Rates paid from rent collected or separately?

[oneguy]

Just wondering how those of you who have PMs pay their rates? Do you have the PM take it out of the rent collected? Do you have them debit from your credit card? Do you get them to forward your bills for you to pay? Or some other arrangement?

I am leaning towards having a known predictable rental in one coming in every month without having income varying due to rates being paid some months. I feel it would make my paying of mortgage easier if the income coming in from rent is predictable, and have the rates paid via Credit card.

Anyone do this? Is it possible to arrange this?

 

[beachgurl]

The property manager gives you the option of them taking the rates out of the rent or you being fully responsible for receipt of the notices and paying them. I prefer the agent to take care of it all. It's easy to manage when you only have one or two properties but any more than that, it is difficult to keep track and ensure the rates (and other bills) are paid. It's also good from an accounting perspective that these payments are listed on your annual rental statement if paid by an agent.

 

[mystery]

We have always paid the rates etc ourselves as it's the only way we can guarantee bills are paid on time.

We tried having the property manager take on paying our water and council rates from the rent. Never again ... they failed at the first go. We received a late payment notice from both companies.... Never again. Most agencies will only pay bills at the end of each month, so if your bill pay by date is before this then it could create a problem.

As investors we can't afford to get a bad credit rating due to property managers only paying at the end of the month and not on the due date.

We prefer the certainty of knowing that bills are paid on or ahead of time, ... we have several properties and it's not a big issue and it doesn't take much time to pay online or over the phone.

Mystery

 

[jrc77]

On our on existing IP the PM pays all rates/bills before forwarding the remaining rent on to us. It's been like that for about three years and we've never had a problem with late payment. The amount we get each month varies depending on which bills have had to be paid that month, but we have a buffer for the mortgage payments anyway so it's not a big deal.

Having all expenses summarized on the end of financial year statement is nice to hand to the accountant.

The downside is that if we paid them ourselves we would get reward points for anything that we can put on a credit card.

Jason

 

[oneguy]

My mortgage is direct debit monthly from a savings account where my rent also is credited from. My thoughts were to also have a portion of my pay ($200) transferred to this account monthly to cover the difference.

If the rates/bills are deducted by my PM, I'd have to vary the amount from my pay, or manually add the short fall to the account monthly, which is the same effort as paying rates myself.

Thanks to those that have responded so far, love hearing how others are doing it.

 

[skater]

Just wondering how those of you who have PMs pay their rates? Do you have the PM take it out of the rent collected? Do you have them debit from your credit card? Do you get them to forward your bills for you to pay? Or some other arrangement?

I am leaning towards having a known predictable rental in one coming in every month without having income varying due to rates being paid some months. I feel it would make my paying of mortgage easier if the income coming in from rent is predictable, and have the rates paid via Credit card.

Anyone do this? Is it possible to arrange this?

Whether you like it or not, you will never have a known predictable amount coming in each and every month.

At the moment, you may have tenants that pay promptly on time, all the time, but that is not how all tenants are, even the good ones. Tenants will pay when it suits their schedule. Some weekly, some fortnightly, some monthly and some.......well......either all over the place, or only when they get a little love letter from the PM, or not at all.

I have one tenant. A long termer! He's a good tenant, he pays his rent and looks after the place. He works for some company that sometimes doesn't pay him for a few weeks (I don't know the in's & out's or it, nor do I care, this is only what the PM has told me). His rent sometimes falls into arrears, but as soon as he is paid, he catches it back up with a big lump payment.

Another long termer, been renting from me for about 5 years now. Only in his 20's and a single dad. This guy actually earns a motza, but gets paid spasmodically and has trouble budgeting. He's a trucky and does some weird shifts, so he works flat out, then has a heap of down time. His rent comes in often in large sums & then nothing, depending on his work at the time. He's dependable and predictable.

In both these cases, the PM sends out the required notices on time, so that should anything go wrong, we are covered. However in both these cases, I have come to know that I possibly have two tenants that will not move out of my properties for a long time. Their tenant ledgers don't look too crash hot, but each one has never let me down. In fact, the second one is a tenant in an IP not far from us, and he will even help out if we need to do work there.

So.....if things are that tight that you have to have the same amount in each month or you risk upsetting your budget, may I suggest that you cut your living expenses and set aside a buffer, because at some point in time you will need to use it.

 

[Dazz]

Do you have the PM take it out of the rent collected?

Hehe, we tried that once, back in '98, that was the last time we ever used PM's.

They got appointed on July the 1st of make things easy for accounting.

In came the Water Rates bill.

They held back all of July rent funds to pay for the Water Rates bill - just. Not enough for their PM fees or any of the other costs they were racking up. We got nothing. Paid mortgage from my wages.

