Why turning to accountants to shore up rental applications could be problematic
Accountants are increasingly being pressured to provide capacity to repay statements, as real estate agents and landlord...
Investor MJ Anthony returns to talk about the key things he uses property managers for to manage his 12 properties.
Tune in as he and host Phil Tarrant discuss the essential things to observe when appointing a new property manager, how to find and keep the perfect property manager, as well as how to not be a difficult landlord yourself.
You'll hear all of this and more, in this episode of The Smart Property Investment Show!
If you liked this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: Facebook, Twitter and LinkedIn. If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!
Suburbs mentioned in this episode:
Related articles of interest:
McGrath says Sydney won’t be subject to 40% correction
Perth’s rental yields falling, capital growth outlook still strong
Things to consider before investing in a regional town
Median prices or values – which is more important?
Phil Tarrant: G'day everyone. It's Phil Tarrant here, host of the Smart Property Investment Show. Thanks for joining us again. I wanted to get MJ Anthony back in the studio so, if you listened to our last podcast a few days ago, you would have heard MJ's journey investing in property and his ambitious goals towards looking to generate half a million bucks in passive income when he chooses to hang up his IT boots and retire. We go into details in the podcast, so make sure you go and check out. He's outlined how he's going to achieve that. But what I really wanted to do was take this opportunity to have a quick chat with MJ about managing this property portfolio he has. So 12 properties, $2.7 million in value, at one point $8 million in debt, so he's looking at a LVR circa 62%. Michael, thanks for coming ... Sorry, not Michael. MJ.
MJ Anthony: Call me MJ, yeah.
Phil Tarrant: MJ, sorry. We went through that before and I won't do it again.
MJ Anthony: No worries.
Phil Tarrant: MJ, thanks for coming back on.
MJ Anthony: No worries.
Phil Tarrant: Did you enjoy the first experience okay?
MJ Anthony: It was great. Yeah.
Phil Tarrant: Anything you'd do differently, if you had the chance again to talk about your portfolio?
MJ Anthony: No.
Phil Tarrant: No?
MJ Anthony: I'd have to listen to it again.
Phil Tarrant: It's good. So let's have a quick chat. We don't have a lot of time with this podcast, so we'll keep it really brief, but crystallise the way in which that you manage these 12 properties. Is it a headache?
MJ Anthony: No, it's not. So, I've got a bunch of regionals, eight regionals, all managed by one property manager in Wellington, New South Wales. I've got a separate manager for Nowra, a separate one for my Brookwater house, and another one for my ... actually, no, I don't have a property manager for my Brisbane apartment, because the building owner is the tenant, so I don't need a property manager for that. She just pays me monthly rent and if there's anything that needs fixing, she'll let me know.
Phil Tarrant: Handy.
MJ Anthony: Very, very handy.
Phil Tarrant: Let's talk about when you try and appoint a new property manager, what are the key things you look for in property management?
MJ Anthony: How many they're already managing. If they're managing hundreds and hundreds and hundreds, per one manager, then they're obviously not gonna spend the time to look after you. I've had the same property manager in Wellington the last seven years, and she's brilliant, and the whole team are brilliant. So it's how quickly they respond to emails, how quickly they respond to phone calls, how they vet the tenants. How they basically do their job, essentially.
Phil Tarrant: And your property manager who manages ... how many properties he monitors?
MJ Anthony: Eight.
Phil Tarrant: Eight properties?
MJ Anthony: Yeah.
Phil Tarrant: Any particular ... Male or female? Doesn't matter? So I can call her she?
MJ Anthony: Yeah. She.
Phil Tarrant: Is there anything she does, or she's done particularly badly over the years, so it's been an irritant, you've thought, "Oh, I'm gonna switch her because she's starting to annoy me or I think service is slipping?"
MJ Anthony: No. No, service has been really, really great. They're in constant communication, but mind you, I also initiate the conversation, as well. I talk to them. At the moment, because I'm aggressively buying and renovating and getting tenants in there, there's a constant churn. So it's not just a set figure. I'm always on the phone at least once or twice a week.
Phil Tarrant: And she adds value for money, so what you pay away in terms of ... What do you pay as a percentage?
MJ Anthony: 7.7, including GST. So it's 7 + GST.
Phil Tarrant: And you're happy with paying away 7.7% for what she gives in return?
MJ Anthony: Yeah. The thing with small country towns is everyone knows each other. Often, they'll put tenants in they already know. They're like, "Ah, this person's rented from us for five years. We know who that is." I had one tenant who actually lost his job. His grandma talked to the baker, the baker talked to the coffee man, the coffee man talked to my property manager, and we found out that way. So it's a very, very small ... It's kind of different. There's a different work ethic in country towns. I have to not ... I'm from Sydney, originally. I talk a million miles an hour. I generally slow my conversation down to talk to them, because they talk relatively slowly, and not sound too rushed. It's like, "Oh, this MJ from Sydney. He's …”
Phil Tarrant: Do you reckon you're a bit of a problem client? Are you too proactive, where they say, "Oh, MJ's on the phone again. I gotta talk to him?"
