The six most common mistakes self-managing landlords make

Managing your own investment property has its advantages. You get to maintain control of the process and it can save on agent costs but there are traps that investors need to watch out for.

Property Observer talked to NSW Department of Fair Trading senior customer service officer Hollie McPherson about the common mistakes that self-managing landlords make.

1. Access
   
   One of the most common complaints the NSW Department of Fair Trading receives about self-managing landlords relates to accessing the property without permission.
   
   “Because it’s a significant investment that people make when they buy and investment property, sometimes the landlord will not let go of the property and turn up without providing sufficient notice,” McPherson says.
   
   Retaining control over management does not mean you can ignore the rules about access. Landlords need to remember that tenants have rights and must obtain permission to access the property, except in some special cases.
   
   Landlords often face problems with tenants failing to grant access for the landlord or others to come to the property to carry out repairs, for example. If the tenant fails to provide access after the landlord has given the proper notice, the next step for the landlord would be to go to the dispute service offered by the Department of Fair Trading.
   
   
2. Bonds
   
   Another common mistake that self-managing landlords make is not lodging rental bonds with the Department of Fair Trading, McPherson says.
   
   Landlords in NSW must lodge bond money with Fair Trading. Some landlords keep rental bonds in their own personal bank accounts, which can make it difficult for tenants who are leaving a property to recoup their bond. That’s not allowed.
   
   Landlords sometimes request more than four weeks’ worth of rent to be held as a bond but that’s also against the rules.
   
   
3. Documentation
   
   “Sometimes landlords forget [a rental property is] like a business,” McPherson says. “You do need to have things in writing. It’s a protection for the tenant and for the landlord.”
   
   There’s no requirement in NSW to have a written tenancy agreement in place when renting out a property. When there’s no rent agreement, the lease reverts to a six month agreement that applies to both landlord and tenant. The landlord can’t increase the rent during that period and the tenant can’t stop paying the rent.
   
   While it’s not a requirement to provide a written tenancy agreement, it’s a good idea to have one.
   
   It’s difficult to prove that someone is a tenant and not a guest if there’s no tenancy agreement in place, McPherson warns.
   
    A tenancy agreement should show what’s included under the lease agreement. It should also include a condition report that documents any damage or flaws in the property when the tenant moves in and out.
   
   “It’s an investment property so you want to keep track of what condition the property was in at the start of the lease,” McPherson says.
   
   Take photos for evidence. When the tenant moves out agree a time to inspect the property. If there’s damage the landlord can get works done and show receipts to the tribunal to have the repairs paid for out of the bond money.
   
   “Without that it’s really hard for the landlord to prove who caused the damage,” McPherson says.
   
   With rental payments, McPherson says it’s wise to provide rent receipts to the tenant or keep a tenant ledger, although some landlords fail to do this.
   
   “Keeping a tenant ledger is good for the landlord because it shows if the tenant is up to date also it’s good for the tenant because they can use it for future rental applications,” McPherson says.
   
   As a landlord, you’ll probably need to keep track of rental payments for your own tax records anyway.
   
   
4. Charging for utilities
   
   Landlords sometimes make the mistake of trying to charge for utilities when they are not allowed to.
   
   “There are clear rules for when you can and can’t charge for water usage,” McPherson says.
   
   If there’s only one water meter for multiple residences, such as in an apartment building, you can’t charge utility bills, for example.
   
   
5. Staying in touch
   
   Another common mistake is that landlords will only provide a mobile number to their tenants which can make it difficult for the tenant to get in touch with them.
   
   “It’s important for the landlord to give [the tenant] their full name, address to write to, telephone number or email address,” McPherson says.
   
   If something goes wrong, it’s important to try to contact the tenant to try to have a discussion about the problem.
   
   Keep a written record of what was discussed, including a diary of conversations and communication with the tenant. Record details such as when repair works will be completed, or why modifications won’t be made if the landlord chooses not to do work that the tenant requests.
   
   “It doesn’t matter how good the relationship was at the start things can go sour,” McPherson says.
   
   
6. Seeking help
   
   If landlords are not sure of what to do, they can contact the Department of Fair Trading for advice, McPherson says. There are also fact sheets on the website that can assist.
   
   Fair trading can negotiate with the tenant on the landlord’s behalf, free of charge. Mediation is mostly conducted by telephone but if required Fair Trading can facilitate to face-to-face meetings.
   
   “If [landlords] make an effort to resolve issues, keep records in writing, then the service we offer is quite effective in negotiating the outcome,” McPherson says.
   
   If the problem can’t be solved through mediation, the next step is to go to the NSW Civil and Administrative Tribunal for a binding decision. It costs $47 to lodge a case with the tribunal.

Note that this story refers to processes and rules in NSW only. The details will be different in other states and territories but the basic principles are still the same.