In came the Council Rates notice in the first week of August.

They held back all of August's rent...wasn't enough to pay. Late notice issued by the Council to us. We got nothing. Paid mortgage from my wages.

Sept's rent was paid, and they now had enough to pay the Council Rates bill, and pay themselves just their PM fee for July. We got nothing. Paid mortgage from my wages.

Oct's rent was paid. That paid for their 2 weeks letting fee, plus initial inspection report fees, plus August's PM fees. We got nothing. Paid mortgage from my wages.

Nov's rent was paid. In comes the Land Tax bill. Not enough in the pot to pay. We got nothing. Paid mortgage from my wages.

Dec's rent was paid. Still not enough in the pot to pay LT bill. We got nothing. Paid mortgage from my wages.

Jan's rent was paid. Just enough in the pot to pay LT bill. We got nothing. Paid mortgage from my wages.

Feb's rent was paid. 6 months worth of PM fees taken out, plus the 6 monthly inspection fee plus postage and petties. We got nothing. Paid mortgage from my wages.

March's rent was paid. In comes the insurance bill. Enough to pay that, plus some maintenance. PM fees delayed. We got nothing. Paid mortgage from my wages.

April's rent was paid. No bills or maintenance came in that month. PM fees for 2 months taken out. PM distributed some of the rent money to us. We nearly fell over. Paid mortgage from my wages.

May was like April.

June, dead of winter, the HWS **** itself. We got nothing that month.

That was before GST was lumped on top of everything, I imagine over the course of a year, that would now gobble up all of May's distribution to the Owner.

Braced ourselves for July, we knew the big Water Rates and Council Rates bills were just around the corner......


We very quickly decided that game had knobs on it, so we started playing another game.

 

[jingo]

Hi oneguy,

Good questions. Once you develop a system that suits your own financial/individual circumstance, it will make your life much easier.

Just wondering how those of you who have PMs pay their rates? Do you have the PM take it out of the rent collected? Do you have them debit from your credit card? Do you get them to forward your bills for you to pay? Or some other arrangement?

I am like you and prefer to receive rental income without deductions. (except for the pm's fees). I use a LOC now and pay all of my property outgoings and repairs etc from this account. I pay them all at once (once a year) which saves me a lot of time throughout the year! When I receive my tax return, (which is more or less equal to the amount of the property expenses) I usually put it back into the LOC (but not always, I may put it into an offset account and keep the 'cash' to use as I choose).

I use the rent to pay the mortgage payments. I find this the most effective way for me to manage the portfolio. I don't trust pm's to take care of the bills accurately - and I know I would spend much more time chasing them up than it takes me to pay the outgoings in one lot on my LOC once a year!

I didn't always have this system though - and before I used a LOC I spent a lot of time paying the expenses each fortnight/month from our own cash. Looking back, it was tedious and ineffective!

I am leaning towards having a known predictable rental in one coming in every month without having income varying due to rates being paid some months. I feel it would make my paying of mortgage easier if the income coming in from rent is predictable, and have the rates paid via Credit card.

Anyone do this? Is it possible to arrange this?

I appreciated Dazz's story above! If only tenants were responsible for outgoings in resi property!!

Regards Jason.

 

[Scott No Mates]

It may sound basic but have you ever thought about doing a monthly BUDGET?

As simple as it may seem: One side expected rent (whether weekly, fortnight, monthly, semiannually or annually) so you know your gross. The other side - expenses. Management fees, quarterly strata, rates & water, monthly provision for maintenance (2.5% of asset value), ad-hoc letting fees/advert/legals, annual bills Eg land tax/insurance/smoke detector mntce, pest inspection etc, semi-annual property inspection...

When you know what the expected shortfall is you can then work out your contribution to your mortgage.

This is a vital tool for anyone managing an asset whether one unit, a block of units, multi-share house, office/s, shopping centres etc.

To make your own life easier, consider having the agent withhold 1/12 of the outgoings each month and pay any shortfall from that amount. Then do an annual reconciliation of expenses against budget and make up the shortfall so that there is money in the kitty for expenses.

Consider your instructions to the pm - what bills do you want them to pay, when, should they contact you if there are insufficient funds in your account & request a top-up or incur interest charges?

If you don'tgive your pm directions then what sort of recourse do you think you might have if they don't pay bills as soon as they arrive.


If you fail to plan you plan to fail.

 

[Terry_w]

Many years ago a property manager neglected to pay the rates on one of my properties and the first I knew about it was when I was served documents about a judgment that had been listed against me for $499. This cause all sorts of issues with getting finance for the next 5 years - luckily it was under $500 which made things easier.

I would pay rates yourself for another reason too and that is to collect frequent flyer points on your credit card.

