Bought tenanted IP unit, what shall I do?

Hi all

First post here, great forums and community full of awesome advice.

I'm a week or so from settlement on a Perth unit that is currently tenanted, and the tenant is keen to stay in the unit. I'm tempted to self manage (it's currently managed by same company who sold the property), however may leave it with them out of simplicity.

My question is;

1. Should I arrange another inspection at settlement, so I can do another property inspection report?
2. Am I in a good position to negotiate a good rate with the PM? I have no idea what's fair, seems many are 7-10%
3. Should I also arrange a review for depreciation? It's a 1970's unit with a kitchen that's a few years old, so doubt there'll be much to depreciate.
4. What else should I be doing?

Thanks in advance for all your help.

Miles

 

Yes a few hours or 1 day before settlement and while you're there ask the tenant if there are any repairs outstanding & if so, have the vendor fix before you take over. Also find out from the managing agent if the tenant is up to date with the rent. The tenant's in-going inspection report is the condition (less fair wear & tear) in which the property needs to be returned to you when this tenant vacates - get a copy of it.

Yes get a few quotes

Yes, get a depreciation schedule.

You'd be wrong to make that assumption

Get LL & content's insurance....and forget about self-managing as a newbie LL.

 

Thank you so much, Alan. I appreciate your wisdom and reply.

Miles

 

Congratulations!
Get a copy of the Original Inspection report.
You can use this to see if there are any discrepancies

 

Agree with @Propertunity 's post completely. One of the biggest mistakes new investors make is thinking depreciation can't be claimed. You generally won't be able to claim capital works allowance (Division 43 "building") but anything that has been replaced or renovated is up for grabs on Division 40. This can be quite substantial so one thing I would also ask the current owner is if they have actual records for the cost of renovating that kitchen you've mentioned if you believe it's a few years old. This can be provided to the depreciation company to assist in maximising claims. Not all depreciation schedules are created equal either and I've seen varying results over the years so ask around about that. I'm happy to provide some guidance if you wish.

Perth is particularly brutal for PM fees so make sure you go right through the fee structure and don't just focus on the percentage. Look for fees like inspections, admin, sundries, disbursements, bank, letting, advertising and many more - then add them all up and work it out as a total percentage of rent. Some of the management agreements I've seen in Perth have completely shocked me and one in particular I remember the total fee structure added up to about 20% of total rent. That's what I pay in the US and I get a highly qualified manager with a masters degree on a 6 figure income for that!

The main thing is not to self manage....it's never a problem until it's a problem and then you might be trying to protect your multi-hundred thousand dollar asset while working full time and trying to sift through legislation and attending court to make sure it doesn't all fall in a heap. It's just not worth the stress.

Lastly - congratulations on the purchase!

 

Thank you so much @SeafordSunshine and also @Andrew Hancock - very valid points you raise. I believe it's been repainted and possibly re-carpeted since the current owners purchased, so will definitely speak to them about any costs, etc.

Will let you know how I get on, and thanks so much for the advice, it really is appreciated.

Miles

 

Another vote for not self managing, especially as it is your first.

You will dread the agents fees until you have to deal with a difficult tenant. After then you will want to give the agent more, buy them birthday and Christmas presents, randomly drop past with baskets of baked goods. Ok, a little over the top but you get my point. A good agent makes your life (relatively) easy.

And don't feel bound to stay with the existing agent. Get quote as already suggested. Changing agents is easy, the new agent takes care of everything, including informing the agent you are leaving!

Also agree that a depreciation report is essential. They are only about $600 and can give you thousands in depreciation that you would be otherwise not aware, and neither will your accountant. Search the threads here, DEPRECIATOR, gives a discount if you mention the forum.

 

Others have already answered well as @Propertunity and @Andrew Hancock are consummate professionals.

Just wanted to pick on the bit highlighted above. There's never really a reason to use the managing agent that was in beforehand and / or the a managing agent from the selling agency.

2 reasons for this:
1) their agreement with current owner is severed as soon as property is sold, so you have no obligations to them whatsoever, and
2) you're free to choose whoever you feel best suits your requirements (which may or may not be the same one again). The documentation and systems in place allow for seamless transitions for the tenants.

 

You should have a copy of the original lease and any subsequent ones with your tenant.
Sit down each day and read a paragraph or two, so that you understand the vocabulary.
If you haven't had enough.....
Get a copy of WA Residential Tenancy act and read that as well... ( Not sure what its WA name is )
Enjoy!

 

Thought you may all find my research interesting. Spoke to 3 property managers on Tuesday. 2 got back to me by today. The quoted costs are;

Management fee 8% 8.8%

Administration fee $8.25/mo $11/mo

Final bond inspection $93.50 $130

Property condition report $110.00 $209

Routine inspection $55 $77

Lease renewal $220 $110

EOFY summary $27.50 ?

Court attendances, etc $99/hr $77/hr

Internet advertising (across 6 major websites) $66 $165

Signage $40 $55

Photography $99 $115

Letting fee 2 weeks 2 weeks

The one on the right is the existing PM, and the other one is another local company.

Miles

 

Ah WA, how I've missed getting those fees

Can you tell me what suburb its in and I might be able to recommend someone.

 

I'll have to buy my next IP in Adelaide then, DT

Yes, it's in Maylands.

Cheers

Miles

 

Get some history about the tenant to make sure they are a grade and let the exisitng PM continue if the t&cs of the agreement are fair.

Opt for a flat percentage fee that is all inclusive if you can with the PM.

 

Make sure your solicitor or conveyancer not only knows there is a tenant, but that they adjust things.......it is something that is easily left and you may find old owner gets your rent !

You may also get some of the old bills, so check the statements.

I would avoid self managing espc. seeing it may be new too you ?

You could say yout thinking about self managing, but may stay on if fees are competitive, if your paying 9 or 10% you do not want to be slugged for normal things such as inspections as if they are optional extras......IMO