MJ Anthony: No, because I ... Well, if I was really demanding and really aggressive and arrogant, then yeah, totally, but no, it's very, very pleasant. I keep them in check, and they love me.
Phil Tarrant: It's a really important point, because you don't wanna be that nuisance customer. So as a property manager, you're obviously paying a fee for service, so you're paying part of your rent to someone to look after it and make sure it gets … stops you doing it. And we talk a lot about that on the Smart Property Investment Show. But you don't wanna be that person where they just go, "This guy's too hard, or this girl's too hard. Let's cut them away, and let's not give them the service they desire." So striking that balance is quite a people skill.
MJ Anthony: You often hear people firing property managers because they're not up to par. I know a couple of people who get their property management agreement and when they sign it, they scrub out 30 days, 60 days, 90 days notice, and change it to one. They go, "Right, you've got one day's notice, and I'm telling you, you've got one day and you're out." But you don't really think about the other way of the property manager going, "No, you're actually a horrible client. We don't wanna work with you anymore. Cut the strings."
Phil Tarrant: And in a small town like that, reputation goes around. "I don't want that guy as a customer."
MJ Anthony: Exactly.
Phil Tarrant: So you find yourself whipped in. So it's a really important point, and we probably haven't covered it that much, but you wanna be a good client to have, rather than a demanding, nasty piece of work where ... because you're not gonna get the service. People go over and above for people that they like, and if you go down that path ... Anyway, it's just something to think about.
MJ Anthony: No, it's good, because the number one complaint ... I go and talk to them, I say, "What's the hardest thing about your job?" They're like, "Oh, landlords who don't reply. Landlords who don't wanna pay trades quickly." I can usually pay it out of rent, but it's like a larger sort of job, then I pay ... "I need to know everything that you're doing, so let me know and I'm gonna approve it, so it doesn't matter. I just wanna know, so at the end of the month, there's no surprises." And I pay all my invoices on the day I get them.
Phil Tarrant: Let's talk about how you keep good financial administrative oversight of your properties. How and when do you review their performance? Is it a monthly thing for you?
MJ Anthony: It's a monthly, yeah. I've got a spreadsheet that I've got all my properties in, and I'm like, "What can I do to add value to increase the rent?" And I pose the question to the tenant. I don't actually talk to the tenant directly, that's my property manager's job. It's like, "For an extra 10 bucks, what can I do to this property to make it better? Do you need a new garage? Do you need another split air conditioner in the room?"
I visit the properties once a year and actually meet the tenants, because they're always home. And I'm seeing cables along the ground from the kitchen. I'm like, "You could do with an extra power point here." They're like, "Yeah. We're constantly tripping over this cable." "Okay, cool. I'll get a new power point put in." Or a different phone point, so they don't have to drag the aerial out through the house to plug it into the Foxtel or the TV. Simple things like that. It's like, "How can I make it better for you?" And then regular rent increases and reviews.
Phil Tarrant: So you do that organically, or you do that because someone told you to do that?
MJ Anthony: I do that organically, just from listening to lots of great podcasts and doing lots of seminars over the years, and picking up little tips and tricks. And reading forums, as well.
Phil Tarrant: Do you think it's normal for you to be thinking that way? Or do you think those landlords or investors see it the other way and everything is nickel-and-diming, trying to save a buck wherever possible? Because saving a buck to make a buck sometimes isn't the best way to go ahead.
MJ Anthony: Yeah. Penny saved, pound wasted, sort of thing. I think a lot of landlords, unless they're on a 12-month lease, they're like, "Oh, can't do anything. Forget about it." They set and forget, sort of thing. When you only have one property, it generally is a set and forget thing, because you can't change the lease for 12 months, there's nothing really you can do. But when you have eight, there's constant churn, so it's more of a involved process.
Phil Tarrant: Pets or no pets? What's your position?
MJ Anthony: Both. Outdoor pets. I've had indoor pets in my Brookwater house. I'm banning pets. No more pets, because I've replaced the carpet twice.
Phil Tarrant: Because of the pets?
MJ Anthony: Because of the pets, because the smell of urine leaks into the underlay and it's impossible to get out.
Phil Tarrant: Couldn't you just put tiles down or floating floors so it's not ...
MJ Anthony: It's half tiled. The thing is, it's only carpeted in the bedrooms and the front living room. But yeah, I'm thinking tiles next. Fully tiled and whatever. For my Wellington properties, they are seven-year-old properties, most of them with wooden floorboards, so it doesn't really matter. Only a couple have carpet, and the carpet property's replacing very soon. But outdoor pets, no problem, because it's all fenced, and most people have a pet.
