Investing with Super

Now, please don’t take this as super investing advice, I just want to give you a window into my own experience arranging a SMSF and buying an investment property myself!

If you’re not all aware, if you have a superannuation fund (everyone that works nowadays has to have one), you can arrange that to be taken out of your chosen fund (for me I had been with host plus for years) put it into a special bank account under your own superfund name, and, arrange to buy an investment property (outright, or with borrowings).

I’m in the process of doing this as I type.  I started in September… and here we are in January more than 3 months later and I’m still working on it, but I can see the finish line!  For me, this is how it worked out;

  1. Signed up with esuper and created an account.
  2. Created a super fund under our names (me and hubby)
  3. Opened bank accounts and trading share accounts (all included with esuper)
  4. Started looking at properties in November.  Now here is where the challenge comes.  Liked some properties, but can’t put in an offer until you set up the super bare trust (the business that the house will be purchased under, it’s usually a pty ltd).
  5. Submitted a pre-approval application for a loan (borrowing approximately 60% paying the rest with super)
  6. Sorted out our pty ltd and negotiated prices on properties that we looked at and finally in December, signed for one subject to finance and building inspection. Paid the initial $1000 deposit from our own pocket as you can’t just access your super so easy!
  7. Arranged for the transfer of my super funds to our self managed super fund (beware, this can take 30days!!!)
  8. Identified ourselves at the bank (finally) – this took 8 trips between myself and hubby to fill out the stupid bank forms and have the stupid bank people sign in the stupid right place on their own stupid forms… Needless to say this was not fun.
  9. January comes around, had to ask for an extension on the finance clause as even though you think that when your super is putting up 40% + and it’s an asset, it would be a no brainer yeah?  But this is where paperwork and banks come in… (grumble)
  10. As of now – should have final approval for the loan in the next 24 hours!  To add to this, it took 48 hours, but who was counting, but now the contract is unconditional!

After that, if it all goes to plan, I get to have 2 open for inspections prior to settlement to try and lease it as close to settlement date as possible to minimise vacancy (a savvy clause to have in the contract of sale in case you’re playing along at home).  That being done, esuper (or your accountant if you set up a smsf with them) will arrange the annual auditing and hubby and I get to sit back while a tenant pays off our asset and our investment property gains in capital growth!  In 20 years time it will be paid off and I’ll be 5 years off retirement (unless the law changes in that respect, but that’s another story).

Want to have a chat about your investment or potentially buying something out of your super fund so you too can have an awesome asset to look after you in retirement?  Let me know, you can experience the personalised property management service.

Landlord to maintain premises – Supreme Court Ruling

A recent landmark supreme court ruling has sent ripples through the real estate world and has ramifications for properties that are not kept in good order.  Section 68 of the residential tenancy act states that it is the landlords obligation to maintain the premises in good repair.

In the past, there has been a consensus that if a tenant has viewed the property prior to moving in, that it is what it is and that’s how they accepted it.  This is no longer the case.  The supreme court ruling which can be found here but the gist of the ruling is as follows;

Tenant viewed a property and lived in the rental from 2008 –  2013, near the end of the tenancy, the tenant applied to VCAT for $50pw in comp (over $14,000) because throughout the tenancy, and prior to moving in, there were holes in walls, holes in the ceiling and floor, mould, rats and flooding issues…  The original hearing was awarded in favour of the owner as the tenant had not filed the appropriate maintenance requests or breaches – however, this was appealed  and as heard in the Supreme Court – it has now been interpreted that a landlord must maintain the premises in good repair – regardless of how it was when a tenant inspected it and, they are obligated to ensure it is in good repair more so than simply waiting for the appropriate maintenance notice from the tenant.

How does this affect a good landlord?  It doesn’t.  Good landlords look after their investments and ensure that everything is in good working order.  Good real estate agents inspect the property every 6 months (first one at 3 months into the tenancy) and with those inspections general maintenance is identified and acted upon accordingly.

For those that are the stereotypical slum lord, this is where the legislation interpretation will affect potential outcomes.  Here are some of the excuses I’ve heard over the years that certainly will no longer fly;

  • They inspected it like that so I don’t have to fix it.
  • I’m going to make that hole a feature of the wall (Rather than fix it)
  • They have a split system, I don’t need to fix the wall heater.
  • I lived in the property like that, so I don’t need to fix it

For those of you in the industry, have you got any good excuses?  Let me know in the comments section so we can all have a laugh.

 

Buyers Advocate – yes or no

There is a bit of a trend for savvy investors to source their next investor through a Buyers Advocate.  For those of you who don’t know;

Buyer’s agents (also known as ‘buyer’s advocates‘) are licensed professionals that specialise in searching, evaluating and negotiating the purchase of property on behalf of the buyer. They do not sell real estate.

They charge a fee (Ranging from $1000 up to 2% of the total sales price) to arrange purchase a property for their client. But when you think about that – if you’re buying even a cheap investment at $300,000 – that’s up to $6,000 in fees.

So if you’re not prepared to pay that to get the professional advice on your next investment, where do you turn – Sales agent?  I hate to say it, but sales agent’s tend to have a vested interest in selling you the property so there’s the opportunity there for them to provide data in its best light to sell you a property that gets them the commission!

Here’s a thought though – why not ask a property manager or business developer (for property management?).  They don’t charge a fee to provide information on how much they think a property would lease for and, property managers and bdm’s do not get commission when you buy a house.

Here at Eview Werribee, we offer all potential investors free market appraisals with current comparable data on what’s available to lease as well as what recently leased in the area relevant to the house you’re interested in buying.  If you’re thinking of buying an investment and you want to make sure it’s going to achieve the rent you’re hoping to get, why not get some free advice?  Contact me today so I can help you understand the local market – all for free.

