Self Managed IP by New Investor

[Flossy]

Hello,
Your advice and opinions would be much appreciated.

My IP in NSW settles with vacant possession later this month and I am seeking advise on leasing and providing services. This is a no frills house in good condition, purchased specificaly to rent out.
My specific interest, initially is opinions/feedback on my ideas around leasing to individuals in a shared house situation as follows.

I live interstate so will not be personally dealing with tenants.

• Tenant 1 - Student tenant who is a known and reliable friend.
• Tenant 2 & 3 - To be sourced and chosen by Tenant 1.
• Individual leases and bond for each tenant.

Tenant 1 does not want to be responsible for collecting money from other tenants or to be left out of pocket by slack or slow payers.

The house -

• 3 Bed
• Unfurnished
• Close to University, Hospital, Retail Centres
• Fairly large, grassed garden.
• Electric Hot Water & Stove. No Gas.

Services -

• Option 1 - Electricity and internet provided with included charges for those services as part of the rent. ?? Questioning the practicality of this ??
• Option 2 - Electricity and Internet provided with an account sent to each tenant for amounts due. ?? What about late payment, hassles chasing payment ??

Tenant 1 assures me garden maintenance and grass cutting won't be a problem.

Leases & legals-

• I will print and organise NSW leases but will send them to Tenant 1 to get signed and return to me for any required action.
• I believe individual leases would make each person responsible for their own liability and in the event that they didn't pay rent I would be able to recoup from that tenant's bond. Damage would probably have to be shared between the tenants as it may be difficult to prove liability.

I have Westpac building insurance and will take out landlord insurance. Currently taking an interest in blogs and struggling to troll through hundreds of pages of information from insurers.

Thanks, In anticipation.

 

[alexlee]

You're interstate and you're self-managing?

 

[wylie]

We have a couple of places where there are separate singles. We self manage and don't have any issues.

In both cases, we deal primarily with one person and they organise the others. We don't care how they organise the rent, as long as the whole rent goes in on the right day. I certainly don't want to chase up five different people. They are all on the lease and I believe this is better because they all know that if one goes off the rails, they could all be up for the consequences.

I would NEVER include electricity, gas, internet or phone as part of the rent. What if they run up huge bills. They won't care because they are not paying.

Grass cutting is included in all our leases because tenants used to let us down all the time and our houses used to look like the rented houses in the street. Now our houses look better kept than other houses. Don't underestimate the problems you might have with neighbours if your tenant decides not to mow for six weeks.

The only other way I would contemplate this sort of set up is to lease the whole house to the "trusted" tenant and allow her to sub-let. She takes on the role of landlord and has more onus on her than if they are all on the one lease.

I'm not even sure if you can have separate leases for each person? But I wouldn't do it even if I could.

 

[Lil Skater]

The alarm bell I see is "reliable friend".

Friends/family can get messy, especially when dealing with someone's home.

Ignoring that, I would get all tenants on one lease. If you have separate leases, you'll be leasing by the room and WILL have to deal with different tenants, as they're on different tenancies.

You're best to have each tenant on the lease, all of which will be separately and solely liable for all rent charges, or as Wylie says, have tenant 1 as a head tenant who takes on the "landlord" role.

 

[Flossy]

We have a couple of places where there are separate singles. We self manage and don't have any issues.

In both cases, we deal primarily with one person and they organise the others. We don't care how they organise the rent, as long as the whole rent goes in on the right day. I certainly don't want to chase up five different people. They are all on the lease and I believe this is better because they all know that if one goes off the rails, they could all be up for the consequences.

Do you self manage and live near your rentals or manage them from a distance?

This will be how I manage things porbably through a PM when Tenant1 moves on. For now though, my plan is to deal with Tenant1 who will act as landlord but doesn't have to be financially responsible for the house mates. I would expect this to work out if he chooses them sensibly.
Wouldn't there be issues with having one lease if one tenant skips and leaves the others in the lerch, causes damage or finds a replacement who would not be on the lease and therefore not responsible financially?​

I would NEVER include electricity, gas, internet or phone as part of the rent. What if they run up huge bills. They won't care because they are not paying.

