CHALLENGES
the financial challenges of property management
In an ideal world, every landlord would have a professional relationship with his or her tenant – a mutual understand of maintaining the property and making payments on time. However, as with every business relationship, there may be moments when not everything goes to plan.
Financial issues can upset the delicate relationship between landlord and tenant. Previously amicable relationships may turn sour if the tenant feels he/she has been overcharged, or if the landlord has to chase payments. To prevent ongoing problems, here are Clear Blue Sky’s tips for dealing with financial challenges as a landlord.
Mediating security deposit disputes
When your tenant decides it’s time to move on, one of the first items on your agenda should be to give the property a full inspection. During this inspection you may notice damage beyond reasonable wear and tear, which your tenant may have neglected to mention. You are within your rights to charge for repairs; however, you should be prepared for your tenant to challenge them.
Make sure the charge is correct
While it’s easy to quantify damage for some items, such as a broken light fitting, other household items may present gray areas. Carpets, for example, have an IRS-recommended shelf life of 10 years. As such, if the carpet was five years old when your tenant moved in, and now has to be replaced, you can only fairly charge 50 per cent of this. It’s best to outline these “gray areas” in any documentation before you sign a contract with a new tenant.
Do not make your own repairs
Your tenant may even go as far as challenging your deposit costs in court – in these cases, it’s always best to use a third party rather than attempting to fix a broken appliance/item yourself. Landlords should by default hire an industry-standard tradesperson to make repairs. These receipts can then be used in court. If you make repairs yourself, technically, you have no grounds to charge for them as the IRS classes these as “passive investments.”
Don’t forget however, you can charge for repairs if the damage could warrant a repair, but you choose not to. For example, you’d be justified to charge for repairs to replace a burnt kitchen worktop, even if you decided against replacing it.
Mediating tenants’ financial difficulties
Very occasionally, a tenant may file for bankruptcy. Delayed payments are a huge concern for landlords, so to prevent yourself from running into this issue, make sure you run extensive credit checks on new tenants.
There are two kinds of bankruptcy – Chapter 7 and Chapter 11. Chapter 7 means a court representative can oversee a debtor’s assets and divide them accordingly. Chapter 11 allows the debtor to prioritize his or her debts – this is usually for short-term setbacks. In both cases however, the court can issue an “automatic stay” which prevents creditors from chasing debts – including landlords.
Settling the case
If your tenant continuously misses payments, you should be prepared to evict him or her. Bankruptcy only applies to pre-filing debts, so if your tenant fails to pay after filing for bankruptcy, you can petition the court to remove the automatic stay. This may not get your money back, but it will give you fair grounds to evict the tenant. It’s never pleasant to end on bad terms, but this is the best way of ensuring you don’t lose out in the long-term.
Prevention is better than the cure
When it comes to mediating tenants’ financial issues, it’s best to prevent them before they develop into a problem. Always make sure you screen your tenants, and produce specific guidelines for security deposits – you could even offer to talk through them with your tenant (though you should ensure it’s backed up in writing).
