What Due Diligence Looks Like When You Inherit A Tenancy

We dig into why we refuse to list rentals we have not physically checked, and how that one rule prevents pricing mistakes, nasty surprises, and messy disputes. We also share practical due diligence steps for vacant handovers and transfer-of-management takeovers, including what we ask before we say yes.

• refusing unseen rental listings to protect everyone involved 
• using floor plans and inclusions to assess new builds early 
• spotting features that shift rent like air conditioning and ceiling fans 
• explaining vacancy cost maths to price-sensitive owners 
• handling unrealistic rent expectations without burning bridges 
• managing open homes and no-shows by updating the entry condition report onsite 
• asking why a property is transferring and checking arrears risk 
• using listing history and drive-bys to flag repeat churn 
• inspecting within the first month to uncover deferred maintenance 
• navigating New South Wales rules after no-grounds termination ends 

Pat Mears - Rubix Realty

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Transcript

Welcome And Surprise Topic

SPEAKER_01 0:02

All right. Welcome to another episode with a very familiar face in our industry, and that is Pat from Rubik's. Pat, welcome.

SPEAKER_00 0:09

Thanks, Ash. How are you?

SPEAKER_01 0:10

I'm good, I'm good. We haven't spoken probably. How long's it been? Since February. So what are we now? We're May. Been three months.

SPEAKER_00 0:17

Yeah, that's it. Well, since we met in person for the first time.

SPEAKER_01 0:22

I know. Yeah, it's really weird because I'm sure that I'd met you before, but it's yeah, it's that's the way that a lot of people I think feel when they travel interstate with events and all of that. So thank you for booking in. You are one of those kind people that you know listen to the podcast, then go, Ash, you know, I'm I'm due for another podcast. I can do one with you, especially when I put those shout-outs to say, can someone please help me and be a guest? Because you you do me so many favors by doing it. So thank you for being a fan. But I'm gonna go straight into it because you don't even know what we're talking about today.

SPEAKER_00 0:54

No, I don't.

SPEAKER_01 0:55

Oh, okay. Surprise, surprise. Well, I want to talk. There's a couple of things that I want to ask you. And so we're just gonna do it online, and I'm sure you're gonna be fine. Like you're you do a great job of your social media and your content, and so it's always very educational and informative, not just for the investors, but just for the industry itself, which is which is what I love. And

The Rule: No Unseen Listings

SPEAKER_01 1:18

I've got one of your posts that I want to ask you about.

SPEAKER_00 1:20

Oh, yeah.

SPEAKER_01 1:21

Okay, so here we go. Let me just quickly find it. It is the post that says we don't list rentals we haven't walked through. Now, the reason why I really just wanted to have a chat with you about it is to actually find out how you manage that. If is that a rule that you guys have got only when the property is vacant, or also for properties that are transferring from other agents?

SPEAKER_00 1:50

Yeah, just for vacant ones, it would be very handy to be able to do for transfers because you never have a full picture until it's now yours to look after, sort of thing. So sometimes you're in too deep before you realize.

SPEAKER_01 2:08

Exactly. Okay, well, that makes me feel a lot better because when I saw that and I was like, she's he's got a point, you know, and I don't know whether our office is doing that for every property because the transfer of management's ones are hard. So I thought that that would actually just be a really good topic to talk about because it is something where I think you only pay attention when you've like been screwed over before. Like, you know, you and then you go, shit, I'm not gonna do that again. And there has been times, and I know this sounds really, really dumb. And it was like a number of years ago, and I remember taking on a management and just, you know, did the management, no problems at all. Pick up the keys, get everything transferred over to find out that the tenant hadn't paid the rent for six months. And I was like, why did I not actually ever think of asking those questions? Well, the truth is that it's never come up and been a problem before. So I sort of just hadn't checked. But I'm interested now in people's process with that, like how you can protect yourself as a property manager to make sure that you maybe are, if you haven't experienced that before, you might you might not have a checklist of of like what you should be, you know, doing with your due diligence before passing a property over. So today will be two parts. It'll be one part we're going to talk about the handover with the vacant properties and you know, um, how you work that, making sure you've walked through them. And then the second bit we'll talk about transfer of managements and a bit of due diligence there. So let's start off with the vacant ones. So vacant property, client calls up. Are you finding in your area that people are trying to rush you from a new management point of view? And do they, are they pretty accepting of like the fact that, you know what, I'm actually

