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Breaking Bad: Is Your Investment Property At Risk?

12 October, 2015 / Category: Blog

Breaking Bad: Is Your Investment Property At Risk? banner image

When it comes to leasing out their investment property, a landlord is predominately looking for two qualities in a tenant: one who will pay their rent on time, who will take care of their asset and return it in good condition. But what happens when your tenant goes on to fail on both counts of care and payment, instead turning your property into a drug manufacturing house? In today’s topical Infolio blog, we address this complex issue and provide strategies to help protect your precious assets.

In a recent news story, Geelong landlord Trent Lister awoke to an investor’s worst nightmare: his investment property had been turned into a drug manufacturing house. After attending his investment property for a routine inspection, Greg discovered his property had been completely transformed into a cannabis manufacturing ‘plantation’ costing them thousands of dollars in damages.

The Real Estate Institute of Victoria recently reported in ‘The Estate Agent’ (Volume 27, August 2015) on the growing concerns of Victorian Police over drug manufacturing taking place in inner-city neighbourhoods. In their article, Detective Acting Senior Sargent Adrian Brilliant comments that ‘cannabis crop houses are predominately in metropolitan Melbourne’ and ‘organised crime syndicates are acquiring up to 10 rental properties at a time using false identity documents.’ With drug manufacturing houses causing property damage in excess of $50,000, it is crucial for landlords to know how to best protect themselves – and their assets – from being exposed to this dangerous predicament.

How Can You Protect Your Asset?

Background and Identification Checks

Disturbingly, it only takes a couple of days for a drug manufacturer to ‘set up shop’ in a rental property – so vigilant background checking during the tenant’s application phase is vital. Essentially, nefarious applicants are professional criminals – they are aware of the requirements of the landlord and are able to appear as perfect candidates on paper. As Trent Lister and other landlords in his situation have learned – extensive identity and reference checks are required to ensure the person living in your house is the person they claim to be. Stringent identification checks should take place, with original or certified documentation to be presented with the application. Validity of previous rental reference checks and identification is also required to ensure that the applicant you are dealing with is honest and true. Furthermore, simply checking consistency between identification documents can be helpful i.e. checking to see that birth dates and current (and past) addresses match.

NTD Checks

A tenant check with the National Tenancy Database (NTD) costs around $16.00 – a small price to pay for assurance against identity fraud and previous rental credit defaults. Ask your agent if an NTD check has been performed on your ingoing tenant. If you are a private landlord visit tenancydatabase.com.au to conduct and find out more about this check.

Google Your Applicant

A simple search of your applicants’ names on Google may uncover contradictions in their application: relevant news articles or pending court cases could also be unearthed by a brief Google search.

Identifying Alarm Bells

There are certain indicators and ‘tenant requests’ that ring alarm bells for experienced property managers – some of these requests may be mistaken as advantageous qualities by a landlord. Two such ‘alarm bells’ often misunderstood by landlords as beneficial are:

  • A tenant’s willingness to pay rent months in advance, particularly in cash and especially without supporting documents.
  • Willingness to install expensive exterior walls or protection.

These ‘generous’ offerings are often flagged as alarm bells by the Victorian Police – being aware of them may prevent you from future grief.

Routine Inspections

As cannabis plants can be harvested within 12 weeks (and with each plant valued at around $3,000) – carrying out an initial three month inspection is crucial. The REIV reports that “If agents are found to have been negligent in carrying out inspections, they may be held legally accountable for damages.” Although most landlords and tenants are aware of six monthly routine inspections – the Residential Tenancies Act allows for the initial inspection to occur three months after a new tenancy begins with six monthly inspections thereafter.

Ensure that you or your agent attend the property the first three months after your tenant moves in. Six monthly inspections can be held thereafter. Should there be any concerns about your tenant, they will be identified within the first three months, preventing any further damage.

Insurance Matters 

Do you have building and landlord insurance and if so, have you checked your cover recently?

  • Who are you insured with?
  • How much loss of rent do they cover?
  • What kind of damage is covered?
  • Have you shopped around and compared the market for insurance?

You can’t control the actions and behaviour of your tenants – but you can ensure you are protected by simply shopping around for the right insurance for your property. Speak with your Infolio property manager for more details on insurance.

Noting Signs of Drug Manufacturing

There are a several features that  hint at the possibility of drug manufacture occurring in a property.

  • The properties are typically stand-alone houses in quiet residential streets
  • Additional door locks maybe in place
  • Blinds are always drawn or there are additional coverings on windows
  • Fan-like noises
  • Strong smell
  • Additional electrical wiring
  • Overgrown garden (as the tenant is only utilising the property for manufacturing purposes, maintaining your lawns are the least of their concerns)
  • Chemistry equipment
  • Large amounts of tin foil or baking soda.

Staying Safe

We’d all like to imagine that every tenant bears us goodwill, earnestly filling out their rental application with nary a thought in the world of setting up a drug manufacturing operation in your residence.  As a well-intentioned landlord, the possibility that your latest tenancy applications belongs to a drug manufacturer probably wouldn’t cross your mind.  The reality is that there are real dangers for landlords that come in the form of nefarious, criminal tenants. It is crucial for you and your agent to practice thorough identity and reference checks and to conduct routine inspections to uncover any irregularities in your tenant’s use of your asset.

Your applicant may seem to be the ‘perfect tenant’ on paper, but until you can identify who you are really dealing with – you may be the ‘perfect victim’ to a costly and fast-growing category of crime.

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