Their Word is their Bond | Interesting Articles

By: Rental Results  05-Apr-2012
Keywords: Rental Appraisal

Bond can be a maximum of 4 weeks rent, but you can run into problems with cheaper properties. You can go to Tribunal to get the difference paid to you, but it may come at $5 per week. If you have to borrow to reinstate these items, will that $5 really cover the cost including interest? “Well, I'll take 4 weeks bond then”, you say. Do this when others ask less will make your property harder to let as the initial cost to tenants is higher. This will lower the number of tenants able to meet this criteria, even if they are ideal in every other way. The temptation will be to have them pay off the bond over time. Warning! Danger Will Robinson!

My thoughts are if tenants are able to contribute more than the rent each week in order to pay off a bond, then they should be able to save that money each week before they move house, then they will have that money available to secure the first place that takes their fancy. “Oh, but I had to pay for this thing, and that other thing I didn't plan for”. Most often those 'foreseeable emergencies' involve their car, and if it was rego rather than a breakdown, I tend to back away slowly. You too may come to the conclusion that this person will always prioritise their car above your rent. I have told people having bond money will make them a stronger tenancy applicant. I have not yet heard back from them, so I can't report whether they are still saving, or went to find an easier target elsewhere.

Transferring bonds is something I am wary of. You need to be sure that tenants are going to get all the bond back, or are willing and able to make up any shortfall. In great tenants, this is no concern – they are the ones you have to pay back nearly 2 weeks rent to. They touch up the slightest ding in the paint, and leave the place shiny. Not only do they weed the garden, but add their own plants, and leave them there when they move on (I know of a lease-breaker spitefully pulling up plants and leaving them to die). The trick for bonds is to know your incoming tenants are great ones.

I am happiest about transferring bonds when I am the one with the outgoing tenant. I'll do it for tenants moving between properties I manage, because I know what to expect from them, and they have a stake in continuing good relations. I may also transfer bonds where I know their current landlord. This is a great reason to network with other investors. This way, I know they really are the property owner/manager, and not a friend pretending (yes, this does happen). Because they know me, they give an appropriate reference. What goes around, comes around. If you really want rid of a tenant, do NOT give them a glowing reference. Be honest, and demonstrate what you have learnt, such as 'we arranged for their employer to pay us directly' (or you could always write one in double-speak).

Some tenants ask for a written reference from their landlord. I personally neither like getting these nor giving them. Why? Frankly, it is easy to fib on paper, as tone of voice can't give you away – 90% of communication is non-verbal. I know of an employer writing 'you will be lucky to have her work for you' in a reference for a lazy employee – guess what she meant. If I am asked for a written reference for a less-than desirable tenant, I provide the bare facts of their tenancy (occupied from-to) and add that I am happy to be contacted for further details. As the few of these I have issued never resulted in a follow up call, either the tenant realised I would spill the beans over the phone and never presented it, or the new landlords saw it and thought 'good enough'. In which case, I should add 'you'll be lucky to have them paying you rent'.

Always follow up on tenant references. If your instinct says something is not right, ask for more information, and verify it. You can ask the referees “I have a funny feeling about this person, but can't quite identify what it is – can you tell me?”. I asked this about a job applicant. The answer was instant, made sense of my gut feeling, and identified what was needed in order to work with them. Issues need not always equal 'no'.

If you suspect a referee is really a friend posing as landlord, ask them investing questions. You could try “Calculate the gross yield and internal rate of return on property X, time starts.. NOW!”. However I recommend the more subtle approach of social chatter, such as 'have you had the property long?', 'has the market changed significantly since you bought?', 'what attracted you to invest in that property?' People who have never bought a house, let alone an investment, really struggle with the latter two questions, and hesitate for the first, wondering if you know how to find out.

The information in this article was current at 27 Mar 2012

Keywords: Rental Appraisal

Other news and updates from Rental Results


Hot Property, Hot Returns | Interesting Articles

When warm air, (laden with moisture from showers, breathing, drying clothes and cooking) meets a relatively cool surfaces (such as windows, ceilings and exterior walls) droplets of condensation form. When the heating is provided by portable gas heaters, you have more moisture being put into the house – paradoxically, when natural gas burns it produces water.