Hard Lessons From Bad Handovers

SPEAKER_01 3:55

not really going to have a too much of a chat until I've looked through. Tell me um that process and how that works for you guys.

SPEAKER_00 4:00

Yeah, so if it's a new build, I always ask for the floor plan straight up. So that way you know exactly what it is, and then obviously the inclusions and that sort of thing. Because in our area, it's I won't sign a management that doesn't have an air conditioner. I mean, a lot of the new builds, if they're four bedders, will have two split systems or they'll have ducted air. And ducted air conditioning, depending on what time of the year you are, could be an extra easily add $30 to $50 a week onto the asking price. The floor plan also tells you what the room size, bedroom sizes are, because someone says, Oh, I've got a four-bedroom, blah, blah, blah. And then you look at the floor plan, it's like, is that a bedroom sort of thing? It's very small because it it will deter people, or it may mean that you're not going to get a family in there. You might get a couple with two kids and it and the other rooms uses, you know, a toy room or something like that. So it kind of changes who your demographics are that you're sort of aiming at. It's also a good opportunity if it's a new build to say, hey, um, have you thought about putting ceiling fans in instead of just the standard down lights? Because ceiling fans, I'm not sure about where you are. It gets quite hot here in Maitland in summer. And if you've just got one split system or two, the bedrooms where you want to be probably just as comfortable as everywhere else in the home get quite warm. And it's one of those things, once you've had a ceiling fan, it's very hard to go without a ceiling fan. So eight, eight, nine years ago, I was building a house and I was renting in between selling and building. And the property that I rented didn't have ceiling fans in the bedrooms. And at that point, I wasn't really worried. I had three dogs, and that limited me to what I could find to accommodate. And it was sort of nine to twelve months, so I wasn't overly worried. And the first weekend went and bought pedestal fans from Bunnings because you just don't realize, even just on low, I'm not someone who has it on low, you know, all through the year and don't use it through winter, but just to get that air circulating. So new builds, if you can get that floor plan, tells you the size of the bedrooms. You know, have you thought about putting a ceiling fan in? And there's been a couple of freestanding homes where I've said to the owner, I've noticed they're building it like right in the middle of the block. Have you thought about shifting it to the left or the right? So then you can create access down the side for a trailer or something like that. Because these new estates are quite narrow and people don't park their cars in the garage anymore. The cars are just sorry, the garage is a

Vacant New Builds And Walkthrough Prep

SPEAKER_00 6:37

storage area. So you're sort of mindful of like these narrow streets with cars piling up. And if you've got a trailer or a boat or something, that's going to take priority on the driveway. So I think too, that also enhances the value of the property from a sale perspective. So that's something that I'll look for as well. You know, have you thought about doing this or that? We do get, so we're about two hours north of Sydney, and you will get agencies in Sydney, and I think that must be investment groups, and they'll list a property in Maitland for rent. And I'm sort of like, how do you know? You know, like I wouldn't go an hour, like sort of limit myself to 30 minutes from from Maitland because it really changes. So I I would do drive-bys once I know the address and the floor plan. If I can walk around the fences down, I'll actually take photos through the windows to give a get a better idea. But yeah, I wouldn't, I think these companies in Sydney, where they're just building the same sort of thing so they know what they're building. And I guess in that respect, it's not as much I have to physically inspect every single one. But different streets have different appeals and all that sort of thing. So yeah, I wouldn't, I would want to have been able to physically go to the property and at least look through windows before I say, yes, I'll take that one on. So yeah, just so you don't get it.

