Dealing with one-off late rent payments is one thing: but what should you do if your tenant is repeatedly late with their rent?
If regular late payments are ailing your property investment, you need to do two things: first of all, you need to give a spoonful of medicine to deal with the symptoms. And secondly, you need to do a more thorough diagnosis of the problem.
1. Administering a spoonful of medicine that works well – but tastes terrible
If you’ve suffered from a number of late Automatic Payments from your tenant, then it is time to advise them that you can help them out with the rent payment process. The help you provide is called Manual Rent Collection.
You should explain that the Manual Rent Collection is being put in place to ensure that rent is paid on time, and once this is working well you may be able to look at bank Automatic Payments again.
Manual Rent Collection is like the proverbial spoonful of medicine that works well but tastes terrible. And once Manual Rent Collection is in place, payments have to be made in cash.
Yes, the whole process may be an inconvenience to you, but it will be far more of an inconvenience to the tenant. They will generally attempt to repair their working relationship with the landlord, rather than have the landlord visit them every Saturday morning.
Manual Rent Collection is a short-term medicine that heads off more serious ailments further down the track. It is worth doing, as it’ll help to avoid lost rent and the need for Tenancy Tribunal hearings. It also reinforces the tone and values of the tenancy.
However, simply applying this short-term medicine isn’t always enough: what happens if you’re experiencing late payments time after time?
If regular late payments are an issue, unfortunately the owner or property manager needs to accept that their tenant selection process was at fault and learn from the experience.
We have heard of cases where many 14-day notices have been issued for the same tenancy: in these situations, you would have to ask whom the property manager is acting for? Assuming you have a periodic tenancy, it is advisable to bring the tenancy to an end. There is not one reason for you to continue with poorly performing tenancies; only you and your asset will suffer. Therefore it’s advisable to issue a 90-day notice to end the periodic tenancy.
If you’re regularly having problems with late payments, you also need to do a more thorough diagnosis of the problem.
2. Diagnosing the problem in more depth
Diagnosing what’s going on is important: once a tenant has defaulted on their rent, there’s a good chance they’ll default again.
Before you get into the diagnosis work, make sure you keep applying the inconvenient medicine provided by Manual Rent Collections. The tenant will either recover, or they’ll need medicating till they move on. You need to find resolution one way or the other, and Manual Rent Collections are your tool. Resolution might mean the tenant vacating the property, or being given a 90-day notice by the landlord.
To help you with your diagnosis work, here’s where many of the problems will lie:
Tenant application process:
Are there things you can do here to ensure you get A-grade tenants instead of problematic tenants?
Know what an A-grade tenant looks like:
Do you know what makes up the ideal, A-grade tenant? It’s vital that you have a clear picture in your head, and that you ask prospective tenants enough questions to get to know their character and personality types.
After you’ve experienced a number of tenancies you should have a clear memory of the tenancy that worked well. You should hopefully have examples of tenants who were a pleasure to deal with. They may have proved easy to manage because the property was always clean and tidy; rent was always paid on time; and they communicated well with regard to any maintenance issues. In addition, it was easy for you to market the property at the end of their tenancy because they provided reasonable access for showing prospective tenants through and for running open homes at the weekend.
In time (and with experience) you should be able to use these past good tenant experiences as templates for what your next good tenant is going to look and communicate like. You should be able to interview a prospective tenant and recognise that they will be just like your previous good tenants ‘Bob and Mary’ or ‘Dave and Debbie’.
The property doesn’t appeal to A-grade tenants:
Does the property appeal to A-grade tenants? The two biggest draw-cards for good tenants are the location and the presentation of the property. The area you invest in is the best insurance for securing good quality tenants, as the better the socioeconomic area, the higher the percentage of good quality tenants. Presentation issues that will affect prospective tenant decisions include cleanliness; whether the property is uncluttered; age and condition of fit-out; and whether the colour scheme is current or dated.
On reflection, would it be wise to market your property for longer during the re-letting period?
Property management skills:
Do you need to revisit some of your property management skills? If the landlord/tenant relationship doesn’t get off to a good start from the outset that can cause a minefield of problems further down the track. Being a good property manager means being a good leader, and gaining respect and being proactive. It also means recognising when you have made a mistake, i.e. appointing a problem tenant to start with. The necessity for Tenancy Tribunal hearings should be viewed as the exception rather than the rule; the property manager should be the primary problem solver while aiming to minimise time at mediation and the tenancy tribunal.
Asking yourself these questions can be a tough process, but it’s important that you do. You also need to understand why you’re in the property management business, and what your motivations are. Perhaps you want to create wealth for you or your family; or you’re setting aside funds for your children’s education; or you’re raising equity to start a business. Only you will know the real reasons for your investment actions, and these reasons will underpin and drive your management decisions.
Perhaps the hardest question of all is to ascertain if you’re willing and able to administer the terrible-tasting medicine and do a thorough diagnosis when things go wrong repeatedly. In many cases, property investment is a good vehicle to achieve your financial goals, but maybe the management process would be best left to someone who’s willing to administer the strong medicine when it’s needed. And that’s something that only you can decide.
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