Mike: Welcome back to Geared for Growth. This week we're chatting with Pat Mears, who's the founder and owner of Rubix Realty, a property management company between Newcastle and The Hunter Valley in Maitland. Pat is an expert in property management. We have a chat to him about what a property manager actually does. He's got some great tips for property investors, in how to manage their property, and he talks about the Newcastle market as well. If you can get past the fact that the audio sounds a little bit like I'm in a toilet, just with some studio issues, we've got some great content for you today. Without further ado, here's Pat. Pat Mears, thanks for joining us.
Pat Mears: No worries. Thank you.
Mike: Pat, just to kick things off. Who are you and what do you do?
Pat Mears: I'm a property manager. I own Rubix Realty in Maitland. We look after investment properties for property investors.
Mike: There'll be people listening to that say, "Where on earth is Maitland?" Can you give us a bit of a pin in the map?
Pat Mears: Yeah, sure. Maitland is in The Hunter Valley, and it's about 40 minutes’ drive from Newcastle. I guess in the middle, between Singleton and Newcastle.
Mike: I guess it's in the middle of Newcastle and the wine region fairly well as well, which a lot of our Sydney investors will presumably frequent.
Pat Mears: Yeah, we're only about 20 to 30 minutes from the vineyards.
Pat Mears: So, very handy.
Mike: Just so we can get a bit of dirt on you, what posters did you have on the bedroom wall as a kid?
Pat Mears: I wasn't actually allowed to have any posters on the wall. We just had ...
Mike: The Blu Tack ripped the paint off.
Pat Mears: Yeah. I remember I had a calendar, but that was on a hook. A few other things, but mainly photos. I think the only poster in the house was the good old times tables on the back of the toilet door.
Mike: Right. If you could relive your childhood with a lot fewer rules, who would've made it on there?
Pat Mears: I'd say it would've probably been bands or people from TV shows that I watched and all that sort of stuff.
Mike: What bands were you into as a youngster?
Pat Mears: That's a long time ago. I don't remember. I think it was back in the days where you used to get the Hottest 100 discs when it came out every few months.
Mike: I'm trying hard to embarrass you, but you're deflecting really well.
Pat Mears: Excellent.
Mike: How did you get started in property and property investing?
Pat Mears: My mum and dad used to read a lot. My dad used to read a lot of property investment books. We made, have an annual trip to the Gold Coast each year, so it was 10 hours in the car with mum, dad, and brother and sister. We used to do a lot of reading in the car. You'd run out of books yourself, so you'd just pick up one of dad's and start reading. I did work experience in year 10, where I had to go and work for someone else for a week to see what it was like.
I wasn't sure what I wanted to do and my dad said, "Why don't you go work in a real estate? Because you're interested in property investing." I didn't actually realise at that stage, would've been about 15, that real estate agents did more than just sell houses. I didn't realise that actually managed the rental properties. That's what I did, and that's how I got started in real estate and haven't looked back.
Mike: Here you are now.
Pat Mears: I am.
Mike: Obviously you came up through the ranks at a few different property management firms, before starting your own practice. Is there much of a difference when it comes to things like the systems? I'm presuming there is a difference when it comes to the service.
Pat Mears: Yeah. A lot of it comes down to the culture of the office you work in. It depends whether it's a ... I've worked in offices that are sales focused and I've also worked in property management only businesses. There can sometimes be a bit of a divide between the sales people and the property management department, so, and I was first them. Yeah, that culture definitely plays an important role. You need a supportive environment because it can be stressful at times because you are dealing with people and people's emotions. There are different systems in place in different areas that you work.
Everywhere I've worked I've picked up the good things that I liked and taken them with me. The last place I worked where I was an employee, I did a lot of changes for them in the first nine to 12 months. There was a lot of functions on the software that they used that they weren't utilising, just to try and streamline things. I think streamlining is a good way to make good use of your time management skills in property management. Although things pop up and sometimes, just because it's you’re in-office time to do admin, sometimes you've got to make the choice to go, no, I need to get these other things sorted straight away.
Mike: Well, I guess if you're streamlining the back of the house, the things that property investors generally don't see, the more likely you are able to have time to go out and do the inspections or to have a communication with the client.
Pat Mears: Yeah, absolutely. Well, yeah, just make the time to be able to have that phone call with the owner. Sometimes I like to have a big chat about what they're doing in their life, apart from the property. Which is good, because it helps you get to know them as well. It gives you that extra time to do those little things that really make a difference.
Mike: Yeah. Now you mentioned that there's a bit of a, I guess, a turf war in the real estate practice between sales and property management. Certainly, back in the day I remember calling real estate agents and their, "Press 1 for sales, press 2 for property management," lest a sales agent answer an annoying property management call. I'm guessing that the hierarchy has always typically been the sales, or the golden-haired boys and girls, and property management's just the thing that keeps us going along. I know that there are sales agents that refer to property managers of a different practice, even though they have property management within their own agency. That sounds quite shocking, but I'm guessing that you see that quite a lot.
Pat Mears: Yeah, you do see a bit of it. I guess it comes down to the salesperson. They want to make sure that their client, that they've just sold a property to, is in good hands. If they don't have that trust in their own property management department for who they work for, then they want to send it to someone else who they know will look after them. I guess it depends on whether that salesperson views that one sale as a long-term relationship that could develop into further sales or purchases down the track, or whether it's, that sale's been done, now onto the next one. It does happen.
Mike: Is property management a little bit devalued within a standard real estate practice? I noticed that there are obviously property management specialists now, that there didn't seem to be 15 or 20 years ago.
Pat Mears: Yeah, absolutely. It depends on, I guess the rent roll is really what the business is worth. That's seen as the bread and butter that pays all the bills, and then the sales commission is the cream on top.
Mike: Sure, yeah.
Pat Mears: Yet the reverse is sometimes true in an office where the salespeople are seen as the more important ones. Because obviously, generally, they might be bringing in more cash flow than what the property management department is, but the property management or the rent roll is actually more a guaranteed sort of income. It doesn't jump up or down or spike-like sales sometimes do.
Mike: Yeah. That sounds like a great business to me. Just a guaranteed, fairly flailing income, or you might be getting more business, but yeah. That sounds like a pretty crucial part to a real estate agency. What about, our previous guest, Christine Williams, suggested that landlords make their property manager their best friend. I'm wondering if you can decipher exactly what she's getting at there, and how important is that relationship do you believe?
Pat Mears: I guess what she may be trying to say is, you need someone that you trust, which you obviously if you've got a best friend you do trust them. You want someone to be, that you can ring up and have a chat to. Really nut out any problems you're having with the property, or it might be, "I'm thinking of doing this or that." I've got a client with a property in the Maitland area, but she lives down south. She'll often ring me for real estate advice about down south, or wherever she's looking at buying. It's not so much, "Do you think this is what it's worth, or that?" She'll often ask, "I'm thinking of making this offer, or that offer.
What do you think I should do?" Or she has investment properties elsewhere and sometimes she'll ring me about those. We sometimes have very little communication about the property we actually manage, but I do have some really good relationships with some of my clients. For example, I had clients come out and have lunch with me on Saturday. It was nothing to do with their investment properties. It was purely, "Hey, you want to come out and check the new house out? Let's go for lunch while we're there." I know a lot about them and their family. Yeah, I guess you could say that the stronger your relationship is, the easier the whole property relationship's going to be.
Mike: Yeah, I guess property investors, they want to buy a property and have it go up in value. The rest of the stuff they hope goes very, very smoothly, but that relationship's the key to making that happen.
Pat Mears: Yeah, definitely.
Mike: Pat, I'm going to get up close and personal here. You're not the cheapest property manager around. Should landlords select an agent based on price, or have you got a good sales pitch for me?
Pat Mears: No, we're not the cheapest in our area. There's a lot of others who do charge the same fees as us, but there are others who want to charge lower fees because that's the only value they see themselves. If they can get cheaper fees, they'll sign up more properties. At the end of the day, the more properties they've got to manage, if they are doing at cheaper rates, there's less profit being made to the business. There's less money there to put another person on. Well maybe that business or that rent roll gets to a point where they're at stretching point, we need to employ someone. Because you've signed up at low fees, we can't afford to put someone else on yet. Go out and get another 30 or 40 properties, and then we'll talk about it. The cheaper the fees, possibly the more properties that one property manager's looking after, and the less time they're going to have for each individual client.
Mike: Yep. I'm being unfair to you because I know that you know, as a quantity surveyor, we face the same problem of people finding cheaper options out there. Typically, there's only so much time that you can assign to a particular property, and that comes down to what the fee is I guess. I know that there are agencies that have property managers with two and 250 properties. What corners are they cutting?
Pat Mears: I guess sometimes, maybe we do hear stories of the routine inspections aren't being completed. They might just be telling the owner they've been done. We might pick up a management from another agency and the tenant will say, "This is the first inspection we've had in two years."
Pat Mears: Yet the owner has been told that, "No, we've been going through."
Mike: Is that actually illegal in New South Wales, is it?
Pat Mears: Yeah. You've got to inspect minimum of once a year. You can inspect up to four times a year in New South Wales. Part of your agency agreement with the property investor is that you agree to inspect the property. It's set out in there what the terms are, whether it's one a year, two a year, three a year, or four a year. That could be somewhere where they're cutting corners. Not getting maintenance completed. Often, we'll take on a new management from another agency, and when we go there for routine, first questions we ask is, "Are there any maintenance repairs that we need to look at?" They'll often say, "What's the point in telling you? Nothing ever happens anyway." Then we have the conversation with the owner, who says, "I wasn't aware of that." I took over a property about seven years ago now.
I did the first inspection there and the tenant's mum was there. I said, "Is there any repairs or maintenance?" She said, "Yeah. None of the power points work." I said, "Oh, okay. When did that stop working?" You had power extension leads everywhere. She said, "They've never worked." He'd been in there 18 months, and the owner wasn't aware of that. We took over the property and we said, "These power points, get it sorted out straight away." I guess maintenance inspections, not returning calls. You might ring your property manager and it might be, say, early in the morning. They're out on an appointment and then you don't hear back from them, either at all, or it might be a few days up to a week.
Mike: So, you do get what you pay for.
Pat Mears: Yeah, absolutely.
Mike: You work with landlords all the time, and for over a decade. What makes a good and a bad landlord, from your perspective?
Pat Mears: A good landlord, I guess that's the easier question to answer, is someone who looks at it from a bit of a distance. They obviously want it looked after and all that sort of thing, but at the same time they realise that people are paying rent to live there. They're not just paying rent for the address. They're going to live there, so there's going to be marks on walls, wear and tear and that sort of thing. Someone who is prepared for things that might pop up. For example, repairs like hot water system repairs and urgent repairs that need to be done.
It's not cheap. You're looking at anywhere from $1200 up to replace. Often, it'll be after hours or a weekend, because the tenant's been at work during the week and doesn't realise until they get home at night or on the weekend. That sort of thing, that's it leaking and that's why they've had no hot water. Someone who realises that there are going to be repairs and maintenance along the way. They've got that buffer, that cash fund for those sort of things, that when they pop up. Someone who is not 100% reliant on the rent coming in. What that means isn't they're okay with the tenant being late but more so, if there's a vacancy. If one tenant moves out and there's a bit of a gap between the new tenant moving in, they have got money there to cover their repayments and obligations if the tenant doesn't move in straight away.
Mike: That's your famed what if fund.
Pat Mears: Yeah, absolutely. What if this happens? Have you got the money there to pay for it? What if that happens? There are times where we're not going to hold enough rent to cover certain expenses. The Hot water systems are a good example I guess or air conditioning. If there was an air conditioner that was working when a tenant moved in and then it blows up or it stops working. It's got to be replaced, because often these days, replacement is cheaper than repair. For an air conditioner, for a split system, you're looking anywhere from about $2500 up, for supply and install. That's also classed as an urgent repair now, in New South Wales. Again, air conditioners, the time of year they're going to break down is going to be on those 40 plus degree days.
Mike: The season when you can't get a tradey for love or money.
Pat Mears: Yeah, exactly. In some of those cases, where a repair's an urgent repair, but it can't be carried out straight away. Like you said, the tradeys might be booked up, because it's the middle of summer, everyone wants their air conditioners fixed or installed. You might have to compensate the tenant for a week or two, whatever it may be because they've lost that service to the property.
Mike: What you're renting the property with, that becomes a contract of the rental itself, i.e., if a dishwasher breaks, but it was part of the tenancy at the beginning. You're obliged to replace that, am I right?
Pat Mears: Yeah, absolutely. When I first started in real estate, in the early 2000s, you would often do an appraisal. You'd say, "Oh, there's a dishwasher." "Yeah, but if it breaks down, we're not replacing it."
Pat Mears: That was just disclosed to the tenant at the time, moving in. These days, if it's there when the tenant inspects the property and moves in because they're accepting the property in its current condition with the features that are there, then they have to be available for the full tenancy. Otherwise, again, we come back to that compensation clause. Dishwashers, old air conditioners, the old rattlers in the walls. If they break down, often we get an owner say, "I'm not repairing it. I'm not replacing it." Unfortunately, if it was there when the tenant signed up and moved in, it's got to be working for the duration of their tenancy.
Mike: Yeah. You have to find a specialist in 1987 Bonaire wall-mounted air conditioners.
Pat Mears: Exactly. Yeah.
Mike: You've been working with property investors for a long time. I know you have a number of successful clients. Can you put your finger on what they're doing differently, that makes them successful in property investing?
Pat Mears: Yeah. I guess they understand the cash flow in investment property. It's not going to be a continuous line. There is going to be times when the rent's going to have to cover other things, like rates or repairs. They have the proper insurance in place, so they are ready. Again, what if? If something happens, so we saw that in the April superstorm a couple of years ago, where some owners had a property sitting vacant for a period of time. Because the tradeys were that booked up it could take months for them to get there and do anything. You've got the right insurance in place, then that's your protection. Everyone has insurance on their cars, not because they think they're bad drivers, but because they ... You don't know what's going to happen. I don't understand why you wouldn't have the correct insurance on an investment property. To make sure that you're covered in those circumstances that are going to pop up that you're not expecting.
Mike: Of course. You know that something that pops up quite a lot on this podcast is that people become emotional about their property investments as well. I'm sure that's something that you see in your practice.
Pat Mears: Yeah, absolutely. Everyone remembers the property differently at the end of the tenancy agreement to what it was at the beginning. Sometimes the tenant will move out, and you might ask them to go back and do a few things. Their response might be, "It was better than when I moved in." A big thing we get is, you might say to a tenant, "Can you go back and clean those light shades?" "Well, no. I'm not going to clean those lights shades because when we moved in the bathroom was dirty, but we've cleaned it and it's clean now. We've done that instead of cleaning the light shades." Unfortunately, you've got to return it. Thanks for cleaning the bathroom, but the light shades.
Mike: It might be better than what it was, but the light shades are still terrible and they were clean when you moved in.
Pat Mears: Yeah, exactly. That's something that often comes up. Often, it's the people who have moved out of a property, for whatever reason. They might've moved into their next home or they might've moved out of the area for work, or something like that. They don't remember it how ... It is how it is now when they moved out 12 months earlier or whatever it may have been. You've got to understand that these tenants are paying rent to live there, and there is going to be wear and tear, and all that sort of stuff. Not everyone's perfect. It's very rare that we'll do a final inspection and the tenant doesn't have to do anything. Often, it's just simple things like light shades or ceiling fan blades, and all those sorts of things. A big thing we get is filters on the air conditioner and dishwasher. Often tenants, and owners too I guess, don't realise that.
Mike: Present company accepted, I will have to admit.
Pat Mears: That there's a filter in the dishwasher. Then when we do the final inspection, we'll often pull the drawers out and pull out the filter and say, "Oh, that needs to be cleaned." "Oh, I didn't even know that was there." They've been using the dishwasher for however long they've been there.
Mike: I'm going to race straight home and clean mine.
Pat Mears: Check that. Air conditioner filters, some people don't realise that they're there. They're really easy to clean things, but they're often just forgotten. It can be quite a stressful time moving, so there are going to be little things that you forget. Because you're probably trying to think about, you've got to go back to work next week after you've finished moving. You've got to get this fixed at the new place and all this sort of thing. Things get missed, or you might have two or three people helping you, and you think someone's doing this and they think you're doing that, or the other person's doing it. Things do get missed. We're quite understanding about that, as long as they'll go back and rectify it.
Mike: Now your market, I guess, is Newcastle and further west, up towards the mining regions. We know that the property market in Newcastle's pretty hot right now. I wanted to have a chat with you about what's happening in the rental market in Newcastle. Specifically, as a bit of a case study, we know there's been a mining downturn, and you've had some exposure with properties. Can you start giving us an idea about what happened to property investments that were in that area and had a fairly big reliance on the mining employees?
Pat Mears: Yes. I was working in Singleton for an agency, not long before the mining downturn. Prior to that, we were getting ridiculous rents, because people were paying them. The caravan parks were charging a fortune, so it made sense to spend an extra 50 to $100 a week to get an actual house, rather than live in a caravan. The market was really good. We didn't really have vacancies. You'd have a tenant move out Monday and the next one go in Tuesday, or sometimes Monday afternoon. Then the mining downturn hit and everyone, all the mining workers, often they weren't locals. They lived there while they worked there, but the family home might've been somewhere else, so in Sydney, or even we had people moving from WA and that sort of thing. It was a fly in and fly out situation. They just packed up their bags and went home, and went to wherever the work was then.
The vacancy went up and obviously then rent started to fall, which caused an issue for a lot of people who'd bought in those areas. Because the rents or the returns were really good, but the reason was because the mining was supporting those sort of rents. Since then, I haven't worked in Singleton for about four and a half years, so I'm not really sure what the market's doing there. I believe it's stabilised, but not returned to the figures it was doing. Maitland has, that wasn't as affected as Singleton was. Rents did come back down a little bit. Probably the last 18 months, we've noticed that the supply of vacant properties for rent has dropped, compared to what we were looking at back then. Rents are starting to creep up a little bit again, but also that vacancy period is also shortening, which is good news for owners.
Mike: Is there an under supply of rental accommodation in Newcastle? Last time I chatted to someone, which admittedly was probably a year or so ago, they were saying that there probably were too many properties available for rent at that time. Has it tightened up a little bit, do you think?
Pat Mears: From talking to other property managers in Newcastle, it has tightened up since then. But I was speaking to one this morning and she said it was pretty quiet on the inquiry front, depending on what you've got for rent. I don't think the vacancies are what were being experienced previously.
Mike: Yeah. You know that the sales market is going crazy. With a big percentage of that being investors, I guess there is a little bit more accommodation out there. Pat, as always, we want to get a bit of grit. We want some dirt. Can you just tell us maybe some of your horror stories, or just funnier stories with dealing with tenants and landlords?
Pat Mears: Yeah. One that comes to mind was, I had tenants vacate a property. They were both professionals and they left it up to us to get the property cleaned. We had to use the bond to clean the property and do the lawns and gardens, and all that sort of thing. We weren't sure if the bond was going to be enough to cover those little extra things that pop up as you get the place cleaned and that sort of thing. There were some items, shall we say, left behind at the property when the tenants vacated. They wouldn't fit in the garbage bin. The tenants, I'm not sure, maybe it didn't fit into their car. I have a ute, so I went to the property and I put the items in the back of my car. I drove it to their new place and dropped off. The response I got from the tenant, I'm now questioning whether it was things that she just couldn't fit in her car, or whether it was things she deliberately left there because they were junk.
Mike: You were a council pickup for them. I can imagine the look on their faces when, here you are in your ute, dropping it off to their new property.
Pat Mears: Yeah. They certainly weren't expecting it, I don't think. You've got to do the right thing. If you don't want it, you've got to get rid of it. I didn't want it at the property, my owner didn't want it at the property. I wanted to give those tenants the last opportunity to decide whether they really wanted those items or not.
Mike: You're a nice guy.
Pat Mears: I am.
Mike: "You must've left this behind, this crappy door furniture, that clearly you were dumping." Each to their own, it's a different quality for each person. They could've really missed those items.
Pat Mears: Yeah, definitely.
Mike: The owner, I understand, was pretty happy that you look after the tenant as well.
Pat Mears: Yeah, yeah. Obviously if we hadn't have taken that, those items to the new place, they would've been left for someone to pay the bill. If there wasn't enough bond money, then the owner would've had to have pursue the tenant for that. In this case, we ended up being able to give a bit of a refund back to the tenant, because the bond more than covered the cleaning and the tidying up of the yard, et cetera.
Mike: So, they won in the end.
Pat Mears: Win-win. Yes.
Mike: Now, we've got plenty of stories I'm sure. We were chatting earlier about doctors being some of the worst tenants, but I want to address the notion that often tenants speak like they're second class citizens. In doing inspections for our business, we have tenants say to us, "I'm only renting here because I'm building a house," or, "I'm renting here, but I own somewhere else." There's a bit of a notion that there should be an explanation as to why they're renting. Is that something that you see? Why do you think that is the case?
Pat Mears: Yeah. People rent for different reasons. I know that some of our investors who live in Sydney, they're actually tenants in Sydney. They can't afford to buy where they live, so they invest in the property market elsewhere and they rent where they are. We do find that sometimes tenants are viewed as second class citizens. Which is unfortunate, because sometimes tenants actually look after a place better than an owner occupier. Some people are really house proud, and you wouldn't know if you drove in the street that was actually a rental property.
I guess it comes back to perception, and maybe the stories you see on a current affair, that paintbrush people with the wrong sort of things. We obviously don't view tenants as second-class citizens, because obviously that's how the owner has got into investing property. That's what pays the bills and that sort of thing.
Mike: It must be a pervasive notion for tenants to still be communicating that way. I certainly hope it changes. As you say, we've got investor clients that have large portfolios, but they're renting themselves for whatever reason. I wanted to just also say, or ask the question. It's a bit of a common, cheeky idea that you guys are just rent collectors. There's a lot that goes on behind the scenes for a property manager, that people perhaps wouldn't understand. Maybe that's part of the reason why you're having to compete on price with people that are cutting corners. Can you give us a bit of a brief outline of what goes into just managing a property?
Pat Mears: Yeah, sure. I guess the owner's paying a fee for our experience and knowledge of property management. Also, the biggest factor I think would be time. I think you'd find that, that would be a big reason why a property investor uses a property manager. Because they don't have the time, or they don't want to be getting the phone calls during the day about repairs and maintenance. We organise repairs and maintenance. We do a full ingoing condition report when a tenant moves into a property. That involves doing a written report, as well as photographs. It can take anywhere from an hour and a half. An hour to an hour and a half's usually a pretty quick one. That might be a two bedroom, maybe a three-bedroom unit. Anywhere up to two to three hours, by the time you get the report all compiled together, get your photos sorted and do that sort of thing.
We also prepare the paperwork and we run through the lease agreement with the tenant if they haven't signed one before, or if they want us to just clarify anything in the agreement. There's paperwork to be done. We then, obviously, get the tenant the keys and all that sort of thing, and off they go. They then bring the condition report back and we run through that, to pick up on any maintenance or anything like that, that we might not have picked up through doing a visual inspection. Sometimes, they might notice things from living there. Doors might not align properly and that sort of thing.
We also do regular inspections of the property. Our inspections involve photographs and a written report. The reason for the photos is that often the owners won't go through with you. It's good to be able to show them that, this is what your property looks like now. Yes, the tenant is taking good care of the property, and also, I've got clients who have never inspected their properties. They've never actually been to the Maitland area, so they don't even know what's around where their property is. It's a good way to show them what they've bought, what they're paying for.
I had an inspection last Thursday and the tenant commented that I was taking photos. She said, "Before you go, get a photo of the back yard. I've started planting some roses in the garden. I know the owner, who went through the previous inspection, he and I had a massive conversation about roses." I think, "Yes, I remember that." Before I left, it was pouring down with rain, I had to run outside and get a photo of the garden. I was talking to the owner after the inspection and that was the first thing he commented, "Wow, look at the rose garden she's planted." It made that tenant feel special, because the owner did appreciate what she was doing. It shows, I guess, gives the owner confidence that you're a good tenant and that sort of thing.
Again, they take anywhere from 15 minutes to half an hour. That's where we pick up any repairs or maintenance as well. Repairs and maintenance is a big factor. Then you've got the, obviously, rent collection part of it. Payments to owners, payments of bills. Council rates, water rates, any maintenance and that sort of thing. Then, obviously, you've got the final inspection when the tenant vacates, which can be quite time consuming. You're viewing it as a property manager, and you might've done another 40 final inspections over the last 12 months. Sometimes you forget exactly what a property looked like at the beginning. That's why I refer back to the photos and the written report. Then you've got to go back to the tenant, if they're not present for the final inspection, say, "Hey, can you go back and do this and this." Then sometimes it gets into a negotiation, where they don't want to do things, or they say, "I don't have time. Can you just organise it”? That sort of thing. Again, it comes back to time. A lot of our time is what the owner's paying for.
Mike: Yeah. It's not just a swapping their time for yours, is it? Because you're much more experienced in what you're doing. You understand the legislation. For a property investor to source a tradesman to fix a problem, I'm sure you have tradesmen kicking your door in, begging for your work based on your portfolio. There's some extra efficiency that you can bring to it as well, isn't there?
Pat Mears: Yeah, definitely. Sometimes an owner will say, "Well, that carpet needs to be replaced," but they're not entitled to the full replacement costs. Because of depreciation and that sort of thing. A $500 piece of carpet, they might only get $25 from, because it's been depreciated over X amount of time.
Mike: That's a very common question we get on live chat on our website, is property manager's saying, "The tenant has put three holes in the vinyl, here's a picture. They have to pay to fix it, how much is it going to be?"
Pat Mears: Yeah, okay.
Mike: We could do a whole other podcast on that as well. It's not that simple a question to answer.
Pat Mears: No.
Mike: It depends on the method, it depends on how old it was at the time. Yeah, obviously that's a big part of what you're doing as well.
Pat Mears: Yeah, absolutely. Sometimes we can go in and just say to an owner, "Look, the carpet's more than 10 years old, so unfortunately it's not worth anything. Is that mark on the carpet going to effect the chances of someone else wanting to live there?" I guess it depends what it is. I once had a mark an owner was quite upset about. It was from a bed leg. She wanted to get her own carpet cleaner to go in there and try and clean the carpet, to get this mark out. The owner's carpet cleaner rang me and said, "Which bedroom was this mark in?" I said, "Oh, the second one off to the right." He said, "I'm looking. All I can see is this tiny little circular black mark." I said, "Yes, that's the mark that she wants pulled out." He said, "It's not going to come out." It was somewhere where someone's probably going to put their bed back again. It's only when the property's vacant that anyone's going to notice. He drew my attention to the walk-in robe, which has a lot of stains in it from makeup spills and all that sort of thing. I said, "No, that was from the owner when she lived there. She's not worried about that, just this mark in the second bedroom."
Mike: Yep. That would've been an interesting conversation with the carpet cleaner, obviously.
Pat Mears: It was quite good that it was the owner's carpet cleaner, because he then went back and said, "We can't do anything for you."
Mike: Yeah, of course. There's been a little bit of press about rent bidding apps, that's popped up in the last little while. I'm guessing that the market is not such that you're getting an auctioning of property in terms of rental. Do you see that affecting the marketplace? Is the ability to offer more for a property a good thing for a landlord?
Pat Mears: I guess what you've got to look at is, is the applicant who's got the most money the best applicant for your property? Just because they are able to offer an extra $50 a week for the property, does that mean they're going to be extra better than another applicant for the property who can only afford to pay the asking price? You've still got to go through that processing of the applications, checking references et cetera. Because if you don't do that, if you just take the highest bidder, it's a long-term relationship. It's not like you're selling the property, and of course you're going to take the highest offer. It's about the best outcome for the property and for yourself as the investor.
Mike: You're in bed with that person for years, whereas, you sell a property, it's a done deal.
Pat Mears: Yeah, definitely. It's very rare in the Maitland market that you'll get someone that'll offer more rent than what's being asked. You've got to question then, why are they offering more rent? Especially if you haven't got people beating the door down to move into that one particular property. Sometimes people try to offer more rent if they've got a pet or something like that. Then, obviously, you've then got to say, "Right. Well, we've got to put that extra $10 a week towards flea treatment or damage the dog might do," because you can't take a pet bond in New South Wales. If you're taking extra rent, basically, that's your bond being paid off. You've got to look at it, it's not extra rent for nothing. It's a security if something went wrong, that hey, they're there for two years, so they'll pay an extra $10 a week to have the dog there. There's that thousand dollars to cover anything that the pet may do.
Mike: Do you think that is to throw you off the scent of, maybe, some problems with the reference checks as well? I know you've had some in the past. I think an example would've been the private rental that we were chatting about. What sort of things have you uncovered with your reference checks?
Pat Mears: We had a family apply for a property a couple of years ago. They were renting privately, direct through the landlord, for their current one and their previous one. I referred to RP Data to cross-check the owner's name they'd given me with the one that was on council records. It was a different name. I then rang their person and just was very evasive with questions. Instead of saying, "Do they pay X amount per week?" I said, "What rent do they pay per week, and how long have they been there?" Some of the answers married up with what the tenant put on the application, but some didn't. It also shows on RP Data the last time the property was advertised for sale or for rent.
In both cases, their current one and their previous one had been advertised through a real estate. I rang both real estates and was advised, don't rent to them, they don't pay their rent. The first one said, "They've left x amount of damage and they still owe money to us." The second one said, "We're expecting the bond not to cover everything that needs to be covered when they vacate." When I went back to those applicants and said, "Look, this is what I've uncovered. Unfortunately, the application's unsuccessful," they broke down in tears. Said, "We just needed a chance." Obviously, they'd been given that chance twice and then blown it.
Mike: Couple of chances, yeah.
Pat Mears: Yeah, you do uncover different things when you go through the processing of the applications.
Mike: Yeah. Which is so crucial to do, when you're giving over a property that ... I guess we reference an extra $50 a week as someone maybe bidding for a spot, and it's probably most likely less than that. The amount of damage that a tenant can do in a week, or in six months, pales in comparison to that difference, doesn't it?
Pat Mears: Absolutely it can. Yeah. You don't know how people live in between inspections. You just assume that how you're seeing it on the day of the inspection is how they live normally. I would expect that most people would put that little bit of extra effort in when the real estate's coming through. They might usually keep it quite meticulous, but the real estate's coming and they might put that little bit of extra through. Other people, they might not be that tidy or clean, but hey, the real estate's coming through, let's make them think that we live really clean. I guess damage is the most expensive thing. Clean, you can fix cleaning, but damage costs a lot of money to get fixed.
Mike: I've done a few inspections, just when we're doing appreciation schedules, with a property manager who's doing a condition report or whatever. Some places are absolutely filthy and you wonder, have they tidied it up? Does it actually look worse than this when they leave, or they just don't care? I guess everyone has a different idea of cleanliness and.
Pat Mears: Yeah, standards definitely vary. Standards even vary from cleaner to cleaner.
Pat Mears: With the invention of Gumtree, often we'll get a tenant who'll organise their own cleaner, and they'll get it done through someone on Gumtree that they've found. Sometimes, not always, but sometimes the reason that that cleaner wasn't two, $300 cheaper than who we've suggested is because they don't do a job ... Same job, to the same standards what our cleaner does. With our cleaner, if there's anything amiss, we just get them to go back. That's an advantage of using the real estate's cleaner, because then you can say, "Well, hey, it was your cleaner. You chase them," and go from there.
Mike: Yeah, you've got a long relationship with them. They have to do right by you. I've noticed that there's a lot of companies that tend to employ very young people, typically they're female. A common complaint is there's a lot of turnover. Is this something that you see in the property management field? Why do you think the reason is for that?
Pat Mears: Yeah, it is a big turnover in property management. I think the average time span in property management is about two and a half to three years. Property management isn't for everyone. If you don't do well with conflict, then you may not be able to survive the job. Because there is obviously going to be conflict from time to time, with different people having different views of things, or different emotions and that sort of thing. Sometimes, when you go through and do an inspection and say to the tenant, "I need you to clean this, that or the other." In their head, it might, they might've spent ... They might've done a really good job, but it's just not where you want it.
That can evoke emotions that you don't necessarily want. I guess that's something that causes people to get out of a job. Lack of support from their boss or the environment that they're working in could also lead them to go, "Well, I'm not going to do this. This isn't what I want to do." Or back to the fee cutting agents, where they'll drop their fees to get the property. In which case, the property manager ends up managing more properties than they can possible handle, because the agency at that turnover can't afford to employ any support staff for them. That can be reasons why there is a high turnover in property management.
I guess the reason for the age, it's an industry where you probably want to bring people in and train them how you want them to do things. If you get them young, before they've gone and worked anywhere else where they might pick up bad habits, I guess you can mould them how you want. Again, young people, they might not have that many responsibilities. It might be they go to a party on the weekend, and one of their friends say, "I'm going to Europe for two, three months." "Oh, I've got some money saved up. I might do that." There's not that strong commitment to the job, especially if it's a thankless job. Hey, who wouldn't want to go to Europe rather than go to work, to a job that you hate?
Mike: I'm glad my office door is shut, we're live with Pat today. Because I don't want the staff hearing this, but I completely agree with you. I'd be there if I could. Right?
Pat Mears: Yeah. Definitely. I think that's the reason they employ young staff. I guess it comes down to wages as well. They're obviously cheaper than someone who's got the experience. I think culture in the office and support play a big role as well.
Mike: Now I jotted a couple of questions before the interview and that was one of them. The next one was that your practise takes a different view. I've now realised that I've met the lovely ladies in the office. It's going to be awkward to not describe them as young, but I think it's fair to say that they're not in their early 20s.
Pat Mears: No.
Mike: You're taking a different approach with your office and not hiring people that are that young, necessarily. What's the reason for that? Have I insulted them?
Pat Mears: No, no. I guess it comes down to maturity. You've got to have someone who has a bit of life experience and they can handle certain situations that might flair up from time to time. They've maybe had experience with property investing themselves, or they've had experience in the job. I've got Sharon who's being doing it for, I think, 16, 17 years, so she obviously outstrips that two and a half, three turnover. Tanya worked prior somewhere else for a few years, before she came and worked for us. She had the experience as well. I've been doing property management for about 14 years now, and there's still things I've come across, situations that I've never had before.
That could be due to changing legislation, or again, you're dealing with people and people act differently. They're not robots, they're not going to act in a certain way because that's what you expect. Sometimes you want to go, "Oh, I thought this was going to go that way," and it's actually going a different direction that I haven't dealt with before. I don't know the best way to deal with this, for the best outcome for everyone involved. I guess that was part of the reason to put mature people on, was the experience. That they've got that understanding of, they can relate to different people. They've come across different personalities in their lifetime, so they know that not everyone's going to be the same.
Mike: Yeah. The dividends, I guess, of that is that once you get a client, you're not likely to lose them.
Pat Mears: Yeah, that's right. Someone who is entrusting a four, $500 thousand investment with someone who's only young, 19, 20, they're going to constantly question, if something goes wrong, they're going to question the age. Whereas, if you've got someone who's more mature, then they're possibly going to be a bit more comfortable with entrusting that with them. That said, I started in property management at 16. There would be people that would, obviously, a lot of it's dealt with over the phone or the email. They would come into the office when I was my late teens, early 20s and go, "Oh, you're young." They were just fooled, I guess. Or not fooled, but they didn't realise how young I was through conversation over the phone or communication via emails. That was a big, "Oh, it's you. I didn't realise that."
Mike: Sadly, it reminds me that I used to get that. I don't look so young anymore. I guess you're saying that there can be guns in any industry that are young. That age isn't necessarily the way that you should select someone, but age tends to come with experience. They might have had prior experience in property or property investors themselves, which is an important consideration. Would you hazard a guess as to how many, what percentage of property managers would be property investors? I would imagine if the average age is in the low 20s, it would be a fairly low percentage.
Pat Mears: Yeah, I'd imagine it would be quite low. I think, too, you've got ... I know of other property managers who don't own investment properties, because they wouldn't be able to handle someone else managing the property for them.
Pat Mears: Because it wouldn't be done how they would want, or that would be their perception. I have heard property managers say they invest in other things, because they couldn't cope with having a property in another state, and a situation arising and them not being there to sort it out. I think sometimes it could turn someone off, actually, taking the plunge into investment themselves.
Mike: Just to give you a bit of a chance to bash on your drum, what makes you different to other property managers, either yourself or your practise? What's your point of difference?
Pat Mears: We do property management only, so we don't have sales. We're not building a rent roll to be able to support a sales team, so that they can contact their investors, say, "Hey, the market's gone up. Let's sell." We also look at other things. We don't negotiate our fees, but how can we make this investment perform better for an owner? We are looking at building long-term relationships. We communicate quite a lot with our owners. Obviously, different owners require different methods of communication, or they require different amounts of communication. Some owners, it's a set and forget thing, "Only contact me if you need to." Whereas others want to know what's happening and that sort of thing.
Mike: How are the roses?
Pat Mears: How are the roses going? I guess, too, we look at things like depreciation. We understand how that works to a certain degree and the importance of it to an owner, because it means it's more money back in their pocket. Also, again, insurances. Really being strong and advising them to take out the correct policy. In my opinion, we would look at it from a bigger picture. It's not just about the rent from the property or what it's going to be worth when it comes time to sell, but how do we make this journey a smoother one for the client? Get those different thing in place, ready to go. It's quite interesting to see how many investors don't know about tax depreciation, all that sort of thing. How it works, and what is a deduction and what's a capital improvement, and all those sort of things. It's those little things that we try to educate ourselves on understanding investment property, I guess, from an investors point of view. Rather than from how it's going to affect us as a property manager.
Mike: Yeah. I don't want to be bashing on about tax depreciation. Obviously, that's my specialty, but I'm interested to interview people outside of that space. That's just one component of an investment property. A good property manager, I'm guessing, is ... Acts a bit more like a commercial portfolio manager, rather than this uncomplimentary rent collection term.
Pat Mears: Yeah.
Mike: Rent collector term that I hit you with earlier. Pat, how do people get in touch with yourself?
Pat Mears: Yep. We've got an office in East Maitland, where they can drop into us and have a chat. They can contact us via email, via our Facebook page, and we've all got mobile phones. We're quite contactable, depending on what time of the day or night it is. Yeah, so there's different avenues that we can get people in contact with us.
Mike: Beautiful. Just before we go, if there's one piece of advice that you could impart to property investors, what would that be?
Pat Mears: Organise a what if fund for those things that pop up, because it will take the stress off when those things do, or if they do occur. Because obviously things do wear out, and you're better off to have some money in reserve ready, than to try and scrounge and find it. I guess it's better to have put $20, $30 aside each week, rather than get to a critical point and go, "Where am I going to pull this from?"
Mike: Yeah. I think that's awesome advice. Thanks very much Pat, I appreciate it.
Pat Mears: No worries. Thank you.
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