SPEAKER_01 7:57

That was going to be my next question. Is that the the process of doing that, that's not to decide what the, well, it is as well, what the rent will be, but it's also to decide whether it's something that you're prepared to take on.

SPEAKER_00 8:09

Yeah, exactly. Yeah. And then you can sort of, once you sort of looked at it even through the windows, you can say to the owner, okay, so this is what yours is. There's six others in the area, and they're priced, you know, $30 between the bottom and the top. And then you just sort of, as the build goes on, just update them with those prices, and you'll learn to, if that client's really price sensitive, you know, no, I need, I need that money to make this worthwhile sort of thing. So it does sort of help you to be able to gauge the client, assess the property, all that sort of thing. So I've never I've not got to the point where it's nearly at handover and I say, you know, I don't, I don't want this anymore, find somebody else. Yeah. But try and gather as much information as possible prior to actually getting the keys to be able to start advertising and finding a tenant for them.

SPEAKER_01 9:04

I was just gonna say that it's giving it an opportunity for conversations to be had that could show those red flags with clients, couldn't it? And um can you and if you decide not to take on a property, can you just talk me through how you word that? Do people, are people okay with it? Do you ever get anyone that's a bit funny? Like do you have like a little script that you use?

SPEAKER_00 9:27

No, it sort of depends. And I'm pretty up front. So if it's someone who's saying, I really need, you know, $750 a week, and I'm sort of saying 730 is going to pull it up, and you sort of keep trying to explain, you know, like each each week you're at $750, you're losing, you know, $1,000, you know, $20 a week sort of thing. So you've lost in the first week by going $20 above market, you've lost $1,000 in that year straight up. And then if they don't sort of get that, and it's kind of, I guess, you know, you sort of say, look, if you really want that $750, I would only stay there for four to seven days, and then I'm gonna want to drop it. But if you want it to sit, you know, if you're happy for it to sit there longer, then, you know, I do see other agents with that sort of price on a similar property. Have you thought about reaching out to them? So sort of make it their decision. And then that upfront conversation could be like, okay, we really want to go with Pat, but we're gonna have to sort of fit in with him. Or hopefully they say, you know what, that's a good point. Let's not waste time and money sitting at too high. I mean, costing ourselves rent in the in the long run.

SPEAKER_01 10:37

Yeah. And so with the agents that out of the area, do you find they're more likely to overprice a rental or underprice a rental?

SPEAKER_00 10:48

Yeah. So at the moment, in a particular suburb, Rutherford, I've noticed that there's a few that are seeing very ambitiously. And they're and they're not even at the top of the range. They're like above the top of the range. And, you know, it's sort of like, well, how what what's making you justify that price? And I guess when you've got a run of properties that, you know, so that one, that one was similar, but it didn't have this, or it did have that, and we got this, and you know, you know what sort of people are coming through. And also having been local to the area. I've got probably three property managers I'll ring and say, Hey, I've got this, I've put this price on it. What do you think? So I had two or three weeks ago, a guy rang me and he said, Look, I'm looking at purchasing this property. I was in front of the computer, so jumped on the link and I said, Look, probably 650 to 670. And he said, Yeah, that's where I was thinking. The sales agent said 680 to 720, but I realized that, you know, sometimes they'll price it to sell it, which I thought was, you know, a good response because he's obviously realistic. And I said, Have you spoken to anyone else? And he mentioned another agent who was a property manager who said 750 to 800. And here I am at 650 to 670. And I said, Oh wow. I said, okay. Did did they justify that price? And he said, no, but he'd also, you know, a switched on educated investor. He then started quoting addresses of other places that were sort of in that 750 to 800 range. He said, the place is nothing, they're not comparable. And I said, no, that's right. I said, I don't know. I said it's up to you whether you sort of sit at that price and you might jag someone. I said, but it's probably going to be someone from out of the area who goes, Wow, I love that house. That seems pretty reasonable. Whereas the local's going to say, you've got to be joking, like that's that's not what that's worth. And I don't know if you end up going ahead with the purchase or not. Actually, sent him an email this morning because I noticed that it'd sold and just said, Hey, did you secure it or not? So yeah, it's interesting. I you've got when I mean when you've got people to bounce off and they're realistic, like I am, you know, that's where you get your confidence, but sometimes go, oh, shoot, am I a little bit too low in this um in this range or not?

