How's this for a bad start?

[kitty]

My husband and I settled on our second IP yesterday, a 6 unit block of flats. The fundamentals all stacked up - priced below valuation so immediate equity and double digit gross returns.

We had problems getting information out of the property manager who turned septic as soon as she found out that we would be managing the properties ourselves. Still, we had managed to obtain copies of the tenancy agreements (albeit some not up to date) and a signed statement saying that all properties were rented at $x.

The reality of the deal is somewhat different to what was presented. Of the six units:
- one is vacant and has been so for a couple of months;
- three of the tenants are in arrears, one of whom is refusing to pay rent due to lack of action on the part of the property manager;
- three are tenanted at a rate below what was stated.

And the property manager was wondering why we didn't retain her services????

I remain undaunted, and hopefully this will prove to be a good learning experience...

[Julian]

You can look upon it as "a bad start" or "a huge opportunity for improvement". Either way could be right, but one will put you in a far better frame of mind.

Keep us posted on how you go with this, how quickly you get all six units occupied and all rents up to date. Tell us about the problems you have to deal with and how you go about solving them.

Best wishes with a GREAT investment.

Julian

[kitty]

thanks

Thanks for the encouragement Julian, I shall keep you posted.

I have had a minor victory, with one out of five tenants managing to pay rent today! One down, 5 to go...

The biggest issue I see in the immediate future is the tenant who is refusing to pay on the basis that the property manager has ignored their requests. I have drawn on all of my negotiation and sales skills by listening to their rant, sympathising, and endeavouring to put in place a clear step by step plan to address their concerns. Unfortunately they don't really give a rat's a*** that we are not the same owners, as far as they are concerned they are not paying any rent until everything is fixed and that's that!

I didn't think that I would have to give a 10 day notice in my first week as their landlord... but it's shaping up that way.

[Dean@Massiveaction]

hope it's a good lesson learnt. You should never have gotten to unconditional without all current tenancy agreements in your possession. Better to always take vacant possession and you can then invite sitting tenants to apply if they wish

[kitty]

Thanks Dean.

This was a bit of a funny one as we used a property finder for the property, so the sale and purchase agreement was already drawn up and the only document we completed was a deed of assignment. Can you still change the terms if that is the case?

I have learned a valuable lesson here, and shall certainly heed your advice on future deals.

As an aside, does anyone have any ideas on how to deal with the renegade tenant who is refusing to pay rent? Is a day 10 notice my only option? She is now not answering my calls now either.

[Julian]

Quite right with the asssignment - you are taking over the purchase on the terms and conditions agreed. You could always try to get the vendor's signature on a Deed of Variation, which would vary the terms of the origianl contract, but the vendor would be under no obligation to put his/her signature to it.

As for the renegade tenant, it might be worth your while to employ the services of a couple of big, burley gentlemen who could have a quiet word with your transgressor. Letting people know you're not going to be walked all over can be worthwhile.

Julian

[kieran]

Hi Kitty,

I am curious to know which property 'finder' found the property and sold it to you. The reason I ask is that you state:

the only document we completed was a deed of assignment.

If that is the case then the 'finder' is taking a high risk in using a deed of assignment. The risk is because the Real Estate institute deems that when someone is selling properties by way of a deed of assignment that they run the risk of being prosecuted under the Real Estate Agents Act 1976 for acting as an unlicensed real estate agent. This is a bit of a legal 'grey area' but the Real Estate Institute is monitoring this closely and has indicated they will prosecute 'finders' using deeds of assignment...

This has NO impact on you. But the 'finder' does run the very real risk of prosecution, loss of all profits made from assigning properties and a jail term!

The reason I know this is because I owned a 'finding' company and we used deeds of assignment. However about 2 years ago my legal advisors informed me of this risk, so that company was liquidated.

Then I commenced a new business (a property 'sourcing' company) with a new business model although we may still look and sound like property finders. When I established this company my legal advisors created a robust business model that ensured we indeed do not act as 'real estate agents' and the business would not breach the Real Estate Agents Act.

You may wish to point out to the 'finder' the very real risk they are taking by assigning agreements. I recommend they seek legal advice from a top quality lawyer who knows real estate law inside out.

P.S. A word of advice on the tenant who is behind in rent. Serve the 10 day notice immediately. If you explain in the letter of notice that this is a legal requirement it removes some of the onus from you personally ie Explain to them that you HAVE to do this to comply with the Residential Tenancies Act (RTA).
NEVER fall for excuses and think oh well I will give them a bit more time b4 I serve the notice as the really bad tenants will always delay, delay, delay because they know their rights in terms of the RTA (ie you must 1st serve a 10 day notice before taking matters further). It is critical to protect your cashflow and if you delay issuing the 10 day notice then you only have yourself to blame. I instruct my PM's to issue the notice on the very day the rent is not paid IRRESPECTIVE of the circumstances or excuses.

[kitty]

Hi Keiran,

When I stated that we only completed a deed of assignment I actually meant that we did not have any control over the original S&P agreement. The property finder that we used was ESC so I am sure that they will have covered everything from a legal angle. I don't want to critisize them as they have their business model and as a purchaser we have every choice as to whether or not we give them custom. Of course I was a little bit disappointed that the deal was misrepresented in a few aspects however I believe that the fault lay with the vendor for providing misleading information. I do however still believe that I can make the deal work.

Thanks also for your advice on the tenant. My husband has just managed to make contact with them and has arranged for us to meet with them in person on Sunday. I will have a 10 day letter prepared, and will hand it over unless I leave with a cheque in my hand.

Thanks also for your advice Julian... maybe I can use the "large men" as Plan B????

[kieran]

Thanks Kitty,

No criticism intended by me either, just a concern that the finder is operating in a 'grey area' of the law. I too am sure they have their own legal advisors to rely upon.

More importantly for you, Good luck with your difficult tenant on Sunday!

[Dean@Massiveaction]

There is a court case on at the moment regarding the whole property finder space. Depending on the outcome it could have huge negative ramifications for property finders. Especially if they choose to look retrospectively at the legal tax issues over historical deals. More than a few people sweating at the moment

[kieran]

Thanks Dean,

More than a few people sweating at the moment

Not me fortunately!
But that's why I choose to have the very best real estate lawyers on my team! I am always looking for ways to minimise my risks and this attitude comes from my relatively conservative finance industry background. I have seen too many people get 'caught out' by something they never expected but should have seen coming.

[Dean@Massiveaction]

Hi Keiran. I knew you'd be fine. REINZ appear to really be pushing this case. It will affect any finder who isn't licensed potentially so I understand.

[fudosan]

Are you saying even buy-and-hold investors onselling a contract or two will be in trouble?

[Dean@Massiveaction]

I believe technically there is some potential exposure but I believe it's the "property traders" they are after. Agents are losing income as the industry changes so instead of changing their industry to compete they are going to get heavy handed with the law, so I understand. Apparently many of us technically breach some aspects of the law with trading without a ticket

[HOW2]

Hiya

I have been reading with interest and as I am also a "trader" this is what I do

Do not use assignments - Keiran is correct here
Nomination forms must be used and you must be purchase in the trading entity - I also use very good solicitors (Tim Jones - Glaister Ennor -Tim is one of my speakers at How2 workshops and their team put all my "stuff" together)

and for the Kitty - put the 10day notice in today and find a new property finder

kerry