Your Life in Property - Chapter 6

1. The Tenant

It really surprises me how little regard some property investors and landlords pay to this most critical relationship. This is clearly where all cash flow and profit are generated, the key (and only!) customer of your product. When I talk with fellow investors regarding tenants, we invariably end up talking in short time about "tenants from hell" and what a nightmare they can cause us lords of the land. Frequently, the conclusion of such conversation seems to be that the business would be very easy if it wasn't for the tenant!

Like any relationship, there are responsibilities on each side to ensure harmony exists. So what should be done in the case of this relationship to avoid the "tenant from hell" approach? Well this depends on if you have a letting agent or other third party managing the tenancy on your behalf to some extent. We will talk more about the relationship with these people shortly. However, regardless of who manages the tenants, the relationship should involve the following:

• A clear outline and what is and what is not expected from both sides at the start of the tenancy. This will usually be drawn up in a written contract, but in all honesty who reads contracts from top to bottom? Far better would be to discuss the agreement face-to-face, particularly if the tenant does not speak the local language as the mother tongue, to ensure no misunderstandings exist before the outset. This also gives the tenant an opportunity to voice what they expect from the landlord and / or letting agent. It may be that their expectation differs to yours, perhaps due to different
• cultural backgrounds, and these differences can be addressed at the start. Any special conditions for the tenant can also be discussed and agreed.
• Regular communication, not just communication in response to necessity. This communication should be planned and respect the privacy of the tenant. The intent of this communication should be to ensure the tenancy is progressing well and no problems are building up. Circumstances change in everyone's lives and it is best to know about these changes for your tenant as soon as possible. Are maintenance tasks up-to-date for example? Is the tenant expecting any financial issues that may affect rental payment? Is the tenant looking after the property? Do they wish to stay in the property for a longer period than signed for? This communication is probably best to be conducted at a planned meeting at the property, although communication at short notice can be conducted well by telephone. Email, and all its impersonal effects, should best be left to include detail as a follow up to a phone call or inspection visit.
• Regular review of rent levels. This is not to say that rents should be increased at every opportunity. However, it is valuable to keep the tenant regularly up-to-date with market rental levels for their type of property. It may be that you will reward tenants that stay longer in a property with below market rental levels, but it is still worthwhile making point of this as a demonstration of your goodwill and recognition of their responsible approach.

In summary, it is not necessary to be "best friends" with your tenants and this could actually be counter-productive (when serious issues need to be faced and over-familiarity can cause problems). However, regular communication, from yourself as landlord and / or your letting agent, will ensure that this most crucial of relationships is effective and serves the business need.

Letting Agent

It maybe that your property investments are located near to your place of residence and their number is not too great that the task of finding and managing tenants can be carried out yourself. This clearly will reduce the overheads as typical fees amount to around 10% of gross rentals if entrusted with a professional letting agent. The task, if carried out properly, should not be under-estimated however and can be time consuming and reactive to problems which can occur at any time. If the task if outsourced to an agent then this is a key relationship, providing the "face" of your business to the tenant as outlined above.

Striking a good relationship should bring the following benefits:

• The letting agent keeps you abreast of current market rental levels and achieves this, where appropriate, across your portfolio.You are kept up-to-date with routine planned and unplanned maintenance tasks and ensure the property remains in a good condition for continued rental.
• Your agent could advise on the best properties to renovate, to maximise returns,
• or indeed advise on properties which could be considered to be sold at the most advantageous point.
• Your properties are favoured when showing prospective new tenants a selection of properties.

Clearly, this relationship is key to ongoing profitability of your business and it should be considered how the relationship can be fostered in the best way. It will always be a good idea to remain pro-active as a landlord and react to maintenance issues in a timely manner. This will ensure that the letting agent's job is easier as they will be managing less-problematic properties. Regular communication with the agent will ensure that your properties are always in their mind when looking for new tenants and this is key, particularly in a soft rental market. And finally, regular visits to the Letting Agent will always be useful in building of rapport in particular in the first 1-2 years of your relationship.

Selling Agent

Another key relationship, if you are buying multiple investments in a given area over a period of time. The selling agent can provide an invaluable insight to the market and often be passed deals which do not appear on the market, and pass them to you first if you are a good contact.

Depending on the market conditions, the selling agent will be more or less motivated to work closely with you. In a buoyant market, the agent can sell his property easily and will be more likely to be working closer to the buyer as they are bringing a scarce commodity, good property for sale, to the market. In a slower market, you will not find it difficult to become the agent's best contact and you will both benefit from the activity and transactions you bring. A consideration on this point is how many agents you will use. Using multiple agents may be perfectly acceptable (and usual) in some markets, but may provide a conflict of interest in markets where good property is rare and offered to a variety of agents.