SPEAKER_01 13:07

So I think um it, I mean, we every area has got those micro communities. And so like you do have to identify that. And I do also try to educate the investors that like I can have a really good opinion on an area, but I do like to have sort of for me, like, you know, 10 or 20 properties in an area to be able to give a strong opinion. If I've only got one or two properties in an area, I'm actually not the best expert for to give advice on that. So I just I mean, and why would you take on a property where it's only, you know, one, you know, in a more isolated area? So it's um something that like I I can swing both ways when it comes to like, you know, are local agents better or you know, um or a disadvantage for the clients. But I think that it comes down to like I don't think you necessarily have to be local, but I do think you have to have a pretty good amount of properties in the area so that someone is specializing in that area. Um I would hope that anyone that is two hours away, they've got a I'd hope they'd have a pretty

Pricing Reality And Client Red Flags

SPEAKER_01 14:15

decent portfolio and not just taking things for the sake of taking it, but yeah, exactly.

SPEAKER_00 14:20

And that's what makes me think that maybe they're an investment company and they're building it because it's like, well, we'll end up with 20, 30, or 40 in that area, so then it's sort of worth our while. But I don't know, like imagine saying, hey, I'm I'm heading up to Maitland for the day, I'll see you tomorrow. And and sometimes like you get there and no one shows up. And you could have said, Hey, Ash, what time suits you? And you're like, oh, you know, three o'clock this afternoon would be perfect. So you book a three advertisers and open, and the person you've booked it for doesn't show up. No, I mean I think Oh, was that today? Oh, that was today. Sorry, yeah, something came up.

SPEAKER_01 14:57

So I have I have some team members that travel about like 25 minutes, maybe 30 minutes, and to them, that's too much wasting time. Like you get there for no one to shop, or even for one person to show up. And funny, we had this conversation in our office yesterday. She was like, I'm not gonna go out there for one person, or you know, I'm not gonna go out there for a private viewing. And I was like, Don't you remember the day where every appointment was private and you didn't do that? And now, like, we've become like it's funny how we change our our ways of doing things now. We, you know, horrified if we are only going out for one person. But whether it comes back, I'm not sure. But it's yeah, it amazes me. Uh, and and there's also some property managers who have never experienced all those different markets as well. So, like, they've only experienced full home opens. So then they're like, Why would you literally do that for one person? And then you've got old school, they're like, Yeah, this is the way we do it.

SPEAKER_00 15:54

So exactly. So, how we sort of counter that potential no one showing up, if it's vacant, we'll make it a 30-minute inspection and we start updating the entry report. So it's not a complete waste. You're there, you've spent 30 minutes on the entries, no one shows. That's a good solid 30 minutes uninterrupted, doing, you know, the next part of the job. And, you know, just to to avoid wasting the time. But sometimes you'll book it for a specific person who doesn't show until other people show up because you've advertised as an open. So you don't know until you get there whether it's just going to be you on your lonesome or if you're gonna have a few friends rock in.

SPEAKER_01 16:34

So exactly. Okay, so uh last question is then let's talk about the ones that have already got tenants in the property. What do you do? What due diligence do you do for those properties that you might not get to see first, if any.

