DIY property management audit
I know the word ‘audit’ makes your eyes glaze over, but when did you last do an audit of your investment property files – 3 years ago, 5 years ago, never? If you have no idea what I am talking about or it has been a while, this 5-minute read could potentially save you money – money lost due to simple errors, oversight or worse still mismanagement that could result in fines and legal ramifications.
In my 14 years as a property manager, I have audited hundreds of files from other agents. This generally occurs when an owner decides to change property managers. You can do an audit yourself to ensure that the most common mistakes and errors that I find are not happening with your investment property, and if they are, it will give you the opportunity to take action now and rectify things before they become a huge issue.
Why do I need an audit?
Having an investment property is a great investment and long-term financial plan. Ensuring you have a good team assisting with the setup and management of this investment is the key to success. You need to develop a trusting relationship with 3 essential services – a good financial planner, accountant and property manager.
Generally, you would have the same accountant and financial planner throughout the term of your investment but depending on your property management agency, you may have had several property managers, as real estate, especially property management, is a high staff turnover industry.
In this case, how do you know that your property is being monitored correctly? An audit of your files will take no longer than 15 minutes if you have all the documents at hand and will give you peace of mind that everything is as it should be.
Where to start?
The first thing to do is to gather all of the documents relating to your property. If your agency provides you access to their online portal, the documents should be located in there. If you don’t have access to a portal you will need to check the emails you have received from your property manager. The documents may have been sent separately in an email or could be attached to your monthly statements. The documents you need for the audit are:
1. Form 6 (Appointment and reappoint of a property agent, resident letting agent or property auctioneer)
2. Form 18a General tenancy agreement
3. Form 1a Entry Condition Report – general tenancies
4. Smoke alarm compliance certificate
5. Pool fencing certificate (if applicable)
6. Last 2 periodic inspection reports
7. Key receipt
If you do not have copies of these documents simply request a copy from your current managing agent. Most agencies are more than happy to supply this information to you if you don’t already have it or have mislaid it.
What things do I need to look for?
Entry condition report not being signed, completed or incorrect
An Entry condition report is the reflection of the condition of a property at the start of the tenancy and the document that is referred to at the end of the tenancy. Having this document correctly completed is essential.
To check your report, ensure you read all of the comments by the agent and the tenant. Check that the agent has signed the report, and ideally the tenant as well. If there is no signature by the tenant, then the tenant has not returned their copy of the Entry condition report on time. A note should state this in the file to prevent issues during the vacate process when tenants are looking for their bond to be refunded.
Smoke alarm certificates incorrect
It is a legal responsibility to have the smoke alarms tested 30 days before a new lease or a lease renewal. Queensland Fire and Emergency Services can issue a fine of $640 for not having these tested within the correct timeframe, but non-compliance can also nullify any insurance claims should there be a fire at the property.
To check this, ensure the smoke alarm test date is within 30 days of the lease start date and/or if the lease is longer than 12 months tested within the last 12 months.
Pool safety certificate lapsed
In Queensland, a pool safety certificate is valid for 2 years. If your investment property has a pool do you know when the safety certificate expires? If you are unsure you can check your property here:
Unlawful clauses in lease agreements
Contracting outside the law is a legal term many courts use when issuing fines to property managers or owners that do not adhere to the law of leasing in Queensland.
Items such as:
“if the dishwasher breaks down it will not be repaired”
“tenants agree to give 1 months notice in writing to leave”
“tenant agrees to pay for smoke alarm testing at the start of the tenancy”
“if rent is not paid on time, a fee of $10.00 will be applicable”
are all common conditions added to the leases illegally and may cost you in fines and legal representation.
Leases not renewed
Do you have a firm lease in place? Did you know that some insurance policies will only cover rent loss if there is a fixed term lease agreement?
If your property manager has not renewed the lease (according to your instructions) this means that the tenancy moves into a periodic agreement. This type of agreement allows tenants to leave giving just 2 weeks notice. Should there be an insurance claim on the property, a periodic lease may leave your claim null and void.
Ensure your lease is a fixed term agreement unless specifically arranged with your property manager. A periodic lease may suit you if you are looking to sell the property or perhaps you are planning to move back into the property in the near future.
Inspection reports not being completed
Inspections must be completed at a minimum of every 6 months or as agreed in writing on your Form 6 with your real estate agency. Generally, inspections are carried out every 3-4 months unless there are long-term tenants in place. Inspections that have not been completed at least every 6 months may affect any insurance claims.
Application forms not complete
When an insurance claim is made at the property, one of the first documents asked for by the insurance company is a copy of the tenant’s application form. Insurers need to verify that your agent has done every check available on the tenants prior to leasing the property to the tenants. No records or having an incomplete application form could jeopardise any insurance claim.
Bonds not being increased
The bond on any property should be 4 weeks rent. This is a Queensland standard and important to note that all insurance companies know this. If the agent has failed to increase the bond (generally after a rent increase), the insurance company will calculate the claim based on the Queensland standard, not the amount held. Depending on the shortfall of bond money, this could be in excess of $100.
No key documentation
A photocopy of the keys provided to the tenants should be kept on file to compare the set of keys returned at the end of the tenancy. Without this receipt, keys may need to be cut and copied or even locks changed.
Incorrect commissions or fees being charged
For this, you need to refer to your Form 6 – the agreement between you and your real estate agency. This form should show clearly what your agent will charge you and when. Any fees or charges that are not on this form cannot be charged and should be refunded to you.
It is your real estate agency’s legal obligation to ensure you have received a copy of the completed Form 6.
If you are unsure of these documents and processes simply ask your agent or get in contact with us.
If your property is located on the Darling Downs and you would like an independent audit of your files completed with no obligation, feel free to contact us on 07 4642 0007 or email [email protected]