I was only considering this because Tenant1 has had a previous housemate who was great but at the end of the tenancy she kept 'forgetting' to pay her share of the electricity leaving Tenant1 out of pocket for some time.
My thoughts were to have the tenants pay any excess that isn't covered by the rent but not sure of the legalities and may be messy logistically.
It may be simpler to just send the Electricity Bill for payment.
Do you arrange Electricity and other service connections to your properties or is it the tenants responsibility?
Internet wouldn't be an issue as it would be a set monthly cost and shaped after the limit was reached. Except for the hardware which would be my responsibility if something broke.
This whole idea is seeming too hard!​

Grass cutting is included in all our leases because tenants used to let us down all the time and our houses used to look like the rented houses in the street. Now our houses look better kept than other houses. Don't underestimate the problems you might have with neighbours if your tenant decides not to mow for six weeks.

You're probably right there. Would you use one of the franchises or source a local?​

The only other way I would contemplate this sort of set up is to lease the whole house to the "trusted" tenant and allow her to sub-let. She takes on the role of landlord and has more onus on her than if they are all on the one lease.

Tenant1 might consider this but don't know how he would go organising bond, seperate leases etc.​

I'm not even sure if you can have separate leases for each person? But I wouldn't do it even if I could.

I'm not sure either but will have a look on the NSW gov website.​

Thanks very much for your feedback and advice. I really appreciate it.

 

[wylie]

We love locally, and pay to have the yards mowed.

If you pay for the internet, what if one of your "stranger" tenants decides to download something questionable and the account is in your name? I don't know what would happen, but I wouldn't like to have to find out.

You are making it hard for yourself. Just put everyone on the lease, they organise their own gas, electricity and internet like any other lease, and you just collect the rent.

Under you scheme, you could find yourself chasing four different people on a weekly basis for their portion of the rent. Why would you even consider it?

 

[Flossy]

The alarm bell I see is "reliable friend".

Friends/family can get messy, especially when dealing with someone's home.

Yes I know Friends/Family can be messy but also there is the conveniance of having someone to move in straight away and manage things without the PM expenses.​

Ignoring that, I would get all tenants on one lease. If you have separate leases, you'll be leasing by the room and WILL have to deal with different tenants, as they're on different tenancies.

You're best to have each tenant on the lease, all of which will be separately and solely liable for all rent charges, or as Wylie says, have tenant 1 as a head tenant who takes on the "landlord" role.

My problem with that is that I wouldn't be able to bring myself to make Tenant1 pay the whole rent if something goes wrong.
Maybe I have to toughen up though and he has to take some responsibility for choosing good housemates.​

Thanks for your advice, it is much appreciated.

 

[wylie]

Reading your comments makes me think you need to give it to a property manager to find a good tenant. Your desire to have your friend there is skewing your whole vision about this.

I'd steer clear of having someone in there who you know. It is a recipe for disaster and this whole wacky plan has "disaster" written all over it.

Find a good PM and let them handle things. If they find a good tenant, you can decide to take over management. If not, let the PM do their job but don't mix investment and friendship or you risk problems with both.

 

[Flossy]

We love locally, and pay to have the yards mowed.

If you pay for the internet, what if one of your "stranger" tenants decides to download something questionable and the account is in your name? I don't know what would happen, but I wouldn't like to have to find out.

You are making it hard for yourself. Just put everyone on the lease, they organise their own gas, electricity and internet like any other lease, and you just collect the rent.

Under you scheme, you could find yourself chasing four different people on a weekly basis for their portion of the rent. Why would you even consider it?

Yes, point taken, it is seeming like I'm setting myself up for problems. I am considering it because Tenant1 is one of my favourite people in the world and I'm trying to make it practical and easy.

 

[wylie]

Yes, point taken, it is seeming like I'm setting myself up for problems. I am considering it because Tenant1 is one of my favourite people in the world and I'm trying to make it practical and easy.

Like I've just posted, this could ruin your friendship.

 

[fokas]

I would NEVER include electricity, gas, internet or phone as part of the rent. What if they run up huge bills. They won't care because they are not paying.

My 19 and 23 year old cousins who both live/d on uni premises where utilities were included told me that none of the students cared about excessive use so lights were always left on, dryers were always used instead of hanging clothes out and their non-uni friends would come to uni to have 30min long hot showers.
So you may want to reconsider that...even if it is a "reliable friend".