SPEAKER_00 16:51

So I'll ask the reason they're coming across, and I

Out-Of-Area Agents And Wasted Trips

SPEAKER_00 16:55

find most people are pretty honest, and they'll say if it's rent arrears, and they'll acknowledge that. Although I find a lot of people they go, I want to change, but I want them to fix the arrears so you don't have to. And it's like, well, how long have you been waiting for that to be fixed? Oh, six months. And it's like, yeah, I don't know. I don't know if it's necessarily the the property manager not doing their job, or if it's the tenant who just it's not a priority for them, and maybe a combination of the two. So you waiting for that to be fixed may never happen. But I'll sort of find out what the reason for changing is. I'll do an RP data search and you might find that, you know, they're saying that with so-and-so real estate, the last time I was advertised was with another real estate, and you're like, oh, am I number three, four, five, or six? So sometimes it's the client's expectations aren't being met because they haven't been adjusted appropriately to what is realistic. I'll do a drive-by to sort of see what it looks like. But yeah, you don't really know until you get the file what's sort of happening. Or you I do an inspection about in the first month. So that's when you either get hit with this doesn't work, that's broken, blah, blah, blah, you know, all that sort of thing. But transfers are actually my favorite sort of client to sign up because sometimes things that haven't been done are really easy to fix. So in the last couple of months, I took over a property that had a roof leak for about 18 months, and the owner only found out because the tenant contacted them direct. She doesn't think the place had been inspected for 12 months. There was a couple of repairs, and I organized them, did my first inspection, organized it, and she saw, you know, get me a quote for that. And I had it back within two days, and she's like, Okay, just go ahead with it. Another one, the tenant's been there 12 years, and he said, I don't think it's been inspected in three years. I don't know how you miss it for three years, but why wasn't he chasing it as well? Got there, and the tenant was like, Oh, yeah, like some things don't work, but we're not really worried about it. I'm like, Oh, what doesn't work? Oh, the rain shield doesn't work, one of the gas burners doesn't work. And then he said, Oh, and that gate around the side, he said, that blew out in the 2015 superstorm. And I'm like, the 2015? And he's like, Yeah, and I'm like, that's 11 years ago. And he's like, Yeah, it is too. And I was like, okay. And he, as a tenant, has nulled it shut. So he's got no way to get of the yard except through the house or through the shed. And I was like, okay, you know, well, he's obviously not concerned about it. And I said, Oh, how did these down pipes break? And the tenant had never noticed, but they'd all broken at the top. So when we had rain, it wasn't going down the downpipe, it was washing away. And I contacted that owner and said, I've been through, there's quite a few things. Have a look.

Transfer Management Due Diligence

SPEAKER_00 19:53

I said, This is what I think we need to do for Sissipit, let's spread it out over the next, you know, three to six months to you know minimize your expenses in one go. Got the quotes and he's like, Do you want to just get it all done straight away? And I was like, I'm like, how have you not like maintained this client when he's just like, just get it done? You know, isn't that what you want?

SPEAKER_01 20:16

It's it's actually crazy to me that you can get two polar opposite personalities. You can you've got one tenant who just doesn't, you know, doesn't hassle the property manager or follow up on all these things. And then you've got another person who literally would be on the phone to you three times a day till they got sorted. Like incredible the difference. Amazing. So one last sorry, I know I said one last question, really one last question. Do you have no grounds termination in your area?

SPEAKER_00 20:45

No. So that was it was abolished about 12 months ago. So we can only get vacant possession for proposed sale of premises, actual sale of premises, but the contract has to say vacant possession. I did have one that was called out, I can't remember if it was beginning of this year or last year, but the original contract said with tenant in possession, and then they sent it through Zoo of Exchange. We need you to issue the notice. And I said, Well, I need a copy of the contract. And I said, You've I can't issue it because you've it's been sold with tenant in possession. And then the solicitors had to draft something and have it signed so I could actually issue the 30-day notice. If an owner moves in for major renovation, and if it's no longer going to be used as a rental premises or demolition.

SPEAKER_01 21:35

So And does that worry you with taking on transfer of management? Like how is there a way that you can sort of try and make sure that it's not a difficult tenant?

