You may have been managing an investment property for years, but are you reaping all the financial rewards?
Speaking with an expert from Terri Scheer, Australia’s leading landlord insurance specialists, we round up the common traps landlords fall into financially, so you can avoid them.
1. Not having insurance
There are multiple reasons to have insurance for your rental. Purchasing property is never a light financial undertaking, so you’ll want to protect that asset and your overall financial health.
Landlord’s insurance should cover not only building and contents, but also the financial nature of your investment. This means that it helps protect your income so you can keep paying off that mortgage even if the property becomes untenable or a tenant defaults on rent.
“Landlord insurance has a range of benefits and can cover you for any malicious or accidental damage caused by the tenants, any legal liability for occurrences on the property that cause death or bodily injury and loss of rental income as a result of property damage or a tenant absconding,” Carolyn Parrella from Terri Scheer explains.
2. Not staying abreast of regulations
This is where a qualified property manager can really help you out. Staying up to date with your state’s rental regulations and your lease legalities is time consuming but crucial work. It can be highly beneficial to invest in a property manager to take care of the admin.
However, if you do choose to go it alone, make sure you’re well versed in the latest regulations — and you have your lawyer handy — to ensure you’re following the proper courses.
3. Not getting a good tax specialist
If you’re new to investing, you’ll need all the help you can get when it comes to your tax.
They should know what to claim and when, what records you need and how to keep them. They can also help with more complicated tax matters, like negative gearing.
Without a good accountant, you could be missing out on massive savings and earnings.
4. Not keeping rents in-step with the market
Pricing your rent too high or too low could leave you at a loss. If you go too high, you could struggle to find a tenant. If you price it too low, you could be missing out on a few extra bucks.
The best way to set your price is by knowing your local market. Find out what similar properties are leased for and look at your property objectively.
Remember: it’s not always about the mod cons or aesthetics. You may have a newly renovated two-bedroom unit with air-conditioning and a dishwasher, but your neighbour may have an older two-bedder with floorboards, better light and built-ins. Your location and demographic may decide the competitiveness of your home in this instance.
Consider multiple factors when comparing for price.
5. Not staying on top of maintenance
Property maintenance is often cumulative, in that it can snowball easily if not taken care of efficiently and effectively.
Rental properties are required by law to be safe and liveable for tenants, which means responding to maintenance and repairs in a timely manner.
“If you’re slow to manage repairs or maintenance, not only could you be in breach of the tenancy agreement, you could also be legally liable for any tenant injuries,” Parrella reminds.
Even if you don’t have anything to repair immediately, stay on top of the following issues as a matter of prevention:
- Mold and ventilation. Even if your property doesn’t appear to have mold now, make sure it’s properly ventilated and frequently cleaned in order to prevent it. As landlords know, once mold is present, it can be incredibly difficult to get rid of and can be a serious health risk for tenants.
- Flexi hoses. Flexi-hoses are at high risk of fraying, decaying and then flooding homes. Replace them at least every five years.
- Plumbing. Consider supplying strainers for your tenants to use in the kitchen and shower to help prevent unwanted things being washed down the sink.
- It’s legally required for smoke alarms to be fitted and regularly tested in rental properties. Don’t let this fall behind.
6. To furnish or not to furnish?
Again, this is a matter of knowing your market. If you’re in an area where you’re likely to attract international or interstate students, fly-in-fly-out workers, migrants and so on, you may be able to furnish a place.
However, don’t fall into the trap of automatically thinking this is better for your tenant. Check with local agents who may be able to advise you on preferences.
7. Keep a check on arrears
Another easy mistake to make for busy landlords is not keeping a proper tab on rental arrears.
“An overdue payment could be a mistake, so it helps both the landlord and tenant to keep tabs on arrears to resolve issues sooner and mitigate any financial loss for either party,” Parrella says.
If the tenant fails to pay on a due date, you can issue a notice. Then you should keep a regular check on your accounts until the money comes in. If after 14 days it’s still unpaid, you have to issue a breach notice.
8. Investing too much or too little
This refers less to the purchase price of the property but rather renovations and marketing — things that will make your property attractive to quality tenants.
While few investors can be accused of spending too much, this can be a risk when renovating. For instance, consider whether prospective tenants in your market are likely to want all the bells and whistles, like air-con, floorboards and dishwashers, or if they would rather a more basic home for a good price. On the other hand, if you renovate and opt for the cheapest of everything (including tradespeople), this can be a flawed long-term plan.
Another area to consider is marketing, as well as optional extras like professional photography and videography. While a premium market will absolutely demand these things, other markets may be happy with standard imagery.
Ultimately, consult the market, think long-term and take care of your property and tenants for a prosperous return.