 

[fokas]

My problem with that is that I wouldn't be able to bring myself to make Tenant1 pay the whole rent if something goes wrong.
Maybe I have to toughen up though and he has to take some responsibility for choosing good housemates.​

You're bringing emotions into a business deal... eesh!

 

[misakimen]

Flossy,

If I am in your situation. I would rather pay a PM to organise things for me, especially when you are living interstate.

It's just too much hassle to deal with 3 tenants, on separate lease, chase up the bills & rent separately. Yes, you might do as other suggested, leave it to your tenant 1 to look after everything for you. But first ask yourself, if tenant 1 is reliable enough, and most people are not willing to take such responsibility without you giving him/her any benefit. In other words, you might need to rebate him/her to look after the IP for you.

So why bother??? Just spend a bit of money and get a PM to do it properly. If paying 5-6% management fee can save you lots of time and trouble, i can't see why you would choose to do it in the harder way.

ps. I got a few IPs, and personally i only self manage the one which is close to where i live (ie. within 30 min drive), and i only do it because the tenant is good and easy to deal with. I don't want another full time job to look after tenants.

Just my 2 cents.

 

[crest133]

Sounds like you need a PM, not a friend.
Suggest you try it the safe way for 12 months, and as others have mentioned here, user pays net and other costs etc. Otherwise people move and anything unpaid in your name may become a listing on your credit file.
Good luck
cheers
crest133

 

[hobo]

Put it with a PM. Your friend can apply if they want to!

 

[travelbug]

My problem with that is that I wouldn't be able to bring myself to make Tenant1 pay the whole rent if something goes wrong.

And that is why it won't work!

I can see that it is attractive to have different renters as you'll get more money but you can't expect the friend to do all the work to make you more money.
Personally I'd get a PM, esecially considering your statement above. Your friend could rent it then get people to share if he/she wished.

You need to consider what's more important the friend or the extra money. In this case I think it will result in a loss of at least one of them.

 

[Flossy]

Thanks to you all for your opinions and comments. Some wild assumptions were made and some comments seemed more like emotional and negative judgements on whether friends can be reliable and trusted or not.

So, to the point.
* The house is being let as a share house for the rent the previous PM assessed as the rental value.
* Tenant1 is the Landlords representative and is choosing potential tenants which will be vetted by myself through tenant databases and reference checking.
* Tenant1 is a reliable friend because they have proven to be 'reliable' including in previous financial dealings.
* It is a share house with three tenants, each on their own 6 month lease and paying an equal portion of the rent and bond. I don't expect this to take up more time than one lease as I expect to choose good tenants who don't need to be chased up.
Who chooses tenants expecting that they won't pay and have to be chased up? If that was your expectation, why would you invest in rental property?
* Electricity and services will be organised by the tenants.
* Gardening will be done by the tenants, with an annexure item noting that if it is not done, a contractor will be hired at the tenants expense.
* Inspections of the property will be carried out on my regular travels to the area. My travel costs may now be tax deductable.
* This arrangement will stand for the duration of the 6month lease. If it doesn't work out, for myself or for Tenant1, we will make other arrangements.

Based on the problems others have been posting around using a PM and the recommendations to self manage, I'm a little surprised at the negativity around using a personnal contact to manage an IP rather than a complete stranger who is too busy, under paid and doesn't give a crap.

Yes I am emotional about my friends. Friends are friends because I am emotional about them i.e. love them. Otherwise how could they be friends?

Regards

 

[wylie]

Seems like you've taken on board some of the advice at least. Like not putting power or water into your name.

If you were going to do it anyway, why ask for advice here?

I don't think people jumped to conclusions without reason. Each of us who said "don't do it" has a reason to advise that. You yourself said if your friend didn't choose well you would have trouble asking him/her to pay the whole of the rent.

It will either work or turn to custard. I still say "don't do it" but good luck with it anyway.

 

[Bats]

Good luck with this.

 

[travelbug]

Based on the problems others have been posting around using a PM and the recommendations to self manage, I'm a little surprised at the negativity around using a personnal contact to manage an IP rather than a complete stranger who is too busy, under paid and doesn't give a crap.
Regards

Didn't you say earlier that tenant 1 didn't want to be responsible for the other tenants or top collect money? If so how can you say they are managing the IP? A managing agent does a LOT more than jujust collect money. Is your friend willing to take on that role? What's in it for them?