SPEAKER_00 21:46

No. So you yeah, you can't really No, no, it doesn't no, it doesn't worry you, or no? Oh yeah, so it does, it worries me because you get people who They, you know, they're constantly in arrears, but they're never at that 15 days, which is what we've got to wait for in New South Wales. They'll get, you know, or they'll just be like anywhere between four and 11 days. Four and 11 days. It's like I'm contacting you again and again and again. And they don't realise that it's not just, I'm not just not nagging them because I want to get paid. This is going to catch up with you when you have to move into another property and you've been behind. And then that's when it bec that's when you'll know it's your problem, not just mine, sort of thing. So, or if it's a tenant who is just let's say they are difficult. So I've had tenants in the past who are really rude to tradespeople, to the point where I had an air conditioner guy walk off the premises and not even invoice for the hour and a half he was there. He said, just don't send me back there. Well, so and then of course I got a different story from the tenants. But then the next AirCon people who went out, they had two guys that went out. And I think it was just because there was two of them that the tenant didn't bother them as much. Whereas a single person on their own might have been like, Well, like, you know, and I'd I'd had a run-in with these tenants initially, but I stole my ground and sort of, you know, said that's not how we operate. But you know, so there were sort of people who was like, it's just things need to be get fixed, but it's never easy, and we're doing it for you. So you can't sort of you can't move people on just for being difficult.

SPEAKER_01 23:34

Worry. Like, so what do you just just deal with it and just try and be quite confident and assertive with the way that it needs to be and just manage it?

SPEAKER_00 23:44

Yeah, but people, people are who they are, they're not gonna change, you know. So I don't know, it is that like and it wasn't like we were using the no grounds to jack rents up. So it wasn't sort of like saying to an owner, hey, you can get an extra hundred bucks a week for this, but you these tenants aren't gonna pay it, so let's kick them out and start over. I never had a client do that. It was always like they're just they're not improving, they're just stressful, difficult, and we would do an end-of-fixed term notice, or we'd do a 90 days, no grants. But the tenants who are missing out now because we don't have that end-of-fixed term, is first-time renters. Because you'd say, We'll give you a six-month trial. If everything goes really well, we'll do another six and then we'll do 12 after that. And now

No-Grounds Ends And Tenant Risk

SPEAKER_00 24:38

you've just Yeah, you've just got to like weigh up your it's a gamble, you know. It's a gamble with anyone, but it's a gamble because they've got no history behind them.

SPEAKER_01 24:48

I haven't looked at like I haven't thought of that side of things, but that's really true. That's um definitely something because we're we're gonna have it come in soon. So I've just actually, you know, I always learn things from from conversations with people like yourself and something that I've just popped, and maybe this is something that others listening might want to do, whether like particularly WA, but is in the new management forms that we have a new management form if someone wants to go ahead. And I'm just wondering if it is a transfer of management. I have a few due diligence questions there that say, has your existing tenant ever been breached for rent or ever been breached for you know, whatever? And then seeing if I can get owners to disclose that before, you know, before sort of going ahead, that might be something that we might implement, which was yeah, just from listening to you, I think maybe that might be a good idea.

SPEAKER_00 25:36

So yeah, yeah. Sometimes usually it works out. What is it, the 90 90 10 rule? You know, 97 times that's fine, but the 10%, they're the 90% of the headache.

SPEAKER_01 25:47

Yeah, I know, I know, I know. Amazing, always lovely chatting with you and catching up. And I'll I will yeah, be over, I think, um, towards the end of the year. So we'll catch up again soon. But it's always lovely to um to hear from you. Good jobs on your socials. You do such a great job. So if anyone wants

Follow Rubix Realty And Wrap

SPEAKER_01 26:05

to go over and follow Pat, go follow Rubik's Rubik's Realty, Rubik's property.

SPEAKER_00 26:10

Yeah, yeah, Rubik's Realty.

SPEAKER_01 26:12

Yeah, uh Rubik's Realty R U B I X. And you do great content out there that is absolutely for investors, but also for the property managers as well. So I will let you go and and finish off your day. Appreciate your time, and I'll talk to you real soon.

SPEAKER_00 26:26

Thanks, Ash.