Disclaimer: This information is general in nature only. While Budget Direct has endeavoured to ensure the information we’ve relied on is accurate and current, we do not guarantee it. Budget Direct accepts no liability for this information.
Wouldn’t it be great if becoming a landlord meant all you had to do was purchase an investment property, then sit back and let the rental payments and capital gains fund your planned retirement in Tahiti?
Truth be told, the life of a landlord is more complicated and stressful.
Here are some tips for first-time landlords to help you feel more at home in your unfamiliar role.
Related article: 7 tips for new landlords
1. Remember, your property is a business, not your home
When you make decisions about your property, it’s only natural to put on your tenant hat and imagine yourself living there. What would you want? How would you decorate?
But if you want to get the most out of your investment, you’ll want your property to attract the widest range of renters possible (some of whom might not like a red kitchen, for instance).
So, keep your interior simple and standard, with neutral colours that will suit all tastes — not just yours.
2. Know your rights and responsibilities
Australia has many laws and regulations in place to protect you as well as your tenants.
It’s crucial to familiarise yourself with these laws, which vary across the states and territories.
One requirement that holds true in all jurisdictions is the safety and security of rental properties.
This requirement covers things like smoke alarms, window safety, swimming pools, and locks.
While it may be tempting to visit your property when you please, you’re required to give your tenants advance notice.
Hollie McPherson from the NSW Department of Fair Trading says this is a common mistake made by landlords.
“Because it’s a significant investment that people make when they buy an investment property, sometimes the landlord will not let go of the property and [will] turn up without providing sufficient notice.”
A short course in property management can help get you up to speed.
3. Set a reasonable rental amount
The best way to come up with a rental amount that’s fair to you and your tenant is to assess your property as honestly as possible.
Consider its size, location and appearance, and weigh these factors against other properties on the market, including neighbouring ones.
Next, decide whether you’ll pay the utility bills. Should you decide to add this amount into the rent, simply refer to the previous year’s utility bills.
Once you’ve set your rental amount, establish a budget that will let you squirrel away some of the rent to finance the mortgage, property taxes, insurance and maintenance.
A win–win rental amount will ensure your investment is financially viable and improve your prospects of attracting and retaining tenants.
When you advertise for renters, make it your mission to create as much competition for your property as possible.
After all, the more applicants you get, the better your odds are that you’ll find a top-notch tenant.
When you sit down to write, consider that renters main concerns are proximity to public transport, schools and shops — and, of course, the property’s features.
Go nuts on the detail and post as many flattering photos of your property (indoors and out) as you can.
5. Engage a property manager
You’re more than welcome to take on the responsibilities of a DIY landlord.
But if you want to get the most out of your investment and save yourself a whole lot of hassle, hire a property manager (or licenced real estate agent).
A property manager can handle the tenant search, legal paperwork, maintenance, inspections and all communications.
Another advantage is their ability to foresee potential problems and nip them in the bud.
Although the cost of a property manager is usually subtracted from the rental payment, it will make your life easier, especially if you live far away from your property.
6. Put agreements and communications in writing
You and your tenant should fill in and sign a tenancy agreement (or lease agreement) — a legally binding written agreement between the parties.
This will protect your respective legal rights and ensure both parties understand what’s expected from one another.
Your lease agreement will formalise issues like the lease period, the rent and how it should be paid, and what the tenant and property manager/owner can and cannot do, to name a few.
You’ll also have the opportunity to negotiate special terms, for example whether the tenant is allowed to have pets at the property or repaint the walls.
The agreement will also outline what actions you can take if your tenant breaches any terms of the agreement.
Remember, a property manager can oversee these agreements, should you choose to employ one.
7. Keep up repairs and maintenance
The upkeep of your property is vital, not least because you’re legally required to keep it in good condition and fit to live in.
There are certain maintenance and repair issues — no hot water, for instance — that require immediate attention.
Just as you should be proactive about repairs and maintenance, so should your tenants.
In Queensland, for example, tenants are required to notify property managers/owners of any repairs needed.
You’ll want to make sure you have tradespeople you can rely on to address problems quickly and affordably.
Property managers typically have access to many cost-effective services.
It’s also smart to upgrade appliances and apply fresh coats of paint periodically, to maintain your property’s attractiveness and value.
8. Don’t be afraid to raise the rent
There’s always the risk of a good tenant moving out when you increase their rent.
But if you don’t raise the rent when the market goes up, you’re doing yourself a disservice by throwing income — the purpose of your investment — out the window.
Think of it this way: Part of your job as a landlord and investor is to keep an eye on the market — and set your rental amount accordingly.
Not only that, any tenant who has rented for more than a few years will most likely have experienced an increase and be expecting another at some point in the future.
9. Don’t be buddies with your tenants
There’s something to be said for being known as a ‘cool landlord’.
Sadly, personal friendships with renters almost always lead to the landlord being taken advantage of.
For example, your tenant will expect leniency if he’s late on rent. You’re his ‘friend’, after all.
Do yourself a favour and avoid getting yourself into this compromising position. Keep your relationship strictly professional.
10. Get landlord insurance
One of the most common misconceptions among new landlords is that building insurance covers tenant default, theft and/or malicious damage.
Budget Direct Home and Contents Insurance does cover loss of net rental income for the period your investment property is uninhabitable due to an insured event (e.g. storm, fire, theft or vandalism by a non-household member or someone who entered your property without your consent).
However, if you want to be covered for damage or loss due to a tenant defaulting on their rent payments, leaving unexpectedly, or stealing from or maliciously damaging your property, you’ll need to take out additional cover.