy?

A. 90 days notice. or 42 days notice if the owner, or family member wants to move in.