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Stephen Jackson, The Five Folders Arrears

Folder number 5

Over the last five issues of Hot Topics, we have looked in detail at Stephen Jackson's highly successful Five Folders approach to property management.

Arrears is all about critical conversations.

With over 1,000 properties on their rental roll at Jackson and Rowe in Sydney's northern districts, Stephen is one of Australia's most knowledgeable and successful property managers. He devised the Five Folders approach because 'it enables us to make better decisions, have better conversations, get resolutions quicker, and makes people happier'.

We will now look at the last Folder in detail - Arrears. Stephen believes that this folder is all about critical conversations. He says, "Tenants will give you reasons and issues and you have to decide whether to, 'do or go'.

This folder is really the management of the relationship. Turnover of tenants is expensive so if you can minimise turnover and manage and maintain relationships - that's good for business."

Stephen says, "The reality is turnover is not anybody's friend. When our property managers add up how much of their time is taken with dealing with turnover it's up around 70 per cent. It is not a profitmaking area; it is a cost area. It is where your owners become most volatile. It is a nightmare and you need to control that, you need to reduce it. Turnover is your biggest issue that you have to worry about."

According to Stephen, arrears comprises three parts: 'Abhorrent behaviour, incorrect behaviour and behaviour that is in breach of leases or conditions'.

He says, "The first thing you have to understand is that you are not a lifechanging experience for a tenant. If a tenant's got bad behaviour, you are not going to change that behaviour; your best chance is to change the tenancy.

"Secondly, you are after resolution, not correction. If a tenant is in arrears and you chase him and he pays this week, that is not fixing the problem. The problem that needs to be fixed is the reason why he was paying rent late. What you want to know is that this rent is going to be paid continuously on time.

So, look for a resolution to the problem, not fixing of the problem for a short time.

"And the third thing is there is no such thing as problem tenants; there are only problem decisions that aren't happening. If you have a problem tenant, the decision is to get rid of him."

To minimise these kinds of problems, Stephen advises using direct debit. He says, "It's mandatory in our business that all tenants pay direct debit because what we're looking for is no variation in behaviour. Since rent has to be paid on time, we know the computer will do it on time as opposed to a tenant choosing to pay rent. We take away the decision to pay rent by making it direct. That reduces our arrears list to an industry average of about a tenth of what a typical office would be running if they were having tenants pay by BPAY or various cards."

To manage arrears, Stephen says that agents need to be clear and strong and be comfortable with the authority they hold. If a tenant has paid rent late, he says, "You need to advise what you will do and that you'll keep doing it. If a tenant hasn't paid rent and he says, "I'm going to pay it tomorrow", here's the thing: you still need to say, you are now in a situation where the tenant is 14 days in arrears. What you say is, 'That's okay. If I haven't got rent by the 15th day we will be issuing Notice to Quit. If I still don't get rent then, we would take that through process'."

Stephen believes that an agent should never ever let a tenant or somebody else stop you from your process. He says, "Don't wait for a tenant to take action. If a tenant was due to pay on Tuesday or Thursday or if you're waiting for a phone call from him, don't wait. Play it out as if the tenant was not going to uphold his responsibilities. You have to point out to the tenant when you're talking to them, and you have to think about this, that this is not personal, it's business."

"If an agent begins to sense that he or she is becoming angry when dealing with a tenant," Stephen says, "know that you've moved into 'victim'." He continues, "The reason why you're getting angry is you're feeling powerless. The reason why an owner gets angry is they're feeling powerless. You must reinstate their power to take action, their power to fix their breach of entitlement, if you like, that they're entitled to under their lease."

Stephen concludes, "Always use anger and the presence of anger as an indication that someone is feeling helpless or someone is feeling like a victim and correct that, because that is crucial."

It's mandatory in our business that all tenants pay direct debit because what we're looking for is no variation in behaviour.

The Five Folders

The first folder is Vacating, which looks after all the activity that is generated once a tenant gives notice through to the tenant vacating. It’s turnover, dealing with tenants moving out and the new tenants going in and it’s the biggest part of property management and the area that agents have the least control.

The second folder is Applications. This is also part of turnover and involves all the activity around finding and securing the next tenant. Stephen says, “It is not a profit-making area, it is a cost area, it is a pain, it is where all your issues are, it is where your owners become most volatile. It is a nightmare and you need to control that, you need to reduce it. Turnover is your biggest issue that you have to worry about.”

The third folder is Bonds, and this looks after all the activity from when the tenant vacates and hands back keys through to the finalisation of the bond and the processing of the monies.

The fourth folder is Maintenance, and this involves all the work that needs to be done to a property and all the invoicing and the payments.

The fifth folder is Arrears, and this really encompasses misbehaviour of tenants, so it involves arrears, it involves strata complaints or notices where the owners decided to give the tenant notice to move out.

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Stephen Jackson, The Five Folders Arrears