Are you searching for the perfect tenants for your investment property? Renting your property to a family member or close friend who you know and trust can seem like a much easier option than advertising and screening tenants.
However, according to Terri Scheer Insurance, it's important to ensure your investment property remains a profitable asset and provides you with a steady flow of rental income.
Terri Scheer Insurance Manager, Ms Carolyn Majda, warns Australian property investors of five common traps they can fall into when keeping rental properties in the family.
1. Not having a property manager
Ms Majda said if you decided to rent your property to a family member or friend, it was essential to appoint a property manager. "Some of the responsibilities that landlords have, such as chasing up late rental payments, can be awkward when dealing with someone you know well," she said. "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.
2. Being lenient when your tenant falls behind in their rent
Ms Majda said it was important for landlords to not be complacent when it came to protecting theirrental income - regardless of who their tenants were."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," Ms Majda said.
However, if a tenant defaults on their rental payments, certain notices must be issued to the tenant within specified timeframes. 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.
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.
"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.” Ms Majda said.
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
Ms Majda said that without a formal tenancy agreement, landlords could find themselves in hot water if something went 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," she said.
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 a 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.
For further information, visit www.terrischeer.com.au or call 1800 804 016.