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What is your policy?

Tuesday, December 04, 2018

 

During our everyday lives, we all need to interact with many businesses, some large and some small. As such, we will have invariably come across statements such as “Our policy is . . .” and “In order to comply with our policy, you must . . .” From the point of view of the organisation you are dealing with, this is good business practice. By pre-establishing a set of specific policies they ensure that all customers are treated equally, that there is a standard response to commonly occurring situations, and the business is unlikely to be accused of breaking the law.

So when you operate your residential landlording business do you have a set of policies in place, or do you just wing it depending on the day and the mood?

Related article: The best piece of advice you will ever receive as a landlord

Even if you work as a solo landlord it is good practice to formalise and codify your policies. They could cover a range of activities, from your purchase of properties through to the setting of rents, the selection and induction of tenants, how you handle the various problems that will invariably arise during a tenancy, the termination of the tenancy, and how you decide to retain or dispose of a particular investment property.

As a landlord, I look at a property that is being offered for sale on the basis of its actual or potential cash flow. The property may be an ideal development site, it might be a great renovate and flick deal, or it could be an amazing place for an owner to live in, but under my own investment policy I will reject all such properties if they fail to measure up under my personal plan of buy, hold long-term, and rent. Those investors who develop, renovate, or move their own homes can have those other ones thank you very much. This, of course, saves me a lot of time – I can reject 99.9% of properties that are on the market after just a few clicks of my calculator. Your particular requirements may be different, but that’s OK as they suit your needs, not mine.

Similarly, I have a specific policy when I select tenants. Any tenants that do not measure up get my “I have to advise that your application was unsuccessful” response. I would sooner keep the rental vacant than allow someone who does not comply with my requirements take over the property. In the past, I had sometimes compromised, and almost every time I ended up regretting the decision. The best assessment of someone’s future behaviour is how they have behaved in the past. People make promises that they will improve, that they realise now that they need to pay their bills, or will no longer annoy their neighbours, but few are able to carry these good intentions through to a long-term behaviour change.

I have found that the biggest advantage of setting policies for your business is that it makes you think. Instead of having to make fairly hasty decisions under the pressure of events and without much time to consider the implications, you can sit down at some quiet time, consider the way you want your rentals to run, and draw up policies that will help this happen. It is called forward planning, and it is something that most people ignore to their own detriment. Of course, we all find thinking difficult, tiring, and something that we would sooner put off until tomorrow or next week, but believe me it does pay dividends.

By formulating and then adhering to these policies you also have a firm response to various requests that come your way. Frequently, when signing up a new tenant, I get asked: “If we mow the lawns ourselves, can we get a reduction in the rent?” I am able to respond “Our policy is that all lawns are mown by contractors whom we pay, so we are not able to offer that option”. This response is invariably accepted without further argument. People seem to be willing to accept a policy that is firmly stated and consistently applied.

Of course, any policy needs to be updated to reflect current economic conditions and legislative developments. My own policy on selecting tenants used to accept that any minor bad debts, such as defaulted cell-phone or power accounts, of more than five years ago could be safely discounted if the applicant has had a clean credit history since that time. I reasoned that they had probably learnt their lesson and had reformed their behaviour. However, because Minister Twyford is working to make it so much harder for landlords to remove unsatisfactory tenants from a property, I have amended my tenant selection policy. Now, any recorded bad debts at all at any time means an instant fail. Only perfect tenants will, in the future, have any chance of gaining the tenancy. That is my recently updated policy.

Similar policies need to be formulated and applied to 14-day breach notices and termination proceedings. I work on the basis that any tenant might fail to keep the terms of the tenancy once, and if they do so I will work with them to help overcome that hurdle and help them back onto the path of righteousness. However, if they fall from grace a second time, that rings the alarm bell and I will then work towards removing them from the tenancy. Bad behaviour becomes a habit. Tenants are my customers, and like any business, I prefer customers that are easy to deal with, understand and accept their rights and responsibilities and, yes, return the most profit with the minimum amount of my time and effort. When trouble does strike I hold the tenant up to the light and ask “Do I want these people to stay, or would it be better for all of our sakes if they went elsewhere?” The answer to that question will then determine the actions I take.

I am not a social worker or a charity. Like most private landlords I am in this business for the rewards it can offer me. In this country, no-one is forced to be a landlord, and within what is legal and acceptable I will set policies that allow me to offer a good service to my tenants and also provide a fair reward to me for my time and effort. It needs to be a win-win situation, and I will continue to set policies that allow me to achieve this outcome.

 

 

This is a guest blog submission from APIA member Peter Lewis. Guest submissions are a way for APIA members to share their views and experiences with each other and do not necessarily reflect the views and position of the APIA.

 


ABOUT THE AUTHOR

Peter Lewis 

Peter is the Vice President of both the Auckland Property Investors' Association and the New Zealand Property Investors' Federation. 

 

 


 

 

 

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