"Property is a powerful investment, so it's important that you get it right the first time round to maximise your ROI."- Jake Haupt, Senior Financial Consultant.
Are you the brand-new owner of a rental property? Here are our top tips for first-time landlords.
After going through the painstaking process of buying real estate (including finding the right investment property, saving for a down payment, and choosing the best mortgage, among others), you have reached the end of the journey – you are now officially a landlord.
While it feels good knowing you have overcome the first few hurdles of real estate investing, being a successful landlord is a whole different ballgame.
Contrary to popular belief, being a landlord is not as simple as collecting rent and going on your merry way till it’s time to do it all over again. Any seasoned investor will tell you that managing a rental (as well as tenants) isn’t always easy, especially if you’ve never owned an investment property before.
With this, it’s important to do your homework and seek out advice and information that will set you up for great rental returns and stress-free tenancies in the long term.
One way to achieve this is by starting on the right foot and establishing good property management habits from the beginning.
Remember, the habits you form at the start of any new venture can determine how much time, money, and frustration you’re spared throughout your stint as a landlord.
It’s recommended to invest early in building a tried-and-true system for managing your rental property so you can achieve your financial goals faster and be a great landlord.
Here are some of our top tips for first-time landlords.
1. Understand the tenancy laws in your state
A good place to start your due diligence is to learn about your rights and responsibilities as a landlord.
For starters, it’s a good idea to read and understand the Residential Tenancy Act in the state and territory where your property is based. Australia’s state-specific residential tenancy acts are designed to protect both the landlord and tenant under residential tenancy agreements. This is essential to ensure that you don’t get into any serious trouble by breaking any housing rules.
Each state and territory holds a different government body responsible for the administration of its Residential Tenancy Act, which includes:
Some of Australia’s acts stipulate a standard form of the rental agreement. These include minimum rights and responsibilities of both landlords and tenants in relation to rent payment, rent arrears, and rent increases. It also covers rental agreement terms and the correct procedures, landlords’ access to premises, administration of a security bond, additions to the premises and guidelines of privacy and security.
Having a good understanding of your rights and responsibilities in your role is needed to prevent getting into hot water – either with regulators and authorities or your tenants. If you are working with a property manager, they should have a full understanding of the relevant tenancy laws and provide you with advice on how you can keep in line with regulations.
2. Get landlord insurance
Protecting your rental property should not be an afterthought but a priority. With that said, don’t be complacent thinking that your building insurance will cover the damage or loss of rent during a tenancy.
It’s generally advised to take out a landlord insurance policy to cover for different events, including malicious and accidental damage, rent default, loss of rental income or the property being uninhabitable due to natural events, such as floods, bushfires or storm damage.
Remember that policies and coverage terms differ between providers, so make sure to check the product disclosure statement as well as the terms and conditions to find out exactly what is covered in each policy – and also to identify what risks you may face as a landlord that won’t be covered.
3. Regular inspections are a must
Most landlords who oversee their own properties are wary of conducting a routine inspection of their property. For some, the discomfort comes from the feeling that you are entering someone’s private place and you are intruding on their personal space.
But the most important thing to remember is that it is still your property and it’s your money on the line. So while it can be uncomfortable, it’s essential to ensure that your investment property is being looked after and no maintenance issue is being overlooked.
It’s advised to inspect your property every six months. While doing the routine check, keep an eye out for building damage, including cracks in walls, squeaky floorboards, chipped paint, etc. You should also inspect if there is excessive wear and tear on the property caused by irresponsible tenants.
Note your observations and keep the condition of the property in mind when considering extending the tenants’ lease or increasing their rent in the future.
4. Market your property effectively
Your property should not be a best-kept secret. After all, you can’t lease your property if nobody knows about it. This means that your property should always be highly visible to potential tenants. By having a good marketing plan in place, you can reduce long (and not to mention costly) vacancy periods.
One way to attract good tenants is to invest in professional and high-resolution photos. Landlords can also consider availing good advertising packages on real estate portals to give themselves the best chance of renting out their property quickly in case a vacancy arises.
You should also consider other advertising channels, such as social media platforms, local publications and newsletters.
Remember, the cost of marketing your rental property is also a tax deduction, so don’t miss out on this tax break.
5. Consider allowing a pet at the property.
With more than 60 per cent of Australian households reportedly having a pet dog or cat, chances are you will encounter a prospective tenant looking for a pet-friendly rental property.
Before you open your doors to any four-legged, winged or scaly tenants, make sure to weigh out the pros and cons of renting to “fur parents”.
By allowing pets, landlords can significantly increase their pool of prospective tenants. The high demand for furry-friendly properties can also guarantee that your property will have fewer vacancy periods.
Additionally, while concerns for damage potentially caused by pets are sensible, most leases will include specific clauses to cover costs for these damages (e.g. adding a pet security deposit).
Of course, there are downsides to renting to tenants that come as a set package with their pets. As mentioned, pets can cause significant damage to properties, particularly to flooring and gardens. The prospect of living in an apartment complex with pets can also turn off applicants that have pet allergies. It can also be difficult to remove pet odours, and if the owner turns out to be irresponsible about picking up after their pets, it can be a mess to handle (both literally and figuratively).
With all these said, there is no right or wrong answer on whether or not you should allow pets into your property. As with any business decision, doing your research can significantly help you decide which is best for your investment.
6. Create and follow a tenant screening process
Your tenant can either make or break your investment. Any experienced landlord knows that a good tenant is worth their weight in gold. On the one hand, a problematic tenant will cost you your peace of mind and money.
To avoid being tied down in a distressing rental agreement with a problematic tenant, it pays to conduct a good and thorough screening process. This will save you from the stress, headache, and not to mention expenses that a bad tenant can cause.
It’s important to screen potential tenants to find good renters who will pay rent on time and take good care of your property.
When checking a rental application, take the time to check each applicant’s rental history and employment history. It’s also recommended to do a thorough background check, as well as a credit check.
Also, don’t be afraid to get online and check social media for any additional clues into who you’re about to rent your property to.
7. Organise your records
Good record keeping is a valuable habit to have if you want to succeed as a landlord. Holding onto receipts and communication records will be useful when legal issues emerge.
If you have records of transactions and communications, then you are more likely to prove you have a leg to stand on in court, as you have evidence to support your claims or debunk frivolous or damaging claims.
Another upside is that you won’t be scrambling to find all the necessary documents when tax season comes.
With that said, professionally manage your business by keeping good records. Make sure to keep records of everything related to your property, including deposit receipts, rent receipts, maintenance receipts, and a record of all landlord-tenant communication.
If you have any handwritten paperwork, digitise it so you can search for it easily later on. Storing records digitally is the most organised and up-to-date way to do it, as it allows you to secure your records without creating paper clutter.
8. Don’t overcapitalise
One common mistake new landlords make is overspending when renovating their rental property. Many landlords fall into the financial trap of undertaking renovations that don’t necessarily translate into a rental rate that justifies the expense.
It’s important to make sure that you renovate while keeping your return in mind. While it can be difficult to find the line between skimping and overspending, investors should remember that the main objective is to spend money where they will get the biggest return.
A recommended strategy from experts is to research similar rental properties in the area and the achievable rental yield or rate post-renovation. This will help in identifying how much is the maximum spending you can do and which part of the property needs updating to get the returns they are aiming for.
Weigh up the cost against the return and make choices based on the information you have gathered.
9. Have a great team in your corner
There’s a saying that goes: “If you think it’s expensive to hire a professional to do the job, wait until you hire an amateur.” This rings especially true when you are a landlord looking for professional help in managing your property.
If you have the financial capacity and you think it will be worthwhile in the long run, spend time on finding good people to help you manage your rental property. Find a good mortgage broker, a reliable accountant, as well as a good property manager. Having a good business relationship with trustworthy tradespeople and contractors will also make your work as a landlord easier.
10. Have a business mindset
Being a landlord is equivalent to owning your own business, even if you own just one rental unit. If you treat it as a business, you need to have the right mindset when making decisions.
With this said, make sure that your actions as a landlord exude professionalism. Separate business from emotion. For example, if you have a financially struggling tenant, it may be okay to give them leeway, but make sure to set boundaries such as late fees so that tenants paying rent past the due date will not become a habit.
As a business owner, you should work towards creating and maintaining a great reputation. Don’t be that stereotypical greedy landlord who does not care about their tenants.
Similar to any other business, word will get around if you aren’t trustworthy or professional, which will only hurt you and your business in the long run.
Make sure that you maintain a business relationship that will see both parties comfortable and happy. This means setting up mechanisms and protocols that will keep your tenants satisfied with their living arrangements.
For example, have an organised system for handling maintenance requests and hire a reliable handyman, plumber, and locksmith who are available on call.
Lastly, to help maintain professionalism (as well as your peace of mind), let your tenants know what days and times you are available. Even if you are just living next door, setting this boundary will avoid any unwanted communication at inappropriate hours. Of course, if there is an emergency, it’s advised to respond as soon as possible.
Source: Smart Property Investment
Torrazo, Z. M. (2022, March 25). 10 top tips for first-time landlords. Smart Property Investment - By investors for investors. https://www.smartpropertyinvestment.com.au/property-management/23650-10-top-tips-for-the-first-time-landlords