 

[Aaron_C]

Ouch Terry...that is annoying.

 

[BMan]

how does it work paying by credit card do you have a personal and IP credit card or pay it off in full each month?

 

[oneguy]

Thanks ALL. Once again giving me lots to great advise.

@skater - Good point re not counting on known predictable income. I guess I was naive and hoping it'd all just work with minimum of fuss, but now see it should work that way but can't just assume it would.

@Dazz - If it wasn't so so true, it'd be funny.

@jingo your comment about paying bills weekly/monthly being ineffective is so true. I find paying my own bills a chore, so can only imagine it'd be equally cumbersome. LOC is an option I hadn't considered, will do now.

@Scott No Mates - Budgeting and having 1/12th withheld is also another option I hadn't considered, and will also consider now.

@Terryw - if that can happen to someone like you, that's frightening. And yes points from CC is a good benefit.

@Bman - my intention would be to pay off the charge in full each month.

 

[JacM]

Definitely pay the bills yourself for the reasons already mentioned, being;

1. You will know the bills actually got paid
2. You will not end up with problems getting new loans in the future thanks to the PM not paying your bills on time
3. Frequent Flyer points earned from credit card expenditure

On that matter though, small trap for young players ... as it happens I receive four water bills all on the one day for four dwellings but the amount owing is the same, and all payable to the same water company. Same deal for the council rates. I cannot pay them all on the one day from internet banking, as I have found when I do so, all four transactions fail (thanks Commonwealth Bank). Any more than three identicals and they fail (the setup of the transaction is fine, it sits pending for a day, and then fails). So I can't pay them all on the same day. I suspect that for the same reason, I cannot set up direct debit on my credit card either grr. The moral of the story is to check that credit card transaction that pay bills actually go through.

 

[DaveM]

My pm's pay water as they need to have the bill to on charge water. All other bills come to me and are paid by me.

 

[citystar]

All bills are sent to a PO Box that is checked weekly. The only thing the property manager does is manage the property and the odd repair/maintenance request that I approve.

I keep a simple spreadsheet, when a bill is paid I adjust the date by three months or six months depending on how often the bill is sent so I can keep track of when bills are due. Why go to this hassle? Sometimes even having a PO Box means bills don't show up and the city council or body corporate don't believe the excuse "I didn't receive the bill" as a valid one, I'm sure they hear that all the time. With a spreadsheet that shows me when bills are due if I haven't received it I can chase them up for a copy of the invoice before they lump late fees, debt collection fees etc onto the bill. Also means in most cases I can pay with my credit card and leave the money sitting in my offset account for another month before my credit card is paid off in full.

Two months ago I had a body corp expense show on my monthly statement from my property manager. After a few polite emails it turns out they manage a few properties in the same apartment building and accidentally applied the cost to my account. I insisted they fix the mistake that week instead of waiting until the end of the month like they suggested. If it had only been a hundred bucks I wouldn't have cared about waiting until the eom however nine hundred dollars is another matter.

 

[westminster]

For myself I prefer to have my PM handle all my bills. Yes it does mean that the rent paid to me each month does vary but it would be the same if I was managing the bills myself too.

I love getting the report at the EOFY and it has everything on it - I hand ball it to my accountant and he has it all in front of him. All I need to round up is a few receipts from Bunnings and my bank statements.

Until I hand over to my PM (ie during development phase) I have to handle everything and it's a pain in the ar$e but I do manage to keep a track of it using Excel and scanning all the bills.

 

[shlemie]

This is another way people can use to choose a property manager for their IP. Ask if their office employs a qualified trust accountant to handle the books!

 

[buster]

Just wondering how those of you who have PMs pay their rates? Do you have the PM take it out of the rent collected? Do you have them debit from your credit card? Do you get them to forward your bills for you to pay? Or some other arrangement?

I am leaning towards having a known predictable rental in one coming in every month without having income varying due to rates being paid some months. I feel it would make my paying of mortgage easier if the income coming in from rent is predictable, and have the rates paid via Credit card.

Anyone do this? Is it possible to arrange this?

I pay by credit card ,get 6 weeks interest free and awardpoints, only takes a couple of clicks of the mouse when paying bills and you have cheap travel, and you have you finger on the pulse.

 

[tvadera]

Hi,

I would avoid paying rates from rent. I had given the authority to PM to pay rates from the rent, however tenant is not prompt with paying rent, as a result when bills due date arrive, PM does not have the rent money to pay for the bill. There were instances where in I have been penalised for not paying bills promptly.

This arrangement did not work in my case and hence I have got all the bills forwarded to me and I pay them on time regardless of whether rent is received or not.

I pay bills using my CC hence a quick search during tax time allows me to filter the bills for an IP from PPOR.

Regards,
TV