Landlords beware: five common financial traps

Landlords beware: five common financial traps
Landlords beware: five common financial traps

Many rely on rental investments for a low risk source of cash flow. But poor planning and bad decisions can turn your stable income stream into a financial sinkhole.

Whether you’re considering the purchase of an investment property or wondering why your rental is eating cash, avoiding these traps can minimise your costs and maximise your profits.

  1. Setting the rent too low or too high. 

    According to Terri Scheer Insurance executive manager Carolyn Parrella, before purchasing your investment property you should research extensively to determine the right 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,” she said.

    “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.

    “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.”

    Remember, depending on your tenancy agreement, once tenants are signed onto the lease it may be a year before you can you change the rent. Take the time to do your research.

  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,” said Parrella.

    “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,” she said.

    “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. 

    Landlords may attempt to save some coin by self-managing their property, but many are often under resourced for the task and left losing money.

    “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,” said Parrella.

    “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.”

    If you don’t have the time, resources and experience to self-manage your property, a property manager is the best way to go. Make sure you choose a good one

  4. Neglecting maintenance. 

    Don’t let the state of your property slip away from you – unfortunately, your rental isn't a case of “set it and forget it.”

    Parrella noted that neglecting maintenance issues could see you liable for injuries your tenants sustain on your property.

    “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,” she 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. 

    Make sure you are adequately protected against lapsed rental income, damage to your assets and legal liability. 

    “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 their tenant damages the property or absconds,” said Parrella.

    “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.

    “Even the most careful tenant can damage a property, whether accidental or otherwise.

    “This can be extremely costly for the landlord in terms of repairs and the loss of rental income," she said. For more information on landlord's insurance, see our article on the topic here

 

 

For more real estate traps and tips visit realestatetraps.com.au

 

Tags: 
Investor Tips Property Management

Community Discussion

Be the first one to comment on this article
What would you like to say about this project?