A selling agent in this case who discovers you have employed a number of other agents, who all find the same or similar property, will be less motivated to work on your behalf for the obvious reasons. However, if you select one agent and motivate them well to find property to fit your investment criteria, this will usually serve everyone well as you build trust and understanding and above all else create a history of successful purchasing. Like all of us, the agent will be motivated by completing successful sales with minimum fuss as this maximises their return. Therefore, the ultimate sales price offered by you becomes less relevant as the volume of sales you bring delivers regular commission. In the best case, regardless of market conditions, you can be offered property that fits your objectives well before it is presented to the market and place offers that may be below that would be achieved if offered to the open market.

Legals & Banks

Whilst achieving a good relationship with professionals in this area is unlikely to bring big cost savings, the service you receive could really benefit. A good relationship with your bank for example will serve to build trust in your business and the viability of the properties you are attempting to finance. For me, as I tend to finance properties to a high level where possible, this is crucial. The advantages of building a good relationship with your legal contacts is that a timely service can be delivered and deals go through at a good speed, minimising the risk of losing deals due to time spent getting through to the exchange of contract stage.

In building relationships with these bodies, it can be very good if you can deal with one point of contact within the bank or legal firm. These firms maybe very large in size but by building a relationship with one member of staff, hopefully at a high level within the organisation, service can be very good and improve over time as successful deals mount up.

Builders

Oh boy, is this bit tricky! We all have stories of dealing with builders either at investment properties or on our own homes. Most of these stories fit neatly under the "nightmare" column. This has been my experience in a number of different countries so why is it so and what control over the situation can we expect to achieve?

Well perhaps unlike the relationships discussed thus far, relationships with tradesmen can often be of a less professional nature and an enduring relationship is not always sought by both parties. Good builders have frantic work schedules and this means that work can be carried out in a sporadic fashion (going between different jobs as they progress) and the need to find repeat business is low on the builders "to do list". So how can a positive relationship be fostered that will benefit all? Well, like in the previous cases, proving yourself as a good client and paying promptly with minimum fuss will differentiate yourself as a good client to some extent. Perhaps equally important is providing the builder with clear guidance at the outset of any project and visiting the site (without being too intrusive) can work well in building a professional relationship of mutual respect. However, even when all these things are done, builders can often abuse this relationship and see you as a source of ready money. You do pay promptly after all! Quotations and costs for materials find themselves going steadily upwards. This is not always the case and I am sure you have some good examples to the contrary, but all too often it happens to investors I work with or the letting agents who employ the tradesmen.

Perhaps one good approach, particularly if you are not an expert in every aspect of construction, is to appoint and pay an intermediary to work on your behalf. This intermediary should have a greater knowledge of the building trade than yourself and offer credibility and to some extent power. For small routine maintenance tasks (say up to changing boilers etc) perhaps your letting agent if you use one will be a useful intermediary. If they are an agent of reasonable size, they will have a good handle on the going rate for typical routine tasks and how long they should take. The agent has a vested interest in getting the work completed and also offers a lot of potential work to the tradesman through the size of properties they hold under management. Under a fully-managed contract, a letting agent will often conduct these tasks as part of the contract.

For more involved projects (kitchen / bathroom replacements, changes of layout etc) a project manager could be employed to ensure the relationship between you and the builder is the most productive. A project manager could be a professional, an architect used on the project or a key tradesman involved in the project. The project manager could even be your letting agent where appropriate skills and time exist. The point is that the function of a project manager is highly valuable work and should be rewarded. Do not expect your letting agent to oversee a complete refurbishment of a property for example, without additional payment, and expect things to go swimmingly. This is not their core business and you have not paid for this service. In the best case, the letting agent will attempt to recover costs by overcharging for elements of the building work and in the worst case the work will not be completed to a satisfactory standard as a result of insufficient oversight.

Finally, Feedback

As in any relationship, you should seek and provide feedback as your relationship develops to ensure you grow stronger together. There are simple ways of doing this, through regular face-to-face meetings for example. Perhaps in some cases a simple feedback form could be appropriate, thinking here of feedback sought from you by your tenant for example. You may not know the tenant that well or use a letting agent so face-to-face contact may not be possible. I always seek feedback, particularly from letting agents that I use. I work with a number of letting agents and have always told them:

"I want to be the best landlord on your books.

Please, tell me when I am not."

I apply this mentality to my approach to tenants. I want to be the best landlord they have ever experienced. I would do this by actions, surprising them in the care and speed I give to rectifying maintenance issues for example.

And finally, when appropriate, remembering to give honest feedback yourself (although it is rarely requested!) can be useful. If a tenant has proved to be one of the best on your books, paying regularly and sorting problems on their own initiative, tell them they are the best. Reward them is appropriate in some way. Conversely, if a tenant falls short of what is expected, tell them before the point when legal action is required.

Activity 5

List the relationships you see as important in growing your property investment business. How are you going to develop these relationships and what do you expect from your relationship.

Relationships: