EP19: Managing Rent Arrears

 In this episode of the Property Investor's Handbook, we tackle the critical issue of rent arrears with expert insights from seasoned property manager, Colleen Sutherland. Learn effective strategies to prevent and manage rent arrears, understand the importance of timely monitoring, and discover the procedural steps from initial notification to potential eviction. Colleen shares practical advice on maintaining tenant relationships, handling financial hardships, and the due diligence required to protect your investment. Join us to equip yourself with the knowledge to navigate these challenges successfully. 

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  Hello, and welcome to the Property Investor's Handbook. In today's episode, we're focusing on a critical issue for property managers and landlords, and that's handling rent arrears. So with expert insights from our seasoned property manager, Colleen Sutherland, we'll discuss effective strategies to prevent rent arrears and manage them when, when they do occur.

Colleen, welcome back. Thank you so much, Adam. Fantastic. Now. Can you explain what rent arrears actually are and why they present, you know, such a significant challenge for property managers?

Rent arrears can be just a couple of days, or then it can be seven days plus. So, you know, Uh, to keep an eye on it when it's about two or three days is vital, and then notices start from the eighth day, so, and it's hard to keep bringing them back.

So, these are the, the, the critical sort of time, so seven days, so explain to me the, the process, so how, firstly, how is it flagged to you as a, as a property manager that, that somebody hasn't paid?

Uh, well we've got reports, we keep an eye on it in our, in our software, and we check them daily, uh, after we've done the receipting of what has been paid, and then, um, check who hasn't paid.

And it comes up from three days.

Right. Okay. So from three days, that's where, and what sort of procedures do you have then for contacting the, the tenant and what, what happened, what's the process once you get to that three days and somebody hasn't paid?

So the standard process right at the start is receive a text message to say your arrears three days, four days, and how much it is just so that they can see it adding up.

Uh, that they should be getting the rent paid. And then once they get to the 8th day and they haven't rectified their arrears, Uh, that's when the notices start and People do get offended by it because it's like, I'm never in arrears. I'm, I don't know what's happened. And they, we listened to the stories and they can be stories that are genuine.

And we take that into consideration. And then there's stories as in their stories as to why they haven't paid their rent. So it's different between. A tenant who's been there for a long time and we assess, is this regular? Is it not regular? Are they flying just under the radar? Things like that. And then big alarm is when they've not long moved in.

And we've done, we can do all the checks in the world. That doesn't necessarily mean that they're going to be true and accurate when they're living in this rental property. And alarm bells ring when they're constantly three plus days in arrears. Well, this was going to be my

next question. So are there people and what do you do?

So you're saying three days is sort of where you get, you flag it, they'll get Notified there isn't any official procedure, which I want to talk to about that eight day day plus So what do you do and does it happen where someone is just let's just say four to five days every single week

They they do get the text messages But if it's every single week and we see them paying late, they'll get a phone call simply because Hey, Mr.

Tenant, you are always four or five days in arrears. We're going to have to get you to catch this up. You need to pay a minimum because they're supposed to pay fortnightly in advance. So what happens it's like in the old days when we rented a DVD and you go to the shop and you pay your 10 to rent that movie.

So you have to pay before you can take the movie out of. And we explain it like that is that you're about to use up two weeks worth of rent. So you need to, you need to pay me two weeks rent. Um, and people don't quite understand that sometimes they think they pay their two weeks rent. I put it in my pocket and then you're paying what you've about, uh, what you've already used as opposed to what you're about to use.

Because at the end of the tenancy, they're Going to move out and they go. Well, where's my two weeks rent? Yeah, and if we had a slush fund of people's two weeks rent I'd be rich but we don't because they're not understanding the They're paying the rent for what they're about to use and you've used it up So now you have to pay another arrears.

You're not getting. No. Yeah So yeah,

so it's it's always a bugbear with especially with the people who are on a very tight budget Which is a lot of people on today's market And they think that they've got two weeks up their sleeve and they'll use that now Then we go through the process of explaining That's not how it works.

Sure. Talk to me about the official procedure from, from day, day eight. Where, I know that at some point there's got to be a breach, I believe. So explain to me, day eight comes around, um, an official notice. What, what happens from there?

So you'll get a text message between day three and day seven. And if you've chosen to ignore that, Not ring me and tell me why.

On day 8, you'll get a notice to remedy breach. Now those notices stay on your history file, so that when you go to find another rental property, I have to, I'm obliged to tell the next agent, yes, but they've had 4 rental breaches. So, don't get to that stage, because that will affect you. Your

ability to find another property.

Yeah, secure

another property. So day eight. So that gives you seven days to bring your rent up to date, meaning don't just pay one week, one week's rent. It up to date means two weeks rent in advance. And you've signed that on the lease. And then we get to the end date and the very next day after that expires, if you've not paid your rent, then I have to start over.

proceedings, which is the Queensland Civil and Administrative Tribunal. Tribunal, yep. To have the lease terminated. I don't go the jugular straight up because there are extenuating circumstances and we do understand. But if you're a serial late payer then you leave me with no choice but to get the rent brought up.

Especially if it's a property, you know, over 750 a week. Yep. I can take however much bond once it's over that. But it's 750 a week and you're two weeks. Uh, in advance, uh, in arrears, sorry, that's a lot of money and it adds up very quickly. And that's why you have to pay or you should be paying a higher bond because everything adds up quickly.

Sure. Sure. So. Talk to me about someone who finds themselves in difficult financial circumstances. We hear that there's, you know, banks always say with loans, if, if you talk to us, we'll, we'll help. We'll work something, we'll work something out, you know, electricity companies. Is there anything there for, you know, in place that you can do for, for someone who's genuinely experiencing hardship and is having trouble?

paying and staying, you know, staying up to, up to date with their, with their payments, or is it a case of, well, Too

bad, so sad.

Yeah.

It's not. If you're, uh, proactive in letting your property manager know that, what the circumstances are and when you will be able to bring that rent up to date, and then it's up to the landlord to either accept that or to, But nine times out of ten, they do accept it.

And then with people who aren't proactive, then it's a little bit more harsh. Or you could go on to a payment plan, meaning you'll continue to pay your full two weeks rent, but then you pay an extra that will go towards the rent. week that you've not paid.

Right. So there are things that you can do. Do you have to consult with your, um, your property owners when something like that occurs?

Yes. So the owner will always know if the tenant is in arrears, if that's what they choose. Otherwise they just leave it up to us to do. Sure. Once we've organized a plan with the tenant to bring the rent up to date, we'll let the owner know. So we can make those. Uh, agreements outside the tenancy agreement.

However, if you fail to meet that agreement, then that one goes to court. So make sure what you're signing off on that you'll pay an extra a hundred dollars a week until the rent's caught up. Make sure that you do do that because that will look more favorably for you in QCAT to say, well, I'm trying.

Sure.

Yeah, sure. You mentioned earlier that, you know, if you. Do find yourself in rent arrears and beyond that seven, eight day mark. And, uh, that you have to, you know, as I said, put a mark on their file. I'd like to know a little bit, a bit more about that. So when someone goes to rent another property, how does that work to do?

Agents contact previous agents or is there a master, you know, a master database where these things are recorded? How does that, that, let's just say you've had this tenant who, yeah, three or four times, um, got past that stage, you, you know, left, when and how does that information get passed to their new tenant?

when they're looking for their next property.

So we'll get a rental reference request from their new agent when they're looking to move. And sometimes that's how we find out they're moving. We get a rental reference request and on that request there is certain questions. And one of the questions is, has the tenant ever been arrears?

Have you had to issue a breach notice? How many?

Right.

And we answer truthfully. There's some, some agents that may not be as truthful, only just to sort of move the tenant out. And that's how we adopt someone who is not necessarily the best, but mostly it's good. Uh, but yes, those ARIA notices will flag when I go to do a rental reference.

Is

that a standard? See, this again comes back and as we always do in these episodes, Colleen. to why you need a property manager like yourself to handle all this. I mean, if you think about it, an owner putting in a new tenant doesn't even know to get a rental reference. I gather that standard procedure for all good property managers.

Yes,

all good property managers will do that due diligence before they present that application to the landlord for consideration. And landlords who are managing the property themselves don't necessarily know to ask the per, or what to ask the previous agent, and don't necessarily do those due diligence.

And then you do end up with the possible tenant from hell that's on a current affair. So there are extenuating circumstances there.

Well, this is what I wanted to sort of, we're going on a bit of a tangent here, but it is interesting. I'm sure our listeners are keen to understand this. So I thought there was a database of a blacklist, let's call it that for want of a better term, of these Uh, current affair tenants who've, you know, trashed property after, after property.

So, and just bring it back even to, to, to breaches. So there isn't a database as such that you lodge, uh, every time there's a breach, there's a little mark that goes on that database and hence any agent, leasing agent can go and have a look at that. Is there one? Isn't there one? And where is this blacklist or isn't there one?

There is a national tenancy database. There's a couple where we are able to put on a at the tenant, this, the tenant, if they owe money for rent arrears, but there is a certain period of time. So you can't just do it every time you issue a notice or even I'm going to blacklist you. There's a lot of rules now that's been introduced around the rent arrears.

blacklisting for want of a better word, the tenant. So you don't want to be seen to be, um, hindering that tenant to get another home for their family, but we do have to be doing the right thing by the next agent and yeah, and listing them. But there's a certain period of time that we're allowed to list.

They can apply to question that list, that listing. But yes, there is a couple of tenancy databases and that's what forms part of our due diligence. They might be on that tenancy database, but they may have cleared a debt and then not be taken off. So there's extenuating circumstances too, to tenants on these particular blacklists.

Sure. So would I be right in assuming then from what you're saying is You'd only put someone on there for something quite, you know, what you'd consider quite serious. Um, and other lesser serious, like ongoing small arrears, it might be something you bring up in a, in a rental reference.

Correct. Yes. So, again, there is a certain time period, so we can't do it straight away.

And, you know, if it goes to QCAT. Then yes, we can, can do it. So there's a lot of structure around that. Now, years ago, there was agents putting all the tenants on there. Yeah. And ones they didn't like, you know, like it could be a personality conflict or something like that. And it's like, you can't do that.

And now they've got a structure around that. Guidelines on

what can, what can't, when, how. Yeah. So for

instance, however, we. can't put the domestic violence victim on there ever, even though they may have been horrendously in arrears, but there is an extenuating circumstance there. Um, and domestic violence is a whole different ball game.

And in particular with rent arrears and damage. So that's why we suggest a very good landlords protection insurance.

Sure. I'd love to ask the question about how far as it goes from not paying rent. So getting into arrears before. the process of eviction starts, but I'm not going to because we're going to be doing a, a, another episode on evictions.

And so if you want to know the answer to that question, you're going to have to tune into our, our next episode. So that'll

be an interesting one.

It will, it will. So look, I think that really wraps us up for, uh, for rental arrears. Look, it's just comes to me every time you talk about how you do this.

You've got structure, you've got software, you've got processes in place. You do this all day, every day for your whole portfolio of properties, but how the heck you'd ever stay on top of this as you, as an owner. own private landlord. I don't know. So, uh, it's very time consuming. Yes, it would be. And, and then just the cost we talk about every time, don't we call him the cost of what it will cost you if something does go, go wrong, it's peace of mind.

We talk about you and your team and property, good property management agencies being an insurance policy. And, uh, and you certainly are. So look, thank you very much for joining me and giving us your insights on, on rental arrears. Hopefully it's not something that's, uh, that's too common and you have to deal with on an ongoing basis, but when you do, you do it well.

And, um, that's why anyone listening, jump in and talk to Colleen and her team, get her on board to, uh, to manage your properties. Now, look, don't forget to jump on and hit subscribe on your favorite podcast platform. Make sure you hear every episode that we do and getting more insights on successfully managing your investments.

So join us next time as we continue to guide you through these complexities. Thanks again, Colleen.

Thanks, Adam.