Choosing the right agent

If you have ever had to buy, sell or rent a property, you’ll know that there is a wide range of agents to choose from.  When it comes to finding an agent to manage your investment property, who do you pick? Do you go for a franchise agent?  A boutique agency?  The cheapest one you can find on local agent finder?

As the landlord, the world is your oyster, but here are some things to consider when looking around.

The cost of your investment – this is something you worked hard for so it’s important you take the time to really investigate who you want to look after your property.  Cheap rates might be enticing, but how can an agency offer you cheap rates and provide top service for less money?  Do you really want to risk your property that is worth hundreds of thousands of dollars with someone cutting costs?

Reputation – with the internet, it’s so easy to google an agent.  If there’s something bad to be found, you can bet your bottom dollar it will be on line.  If there’s something good, even better!  They say only 1/10 who have a great experience share this with others so testimonials / good reviews are hard to come by so if your agent has them, you’re on the right track!

Skillyou might have to read between the lines here.  Think of a typical car salesman – don’t fall for the smooth talk, look for the data.  If you have an agent trying to tell you how much your house will rent for, they should have examples to back up their price.

Your point of contactthe person you’re dealing with to sign over your property.  Will they be the one actually managing your property, or, are they just the company business developer who will sign you up and hand you over to an unknown.

Communicationpretty simple this one.  When looking for a manager for my investment, I actually enquired about some properties on line to see what kind of service tenants were getting when looking for a rental.  To my surprise, only one agent emailed me back out of 5.  How will they lease a rental if they don’t respond to enquiries?

Those are the points I tend to look out for (even though I’m an agent myself, I chose an agent to manage my investment property).  Let me know if you have any other points that you look out for when choosing a real estate agent?

Should you be an investor?

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!

 

Property disaster story (with a happy ending)

If you’ve ever seen an advert for A Current Affair – tenant trashes house story and cringed.  Then this post is probably for you.  Working in the industry for over 14 years now, I’ve pretty much seen it all, but this was one of perhaps my top 5 in terms of a poorly managed investment.

 In brief

Location: Werribee                       Rental: $999pcm (not much right)

Total cost of repairs / loss of rent: $7000+!!!

Insurance (Allianz) covered: Less than $2000.

10 cormorant routine.png

This property had been managed by a local agent for some time. In an area referred to as the ‘Bird Cage’ by locals, tenants were put in with as far as what I can see – no reference checks.  Our agency took over the management mid tenant.  First routine inspection we completed was in January, 2016.  Check out some of the pictures;

Needless to say, we advised the owner to issue a 120 day notice to vacate for no reason. One would think we would be able to issue a breach notice and evict them that way (but, if you’ve ever been in that situation you will know that a tenant only has to give some sort of sop story at VCAT to be given another chance, and another chance, and another… anyway.  Best option was the 120 day notice.

Fast forward to the end of May and surprise, rent has not been paid on time throughout the process and by the time we get a hearing for possession (Because again, surprise, the tenant did not vacate). It took until 19th of July to go through the VCAT hearing process, obtain a warrant, contact the police and book in an eviction.

The property was left like this…

10 Cormorant vacate.png

Pretty scary hey! Has to be an insurance claim.  Carpet even has… poop on it.  Takes another 2 weeks to get the insurance assessor out who then proceeds to advise that the carpet and walls are all poor housekeeping which is not covered.  We even had professional quotes that advised that the carpet was not able to be saved regardless of the cleaning / industrial steam cleaning.  It had to be replaced – as a landlord – would you lease out your property like that?  Of course not.

So, for the landlord we arrange the best value quotes, get the works done (insurance take another 2 weeks to replace the internal doors, clothes line, fix the broken window and smoke detectors – because that’s all they covered) and now in September, works are due to be completed by the 27th and, we have a tenant booked in for the 28th!

Wait, how did you get a tenant you ask? Here’s the thing.  Personalised property management is there to offer a service to landlords – we work for you.  But doesn’t it make sense to take care of tenants too?  Good tenants make our job much easier, so of course we want to look after them.  Our potential applicant here missed out on another one of our properties (applied a fraction too late), so knowing that this property was coming up, we had him pre-approved by the landlord and, took him through via private appointment (after the rubbish was removed, walls painted, gardens done… just waiting on the carpet, but the paint smell helps hide the horror).

Our new tenant – “A lot of property managers come across as quite intimidating, you have a fantastic “house side manner” and it has been a pleasure dealing with you!”

So, what was originally a disaster house poorly managed that then took over 6 months to get back into shape – it’s leased as soon as it’s liveable, for $1217pcm (instead of $999) to a lovely single dad who looks to be a long term no fuss tenant!

Until the next management transfer disaster story!

Has your investment property suffered from poor management? Or has a disaster occurred – sometimes you can have great tenants then all of a sudden something goes wrong! (messy divorce for example).  I can help.  With 14+ years of experience, specialising in the difficult challenges that property management can give, well versed in the legislation as a licenced estate agent – what are you waiting for?  Shoot me an email or give me a call – michelle.evans@eview.com.au 0497 888 087.  It can’t hurt to chat!

Personalised Property Management… a blog about how I do it and a bit of an insight into the life of a Property Manager in Melbourne’s West!

re.jpg

So, a quick introduction, my name is Michelle Evans.  Director of Property Management at Eview Werribee. (check out my listings here – https://www.realestate.com.au/agent/michelle-evans-1452490 sneaky plug!)  In this on line world of google, linked in, facebook, yelp, true local and so on… the first place most people look for information is the internet!  So, here I am throwing my hat into the ring, providing information on real life situations that Property Managers and Investors face.  Hopefully you will find this a useful resource!