It's like, I just had a new tenant come in, actually leave Sydney, they were in the Western suburbs. She is a mum of four. She was like, "I've had enough of Sydney. Sick of Sydney, sick of the prices," and moved out west. But she's originally from Wellington, so that's kind of like she's come back home with her family. She was like, "Oh, can I take my dogs?" I'm like, "Yeah. As long as they're outdoors, no problem."
Phil Tarrant: A lot of people put prejudices in when they review tenant applications. They think, "This person's not like me and therefore they won't be a good tenant." If people come from broken households, they might be only one income earner, might be a single mother or a single father with a couple of kids. They might be on Centerlink benefits. There might be other things that property investors might go, "Oh, no. That sounds really bad."
But from my experience, I've seen that you've really gotta keep an open mind when it comes to these type of things. It comes down to basically assessing, "What is their rental history? Can they afford the property? Do they have good references, which would show that irrespective of their story or their background or their current circumstance and situation, can I put them into my house?" And what do you want as a landlord? You want assurance and you want consistency, so keep an open mind. What's your thoughts on that?
MJ Anthony: My property manager vets tenants, looks at their history, but also looks at their attitude. She's had applicants who have looked okay on paper, but then they're swearing to their kids as soon as they walk out, and just a poor attitude. She also looks at their teeth. A lot of drug problems, and you look at someone's teeth and you can see, "Yeah, you've had an interesting past." But it's usually the references, as well. What have you done? Your history is not always your future, but it's a good indication.
Phil Tarrant: It is. An experience I had, only yesterday, because I'm trying to rent out a place I've got up in Brissie. The property manager gave me a call and said, "Look. I've got all these applications," and she just started talking through them. Eventually I just went ... like I couldn't remember. And I went, "Who do you think?" And she went, "I think this person, for this reason." And I said, "Who wants it the most?" And she went, "Well, this person here has now called me. They've sent me a note. They've done this, that and the other, and they're really selling themselves the reason why they should have this property."
And I said, "Is everything supported with good references?" And she went, "Absolutely." I went, "Give it to them." It was a given that the serviceability to afford it, but their serviceability was probably a lot tighter than a couple of the other people who have applied to it, but this person wanted it the most. And their story, they had a story warranted to put them, so I said, "Yeah, get them in."
MJ Anthony: Yeah. I had a tenant who is known to my property manager but she's known as a whinger. Oh, she whinges. She complains about the cold. She complains about the heat. She complains about the dust. She complains about anything. I'm like, "Okay, that's all right. We can always say no." But she's constant paying rent. She always pays rent on time. And things that she wants fixed are very reasonable. She's just like, "Oh, I don't want a new gas connection into the house so I can have a gas heater." I'm like, "You've got a split system air conditioner, you can use that." But it's listening to the tenant, as well. As long as they're reliable and pay rent, that ticks in my book.
Phil Tarrant: So in terms of property management, what's the biggest mistake that you think you've made in your investing career, which is probably 12, 13 years, I think, by memory?
MJ Anthony: A biggest mistake? I've never had any crazy, horrible tenant problems which was a result of the property manager. I've inherited tenants in properties that I've purchased, as nightmare tenants, but no, I don't think I've got a horrible war story for you from a property management perspective.
Phil Tarrant: Do you think that's because you're so proactive in your management of your property managers?
MJ Anthony: Yeah.
Phil Tarrant: A lot of people work out ... and myself, I'll sit there and go, "I didn't even know that that property was vacant," and that's just bad administration.
MJ Anthony: One of my property managers in Brisbane ... I'd better plug her, she's Kristy Lord from Johnston & Dixon Quality Properties in Milton, I believe. I've used Christy for the last seven years, and she's been through different agencies and worked for different companies-
Phil Tarrant: So you follow the person rather than the brand?
MJ Anthony: I've just followed her almost like a sheep, sort of thing. But no, she's an awesome property manager, and it's very hard to find people with that sort of quality, particularly with a property manager. Because sales is glossy, property management's ... They're dealing with tenants-
Phil Tarrant: It's a hard business.
MJ Anthony: It's hard. You get yelled at all the time. You've got tenants who don't care. You've got tenants who don't pay. You're constantly nagging. It takes a certain individual to be able to do that really well. I've used the same property manager, even though she's been through different businesses, she's been in three or four. And I'm like, "Yeah, you can keep managing the property. Just tell me when you land your next gig, and I'll sign the management over."
Phil Tarrant: That's fine. And let's have a quick chat about renos. Have you done any major sort of renovations over the years?
