If you are the proud owner of an investment property, chances are you have worked hard for it.
As a landlord (or landlady), understanding how to protect yourself from common financial pitfalls is one of the key tools to investing with confidence, according to landlord insurance provider, Terri Scheer Insurance.
Terri Scheer Insurance executive manager CAROLYN PERELLA explains five common mistakes and how you can avoid them:
1. Setting the rent too low or too high
Before purchasing an investment property, carry out extensive research to help you determine an appropriate rental price.
Setting the rent too high may result in limited interest from prospective tenants, leaving you out of pocket if the property remains empty for an extended period of time.
However, setting the rent too low may place you under financial pressure, limit your rental income and has the potential to attract unsuitable tenants.
Look on real estate websites and through newspaper classifieds to find listings with similar features to your property, as this will give you a guide on the rental market in that area.
2. Failing to monitor arrears
If a tenant falls behind in their rent, it can be a very long and costly process to resolve and could leave you considerably out of pocket.
Diarise the dates that your tenant’s rental payments are due and check your bank account on those days.
If they fall into arrears a breach notice should be sent for non-payment of rent.
The number of days in rental arrears before a termination notice can be sent, and the time between presenting the notice and requesting vacation varies around Australia, so it is important to be familiar with your local tenancy laws.
3. Attempting to self-manage a property
Self-managing a rental property can create headaches for landlords, especially if they do not have enough time or resources to commit to such a task.
While it can be tempting to save a small percentage of rental income by self-managing your rental property, the benefits of appointing a property manager can far outweigh the costs.
Property managers are able to conduct regular property inspections to identify maintenance issues, have systems in place to find and screen prospective tenants, and have access to databases that list tenants with a history of defaulting on rental payments, damaging property and eviction.
If a dispute arises with a tenant, they are also familiar with the relevant legislation and can follow the correct procedures to help resolve the problem as quickly as possible.
4. Neglecting maintenance
As a landlord, once you have been alerted to maintenance issues, it is your responsibility to act on these or authorise your property manager to do so as soon as possible.
If a maintenance issue arises and you are slow to fix it, you may be legally liable if your tenant injures themselves. It is also important to ensure that all maintenance is completed properly and to appropriate standards.
5. Inadequate insurance
Specialised landlord insurance cover can protect investors from many of the risks associated with owning a rental property, provide peace of mind and ease a landlord’s concerns about receiving regular rental payments if your tenant damages the property or absconds.
Landlord insurance can cover property owners for malicious damage by tenants, accidental damage, 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.