It's important to ensure your investment property remains a profitable asset and provides you with a steady flow of rental income.
Investors should be wary of these common traps when keeping rental properties in the family.
1. Not having a property manager
If you decide to rent your property to a family member or friend, it’s essential to appoint a property manager. Landlord responsibilities like chasing up late rental payments can be awkward when you’re dealing with someone you know well.
Hiring a property manager to professionally manage the property can help to ensure that your role as a landlord doesn't damage your personal relationship with your tenant.
Property managers will regularly liaise with your tenants, ensure the correct paperwork is in place, collect the rent, monitor arrears and follow correct dispute resolution procedures if required.
Property managers are also able to conduct regular inspections to identify maintenance issues and ensure the tenant is looking after the property. If required, they will liaise with appropriate tradespeople as soon as possible to address any problems.
If you decide to appoint a property manager, it’s important to take their professional advice on board.
Make sure you allow your property manager to be the sole point of contact for your tenants for all issues relating to the property or tenancy, as it will enable them to deal with issues efficiently and according to correct industry procedures.
2. Being lenient when your tenant falls behind in their rent
It's important for landlords not to be complacent when it comes to protecting rental income - regardless of who their tenants are.
It can be easy to turn a blind eye if a family member or friend is late on their rent or promises that they will pay as soon as they can.
However, if a tenant defaults on their rental payments, certain notices must be issued to the tenant within specified timeframes. For example, in some states, a termination notice which clearly states a vacancy date must be sent to the tenant within 14 days of the tenant falling into arrears.
If the landlord is later required to make an insurance claim for loss of rent, the claim may be reduced if there was a delay in sending the appropriate notices.
Landlords also need to think about how they are able to manage financially if their rental income is halted for several weeks.
3. Skimping on property inspections
You may not feel it's necessary to conduct regular property inspections if you know the person renting your property. But if a tenant is injured at the property as a result of required maintenance that is unbeknown to the landlord, it could potentially lead to a costly legal liability claim.
Detailed and up-to-date condition reports, which are generally completed during property inspections, may be requested by tribunals and insurance companies if you have an issue with your tenants relating to property damage - accidental or otherwise.
Property inspections are therefore essential before the tenant moves in and every three to four months while the tenant is occupying the property to ensure it is being kept in good condition and to alert the landlord of any maintenance issues that may need attention.
4. Not having a formal tenancy agreement
Without a formal tenancy agreement, landlords could find themselves in hot water if something goes wrong down the track.
A tenancy agreement that clearly explains the responsibilities of the landlord and the tenant should be signed by each party before the tenant moves into the property.
No matter how much you trust your tenants, the terms set out in a tenancy agreement can help to resolve some disputes that may arise regarding the tenancy in the future.
If the issue requires you to make an insurance claim, some insurers will also request a copy of a tenancy agreement to support your claim.
5. Not having landlord insurance
Landlord insurance is designed to help protect investors from many of the risks associated with owning a rental property.
These include malicious damage by tenants, accidental damage, legal liability, and loss of rental income if a tenant departs suddenly or leaves a property unable to be re-let while damage is repaired.
It can also provide peace of mind if the unforeseen should occur, as well as ease a landlord’s concerns about receiving regular rental payments.
Even the most trustworthy tenant is able to damage property, whether accidental or otherwise.
Uninsured landlords really need to think about how they would manage financially if they were faced with thousands of dollars worth of damage to their rental property, or were unable to re-let their property while repairs were being made.
Collections: Property Investment