Over the years, I’ve discovered that doing these four core fundamentals to a high standard guarantees excellent results in optimising your rental return.
Do them poorly; you generally end up with less than desirable results..
This short video explains the four key fundamentals of property management.
First Fundamental - Diligent tenant selection
Prioritising diligent tenant selection is paramount. To mitigate risk, employ a rigorous screening process to identify the most suitable candidate for your property based on merit.
What Does Due Diligence Entail?
1️⃣ Scrutinising the Tenant’s Rental History
🟢Contacting past and present landlords for references.
🟢Seeking character references, preferably from professional sources such as current or former employers or real estate agents.
2️⃣ Conducting Credit and Background Checks
🟢 Conduct thorough credit history and background assessments, including examinations of any past involvement with the Tenancy Tribunal, New Zealand Police records, and the New Zealand Parole Board to ensure confidence in tenant selection.
🟢 Look for tenants who demonstrate financial responsibility, honesty, and reliability.
🟢 Avoid letting emotions dictate your choice; while gut instincts are valuable, they should only supplement the comprehensive due diligence process.
Second Fundamental - Routine inspections
🟢 Establishing rapport with tenants and ensuring the property remains clean and tidy.
Promptly addressing any necessary repairs.
🟢 Encouraging a proactive approach from tenants in maintaining the property.
🟢 Distinguishing between fair wear and tear and actual damage to the property.
🟢 Attracting long-term tenants by providing excellent service.
Ingoing and Outgoing Tenants
Before new tenants take occupancy, it’s crucial to document the property’s condition. This documentation, known as an ingoing condition report, is reviewed and signed by both tenants and the landlord, confirming the property’s condition upon move-in.
In the event of a dispute during the bond inspection at the end of a tenancy, the ingoing condition report and accompanying photos serve as evidence and a reference point for the property’s initial state when the tenants first moved in.
Third Fundamental - Twelve monthly rent reviews retaining market rent
Implementing 12 monthly rent reviews and maintaining market rent levels is crucial for optimising rental returns, with costs escalating annually, including rates, insurance, and potentially fluctuating interest rates on loans. 
Yearly reviews ensure that rental income stays aligned with expenses, thereby maintaining better profitability and investment viability in the long run.
1️⃣Fairness and Equity: Annual rent increases align the rent with the property’s current market value and ensure that long-term tenants aren’t paying significantly less than newer tenants for a similar property, particularly in a multi-dwelling complex, where this could seen as unfair.
2️⃣ Financial Viability: As market conditions change, so do expenses associated with the property, such as maintenance, taxes, and insurance. By increasing rent annually to match or closely follow market rates, landlords can ensure that the rental income keeps pace with the rising property maintenance costs.
3️⃣ Maximising Returns: Keeping rents at market levels ensures landlords maximise their rental income potential. Over time, the cumulative effect of below-market rents can lead to significant revenue loss. By adjusting rents annually, landlords can optimise their return on investment.
4️⃣ Avoiding Large Rent Hikes: Landlords need to incrementally adjust rents to reflect market rates to avoid finding themselves in a situation where they need to implement a substantial rent increase to catch up. This sudden increase could lead to tenant dissatisfaction, potential turnover, or even legal issues. By implementing smaller annual increases, landlords can mitigate the risk of tenants leaving due to unaffordable rent hikes.
While there may be instances where landlords prefer to maintain stable rents to encourage tenant retention, it’s essential to balance this with financial considerations and fairness to both parties.
Yearly, incremental adjustments that closely track market rates are a more sustainable approach for landlords and tenants in the long run.
Fourth Fundamental - Maintaining high occupancy rates.
Maintaining high occupancy rates in rental properties is crucial for several reasons.
1️⃣ Stability of Income: High occupancy rates ensure a steady flow of rental income, which is vital for property owners to cover mortgage payments, maintenance costs, and other expenses associated with property ownership. Vacant properties generate no income but still incur expenses, which can strain finances.
2️⃣ Maximising Profitability: A fully occupied property maximises its revenue potential. Each vacancy represents a lost opportunity for income. By minimising vacancies and maximising occupancy, landlords can optimise their return.
3️⃣ Enhancing Property Value: Properties with high occupancy rates are generally seen as more valuable in the real estate market, lenders and property investors are more likely to view a fully occupied property positively, which can lead to better financing terms and higher resale
4️⃣ Reducing Turnover Costs: High turnover rates can be costly for property owners due to expenses associated with advertising vacancies, screening new tenants, and preparing properties ready to re-rent.
The trick is to minimise downtime between tenants to two or three days maximum. Maintaining high occupancy rates and retaining existing tenants longer can minimise turnover costs and ensure a more stable rental income stream.
Maintaining high occupancy rates is essential for rental properties’ financial health, stability, and long-term success. Aiming for 100% occupancy might not always be feasible, but striving for maximum occupancy ensures that the property is performing at its best potential.
Applying these key fundamentals are skills you can only master over time with training and experience.
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.
No comment yet, add your voice below!