COMMENT: Setting policies good practice for landlords
Tuesday 4 December 2018
Landlords need to establish strict policies around their rental properties rather than just winging it, Auckland Property Investors Association vice president Peter Lewis believes…
During our everyday lives we all need to interact with many businesses. As such, we will have invariably come across statements such as “Our policy is . . .” and “In order to comply with our policy, you must . . .”
This is good business practice. By establishing a pre-set group of specific policies a business ensures that all customers are treated equally, that there is a standard response to commonly occurring situations, and the business is unlikely to be accused of breaking the law.
So when you operate your residential landlording business do you have a set of policies in place, or do you just wing it depending on the day and the mood?
Even if you work as a solo landlord it is good practice to formalise and codify your policies. These could cover a wide range of activities – including property purchases, tenant selection and management and how you decide to retain or dispose of a particular investment property.
As a landlord, my policy is to look at a property for sale on the basis of its actual or potential cash flow. A property might be an ideal development site or a great renovate and flick deal, but I will reject all such properties if they fail to measure up under my personal plan of buy, hold long-term, and rent.
This, of course, saves me a lot of time: I can reject 99.9% of properties that are on the market after just a few clicks of my calculator. Your particular requirements may be different, but that’s OK as they suit your needs not mine.
Similarly, I have a specific policy when I select tenants. Any tenants that do not measure up get my “I have to advise that your application was unsuccessful” response.
I would sooner keep the rental vacant than allow someone who does not comply with my requirements take over the property. That’s because in the past I have sometimes compromised and almost every time I have done so I have regretted it.
The best assessment of someone’s future behaviour is how they have behaved in the past. People make promises that they will improve, that they realise now that they need to pay their bills, or will no longer annoy their neighbours. But few are able to carry these good intentions through to a long-term behaviour change.
For me the biggest advantage of setting policies for your business is that it makes you think. It saves you from having to make hasty decisions under pressure and without time to consider the implications.
Forward planning allows you to consider how you want your rentals to run and to draw up policies to help this happen. It is something that many people ignore to their own detriment – and yet it does pay dividends.
Having strict policies in place, and sticking to them, means you also have a firm response to various requests that come your way. For example, when signing up a new tenant, I often get asked “If we mow the lawns ourselves, can we get a reduction in the rent?” I am able to respond “Our policy is that all lawns are mown by contractors whom we pay, so we are not able to offer that option”.
This response is invariably accepted without further argument. People seem to be willing to accept a policy that is firmly stated and consistently applied.
Any policies do need to be updated to reflect current economic conditions and legislative developments. For example, when selecting tenants I used to discount any minor bad debts, like defaulted cell-phone or power accounts, from over five years ago if the applicant had had a clean credit history since.
However, because Minister Twyford is making it much harder for landlords to remove unsatisfactory tenants from a property, I have amended my tenant selection policy. Now, any recorded bad debts at all at any time means an instant fail. Only perfect tenants will, in the future, have any chance of gaining the tenancy.
Similar policies need to be formulated and applied to 14-day breach notices and termination proceedings. I work on the basis that any tenant might fail to keep the terms of the tenancy once and, if they do so, I will work with them to help overcome that hurdle.
However, if they fall from grace a second time, that rings the alarm bell and I will work towards removing them from the tenancy. Bad behaviour becomes a habit. So, when trouble strikes, I ask “Do I want these people to stay, or would it be better for all of our sakes if they went elsewhere?” The answer to that question will then determine the actions I take.
Tenants are my customers and, like any business, I prefer customers that are easy to deal with, understand and accept their rights and responsibilities and, yes, return the most profit with the minimum amount of my time and effort.
I am not a social worker or a charity. Like most private landlords I am in this business for the rewards it can offer me. Within what is legal and acceptable, I will set policies that allow me to offer a good service to my tenants and also provide a fair reward to me for my time and effort.
It needs to be a win-win situation and I will continue to set policies that allow me to achieve this outcome.
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