A rental property can be a good source of income, but there are a number of things you should know before you make the plunge.
You’ve probably heard horror stories of tenants destroying homes and refusing to pay for the damage. Less destructive but far more common, are tenants refusing to pay rent, breaking leases before their term is up, or stealing appliances and furniture.
Finding the right tenants and managing a rental property can be extremely challenging. There are many things that can go wrong.
Although you will never eliminate all the risks, you can take steps to ensure you protect yourself and have the best chance at rental property success.
Here are ten tips to ensure you enjoy property success in the future.
Documentation will save your skin
A rental agreement is the basis of everything involving your rental property, so it’s important to get it right the first time. Agreements can differ from state to state so make sure you are aware of everything that needs to be in one.
Ensure you record the condition of your property before anyone moves in. Take photos and notes, and list everything you are providing in the property (fridge, washer, microwave etc.) and any things that can be broken or moved.
Make sure to cover any specific point that relate to your property such as pets, lease conditions, repairs, late payment fees and utilities. You can’t put too much into these agreements — the devil is in the detail.
It’s extremely difficult to claim for damages if you don’t have a written agreement. In eviction cases, judges tend to side with tenants because they stand to lose their place of residence, so you need to provide solid proof that they have broken their agreement.
Handshake deals won’t stand up in the Consumer Trader and Tenancy tribunal, so steer clear. Don’t let friends or families talk you into shady arrangements. If things go south, it’s your property on the line.
A solid rental agreement is the best protection against any problems that arise. Make sure you have an iron-clad agreement, and you’ll save yourself a lot of headaches in the future.
Tell the truth about the important things
If your property has any problems such as asbestos, lead paint, or mould, you may expose yourself to hefty fines if you do not disclose this information.
Anything that is a risk to health or safety of a tenant must be disclosed before they sign the rental agreement.
As the property owner, it is your responsibility to be on top of all the potential hazards and any repairs that need to be made to make the place safe.
Get proper insurance
The insurance you have for the house you live in probably doesn’t cover any rental properties you own.
You should get dedicated landlord insurance to protect yourself from the cost of damages, accidents, and financial loss.
Look at your policy closely so you understand exactly what it covers, and what it doesn’t. Check with your insurance company that you have adequate cover, and request any additional cover as needed.
Think about asking the tenants to get tenants insurance. This can help you avoid disputes where the tenant breaks one of their possessions and tries to claim it was there when they moved in (rental agreement helps here too).
Many landlords still don’t know that their insurance doesn’t cover intentional damage and public liability so make sure you know what you’re paying for.
Screen your tenants carefully
Screening tenants is vital to success when renting a property. A friendly person with a nice car doesn’t necessarily make a good tenant. It can be a long and arduous process to properly screen someone, but it’s well worth the effort if it saves you going through the process of evicting the tenant later on.
Always ask for a tenant database check. This is where a property manager comes in handy, because they have access to information that is not available to the public, such as a tenant’s eviction history, criminal record, and their ability to make rental payments. You should expect the potential tenant to have a monthly income which is at least three times the amount of rent you are charging.
The two major tenant databases in Australia are the Tenancy Information Centre (TICA) and the Trading Reference Australia (TRA). The residential properties act protects the personal information of tenants so you should ensure you take the necessary precautions to keep their information private, and destroy any information collected once it is not needed. Property managers are experts in this field and can make the process much easier.
Be careful how you reject tenants
The Anti-Discrimination act protects tenants from being barred from homes based on factors such as:
- Marital status
- Sexual orientation
Ensure that you can support a decision to reject a tenant with evidence from their rental history and a background check. Be careful when asking questions about marital status, social behaviours, and disabilities. This could be seen as discrimination, so it’s best to tread carefully and avoid these questions where possible.
Keep your property in good shape and update it periodically
If you keep your property in good conditionvand make improvements and renovations, you will get better tenants. You might be hesitant to fix up a property that someone else is living in, but it will pay off in the long run by providing you with better tenants and better rental yield.
Don’t be cheap either. Better quality paint, bathroom fixtures, and door handles will last longer and mean you won’t have to constantly repair things. A tenant is less likely to want to move if their home is clean, relatively modern and in good nick, and they’ll likely take better care of it.
Tenants are within their rights to make ‘urgent repairs’ on certain things and claim a rental reduction from you, so make sure they have no excuse to send you a bill.
If you spend a bit of money upfront, you’ll save a lot more in the future and avoid the mess of legal proceedings.
Do not pocket the tenant’s bond
Your bond should be in the rental agreement and legally cannot be more than four weeks rent. You must lodge and keep a receipt of the bond to keep yourself out of legal trouble.
If you’re worried that the bond won’t cover particularly bad tenants, then consider upgrading your insurance to a policy which will allow you to claim for damages.
Treat your rentals like a business
Renting properties may seem informal and nothing like a real business, but in reality, it is. You are making a profit and you need to do your due diligence.
The Australian Tax Office (ATO) considers any rental income as business income. It’s a hassle to report your rental income to the taxman, but it will save you from strife in the future.
But there are also various tax benefits. You can deduct certain repairs, property management fees and mortgage interest from your taxes. The key is to stay on top of the paperwork, make sure you can prove your expenses and pay the right amount of tax.
There are lots of laws that protect tenants from hazards in their home. As the owner of the property, it is your responsibility to provide a safe environment for them to live.
The Residential Tenancies Act outlines everything you need to do. Smoke alarms, safe sheds and garages, structure, asbestos and security. The list goes on, but you need to ensure you’re across everything to save yourself from legal liability.
At the end of the day, you are legally responsible for a tenant’s safety, in regards to your property. Take it seriously and cover all your bases.
You don’t have to do it alone
Hiring a property manager to stay on top of all these things is definitely a good idea. Property managers have experience managing many properties at once, so they’ve seen it all. They know the ins and outs of the rental property market, and know what to avoid, and what is integral to your success.
They do everything from screening tenants to organising repairs. They ensure you’re meeting all your legal obligations and providing a safe place of residence. They can also give you advice on the ideal rental price and look after any advertising that is needed.
You should also consider an accountant who has experience working with rental properties. There are many financial benefits to owning a rental property, and a good accountant will ensure you don’t pay more tax than you need to.
Professionals in this field will provide you with a great return on your investment. The fee they charge will save you a lot of time, money and pain when things go wrong.
If you consider all of these tips, you will be well on your way to a sustainable and successful rental property business.