Property investment can be an attractive wealth creation strategy for many Australians, however being a landlord is not without its risks.
Carolyn Parrella, executive manager of Terri Scheer Insurance, reveals five of the biggest concerns facing many new, prospective and experienced landlords and shares her tips for investors looking to safeguard themselves in the face of rental disruption.
1. Rental arrears
“Unpaid rent when a tenant falls into arrears can be a major contributor to stress for landlords,” Ms Parrella said, adding, “Even the best tenant can fall ill and be unable to work or be made redundant and lose their job.”
The executive noted that prior to purchasing a property, investors should first consider how they would meet mortgage repayments should their tenants fall into arrears, as many owners rely on this rental income to meet mortgage repayments.
“Landlords should thoroughly check tenants’ rental history during the screening process, looking for issues with missed or late payments,” she advised.
“If a tenant falls into arrears, it’s important to follow the correct procedures and issue the right notices within the specific timeframes to help ensure the debt can be recovered.”
2. Maintenance issues
Ms Parrella also warned against landlords who tried to fix maintenance issues in their properties themselves, noting that in many cases, cost-cutting and substandard workmanship could cost a landlord more in the long run.
“Faulty electrics, broken hot water services, cracked tiles and windows – maintenance is an inevitable cost for landlords,” she said.
“Landlords should consider having a trusted home handyman on standby should maintenance issues arise at their investment property [as] tending to issues quickly stops small, cheap repairs becoming major, costly fixes [and] also helps avoid potential legal liability if the issue causes injury to a tenant or their guest.”
3. Unruly tenants
“While the vast majority of tenants do the right thing, there is a small minority that can be unruly and cause headaches for landlords,” the executive said, noting that many such tenants often violated their lease agreements by behaving poorly or undertaking illegal activity at the property.
“Cleaning up after breaches of a no pet or no smoking policy can also be costly for landlords, [however] routine property inspections can help mitigate these risks by identifying problems before they escalate,” she suggested.
4. Unoccupied property
An unoccupied property is yet another worrying prospect for many landlords, as just like rental arrears from occupied dwellings, the lack of rental income can place strain on a landlord’s cash flow and make it difficult for them to meet their mortgage repayments.
“Landlords can miss out on thousands of dollars of income when a property is unoccupied for just a few weeks,” Ms Parrella explained.
“Real estate can be a competitive environment, so it’s important for landlords to offer a rental property that best appeals to prospective tenants [and] presenting a well-managed property can broaden the pool of tenants and reduce the time and money spent on advertising for re-let.”
5. Time commitment
Ms Parrella concluded by saying that financial gain from rental property wasn’t often possible without also investing one’s time and resources, but that time-poor landlords could find help to manage their property.
“There is a sizable amount of potential paperwork to complete that if left unchecked can become a burden,” she said.
“Likewise, if a landlord chooses to self-manage their investment property, they will need to devote time to completing property inspections, enter and exit reports, tending to maintenance and building relationships with their tenants.
“For time-poor landlords, a property manager can complete all of these tasks,” she concluded.