MJ Anthony: Not really major structural ones. My Wellington ones are all little minor ones, because you don't wanna throw too much at the property. The first property I bought in Wellington, apart from it being renoed originally, I renovated it last year. Painted the outside, painted the inside, new carpet, turfed the back yard. Probably spent 10 grand, all up. The valuation came back five grand more. The value was being really, really negative, so I'm like, "Well, there's no point throwing heaps of money at this and hoping that evaluation will be high, when the value is being negative, the bank's telling the valuers to value it down for a file safe price, which they need to do, and expect them to extract equity if the market's flat and not rising." Because the regional markets aren't the same as Sydney.
Phil Tarrant: Yeah. And I think a lot of people make the mistake of listening to podcasts, and if you talk about our story of investing in property, we've had a very good story in terms of manufacturing equity and realising that through refinancing, pulling it out and buying again. We haven't done a lot of that recently. The climate and the environment's changed substantially. You need to look at every single potential renovation as own case value.
That's gonna be down to, what is the product you have? What you can turn that product into. How much is that gonna cost me to do that? What is the potential upside? Am I looking to flip it? Am I looking to refinance? And if markets won't sustain that often, you just need it to be good enough to maintain your rent, or if you wanna spend a few bucks to try and increase it, that's cool, and improve your cash flow. But often, the best renovation is the renovation that you don't do. It sounds like that's one of your mantras.
MJ Anthony: My most recent purchase, I literally spent nothing on it, in terms of fixing anything, because everything was okay. I mean, it's got a purple bathtub from the '70s.
Phil Tarrant: People love retro. It's a feature.
MJ Anthony: Well, my tenants haven't complained yet, so I'm like, "Ah, I'm gonna paint that, but maybe in 12 months time. I'm gonna defer the maintenance." If you don't need to spend it, it's still functional, then you're probably throwing money down the toilet.
Phil Tarrant: So moving forward, you'll always use a property manager?
MJ Anthony: Yeah, definitely. I'd never manage it myself.
Phil Tarrant: Is that because of the distance, or is it because of you just couldn't be bothered?
MJ Anthony: That, plus they're there on the ground. They know everyone in town. I don't know everyone in town. It's mainly distance. Like borderless investing, I've got no problem having properties that are not in my backyard. I haven't purchased anything in Sydney ever, so that's a perfect example. It's always been ...
Phil Tarrant: So if you lived in Wellington, where a lot of your properties are, or recent ones are, would you be able to do a lot of the work required to be a property manager yourself? Could you go in and change a leaky tap? Could you fix a ...
MJ Anthony: No, I'm not handy at all. I'm in IT. I work at a keyboard all day. I could try. I could give it a go, but no. I've got a couple, a husband and wife team in Wellington, who do all my maintenance. And they're on the ground, they also know tenants as well. So I've said, "Oh, these two people coming into this property, what do you think?" "Oh, she used to live on Arthur Street, da-da-da," and she'll tell me the story about it, sort of thing. But they're my hands on the ... my maintenance.
Phil Tarrant: So it sounds like you've got it pretty well wired, right?
MJ Anthony: Yeah.
Phil Tarrant: So when you're lying in bed at night worrying about your investment portfolio, you're not typically worrying about the management part of it?
MJ Anthony: No. I sleep well at night.
Phil Tarrant: So what is it that bothers you most about your portfolio? What is it that gives you sleepless nights?
MJ Anthony: I don't have enough. I need to get more. I've only bought two this year. It's only August, so I've still got time.
Phil Tarrant: That's good. All right. Thanks, MJ. I just really wanted to have a quick chat with you outside of the podcast that we recorded recently.
MJ Anthony: No worries.
Phil Tarrant: Just about management, because you have ambitious targets in terms of growing this portfolio to generate you a nice income, and what that requires is a lot of properties which are gonna need managing. So where you are today to 50 properties or 70 properties, do you think that the way you approach managing them will change at all? Do you reckon you've got it nailed?
MJ Anthony: No. I think I've got it nailed down, in terms of the checklist of how we get tenants and what we will and won't accept. Basically, when you've got an approach and it works, just keep doing it. A lot of people get bored and change their strategy, and like, "No, that doesn't work. I'm gonna try something else." You just keep doing the same thing over and over again-
Phil Tarrant: So if everything's being unsexy when it comes to property, just keep doing the same thing, if it works, over and over and over again, and that's how you create wealth. But yeah, really enjoyed it. Thanks MJ. Remember to check out smartpropertyinvestment.com.au. I won't bore you with all the other stuff you can do, like social media and stuff. If you want to find us, go and search for us. But we'll be back again next week. Until then, bye-bye.
Speaker 1: The information featured in this podcast is general in nature and does not take into consideration your financial situation or individual needs, and should not be relied upon. Before making any investment, insurance, tax, property or financial planning decision, you should consult a licenced professional who can advise whether your decision is appropriate for you. Guests appearing on this podcast may have a commercial relationship with the companies mentioned.