No one likes to spend any more than they have to, but you always get exactly what you pay for. An insurance comparison expert has said that investors looking to cut corners financially could set themselves up for financial ruin in the future.
Abigail Koch, spokesperson at Compare The Market, said that investors need to keep in mind that, while a property is seen as an asset for them, for tenants, it is a home.
“Investors need to provide a rental home that is comfortable, safe and secure — and also complies with state leasing legislation — but at the same time they need to secure a good tenant who pays their rent and looks after the property,” Ms Koch said.
“When property becomes a business, the temptation is to cut corners in order to save on costs, but this could lead to financial losses in years to come.”
Ms Koch outlines her top seven mistakes by landlords that could lead to financial ruin:
1. DIY property management
While agent fees are a cost that needs to be paid, Ms Koch believes that the cost is outweighed by bringing on board the level of expertise.
She suggests landlords can handle advertising, the lodgment of lease agreements and bond forms, the screening of tenants, inspection of the property, follow-ups on unpaid rents and organising of repairs through tradespeople.
“Landlords that manage their own properties without expertise and experience in these areas could risk paying more in the end, if they fail to do their due diligence and don’t comply with legislation,” Ms Koch said.
2. Not screening tenants properly
Agents who do not thoroughly screen tenants could end up with a bad tenant, costing the landlord their time and money.
“Landlords should know if their property managers are checking that applicants can afford the rent, have a good credit record — including a history of on-time rental payments — are making reference checks and vetting applicants through a tenant database,” Ms Koch said.
3. Not responding to tenant repair requests
Good tenants could break out of a lease early if their landlord ignores or refuses requests for urgent repairs, such as burst pipes, gas leak, or electrical faults, which can result in both a now-vacant rental property as well as the landlord being further out of pocket.
Ms Koch warned: “Landlords may also be required to pay compensation for any losses tenants have suffered as a result of the breach, such as a leaking pipe causing water damage to the tenant’s possessions.”
4. Having an unsafe property
Landlords can face fines for failing to comply with state safety requirements, as they are responsible for providing a safe environment for tenants.
“Landlords should seek legal advice to make sure they meet all requirements under the law, including the installation of smoke alarms, having secure fencing around pools and spas, and adequate locks on windows and balconies,” Ms Koch said.
5. Discriminating against potential tenants
Discriminating against someone is never the right thing to do, and landlords are no exemption. Landlords who are found guilty of rejecting potential tenants on the basis of ethnicity or age, while approving of another tenant, could be hit with hefty fines.
Ms Koch recommended assessing applicants based on credit history, how steady their income is, as well as their previous rental history, and warns not to judge an applicant based on criteria not related to the property at hand, such as “their age, gender, race, religion, marital status [or] disability”.
6. Operating without insurance
“For houses, building insurance may cover the cost to repair your property if it is damaged by a storm, but if the damage makes your home uninhabitable, only landlord insurance would cover the loss of rent,” Ms Koch said.
“For apartments, landlords should check what is covered under their building insurance, as this may exclude liability within an apartment.
“Landlord insurance policies also cover additional risks, such as when the bond is inadequate to cover the costs of damage to a property by a tenant.”
Ms Koch recommended comparing insurance policies on insurance comparison websites in order to locate the most appropriate policy for a property.
7. Asking for a comparably high rental rate
Landlords want to make as much money as they can, but Ms Koch warned that pricing rent significantly higher than comparable properties could result in fewer or shorter-term tenants, who may be less likely to take care of the property than long-term tenants, and cause higher repair costs.
This would also mean that landlords would be losing money during the tenant-less periods and paying for more advertising.
“As a rule of thumb, landlords should avoid increasing the rent more than once a year or by more than 5 per cent per annum, or they may risk losing their tenant,” Ms Koch said.
“Landlords should consult agents to determine the right market price based on similar properties in the area and also keep up to date with changes in the property market.”