If you’ve successfully purchased an investment property,organisedyour finance with Go Mortgage and secured a tenant, you might think the hardest work is done when it comes to setting yourself up to reach your investment goals. But like any investment, it’s important you keep a close eye on your property and avoid all too common financial mistakes.
To help calridy some fo the ptifalls that cxomes after the initial purchase and setup period here is what Carolyn Parrella, Insurance Executive Manager at Terri Scheer Insurance, had to say about the most common traps landlords fall into financially, and how you can avoid them.
1. Setting the rent too low or too high
“Before purchasing an investment property, carry out research to help determine an appropriate rental price,” Ms Parella said.
“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.
“Find listings with similar features to your property, as this will give you a guide on the rental market in that area.
“If you appoint a property manager, they should be able to provide you with information on comparable properties and advise an appropriate rent for your own investment.”
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,” Ms Parrella said.
“Diarise the dates that your tenant’s rental payments are due and check your bank account on those days.
“If your tenant doesn’t pay on the due date, monitor your bank account on a daily basis. 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.
“Regularly monitoring arrears and issuing tenants with appropriate notices promptly may help resolve issues sooner and mitigate any financial loss.”
3. Attempting to self-manage a property
Ms Parrella said self-managing a rental property might create headaches for landlords, especially if they’re not able to commit the time or resources necessary (which they might not realise until after they’re in too deep).
“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,” she said.
“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.”
Furthermore the cost of the property manager is tax deductible and tenants tend to ‘play up’ less when faced with a professional agent. Also, beware as some insurance companies also refuse to offer landlord insurance to properties that are self managed.
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,” Ms Parrella said
“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
“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 their tenant damages the property or absconds,” Ms Parrella said.
“Standard building and contents insurance policies usually don’t cover landlords for these risks.
“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.”