Crack open the champers and celebrate owning your first investment property! But before you get too comfortable and think you can just sit back and rake in the rental income, read on…
Aussies have long had a passion for property investment. In fact, the ATO says around 20 per cent of taxpayers (or around 2.25 million people) own at least one investment property. While there are many seasoned landlords out there, if this is your first rodeo, there are a few things you need to know to help ensure your investment turns out to be a ‘nice little earner’ opposed to a ‘living nightmare’.
Now, you may be wondering why a landlord insurance provider is offering up advice on becoming a first-time property investor – aside from the obvious, that we believe landlord insurance is a must (which is why it’s our top tip!). It’s because the choices you make and the actions you take (or don’t take) can have serious insurance implications.
In this two-part series, we’ve pulled together a dozen tips for new landlords. Here are the first six which focus on things to do before you get a tenant into your investment property:
Get specialist insurance
Having invested hundreds of thousands of dollars in buying a rental property, it makes sense to protect it with insurance. Just like your own home, you need to protect the rental from all kinds of perils like fire, storm, flood, theft and even impact from vehicles or falling trees. You may well be thinking that a standard building and contents policy will fit the bill. That can be a trap for first-time investors. You see, more often than not, the reason landlords need to claim on their insurance is because of tenant-related issues – think loss of rent or damage – and these aren’t usually covered by standard building insurance.
So if your tenants, their pets or guests damage the property by accident or on purpose, chances are you won’t be able to recoup the repair/replacement costs from your insurer if you only have a standard building and contents policy. If your tenants fail to pay their rent (rent default), you probably won’t be compensated. It’s only by taking out specialist landlord insurance that you can ensure you are covered for tenant-related claims.
Get the right landlord insurance
Being new to the landlord insurance world, you can be forgiven for thinking that all landlord insurance policies are pretty much the same. They aren’t. And you need to make sure you choose the right policy for your circumstances.
There are different policies for the different types of property (e.g. houses or apartments, unfurnished or fully-furnished) and the way they are leased (fixed-term or short-term including Airbnb). The policies cover different eventualities because the risks in each situation are different, so make sure you take out the right type of policy for your rental situation.
Use a property manager
While some landlords choose to self-manage their investment property, putting the rental in the hands of a professional makes sense. If you’re going to manage the property yourself, it’s important to know what you can and can’t do and, just as importantly, what to do when things don’t go to plan (like if you need to evict your tenants). That can be quite a lot of responsibility to take on if being a landlord isn’t your full-time gig! An agent will take on the day-to-day management of your rental – things like handling lease agreements, entry and exit reports, routine inspections, bond matters, rent collection, vetting tenants, organising repairs and maintenance, and submitting insurance claims.
As a newly minted landlord, you may not realise that there is quite a lot to wrap your head around in terms of legislation, regulations, requirements, protocols and procedures. With all that red tape, it can be easy to run foul of the law – and potentially jeopardise your landlord insurance if you don’t meet your legal obligations. Getting in a professional means they’ll ensure you comply with all the relevant legislation – it’s their job!
Make the property secure
Before you can lease your rental you need to make sure it is safe and secure. Be sure to check the requirements in your state or territory legislation. While the requirements differ, they often relate to smoke alarms, door locks, window locks, gas and electrical installation safety, and cleanliness. Ensuring that the rental is safe and habitable (before and during the tenancy) is not only a legal requirement, it’s a requirement of landlord insurance.
Understand your duty of care
In a similar vein, it’s important to know you have an obligation (duty of care) to take reasonable care to avoid foreseeable harm to another person on your property (tenants, guests and other visitors including tradies, meter readers, delivery people and charity collectors).
If you fail in your duty of care and your tenants (or anyone else legally on the premises) are injured, or their possessions are damaged because of your negligence, you could be sued for compensation. You should check that your landlord insurance policy includes cover for legal liability (all EBM RentCover policies do) and make sure you are aware of any exclusions.
Make sure your paperwork is in order
If you’re using a property manager, they’ll take care of things like ensuring the tenancy agreement is comprehensive and reflects legislative requirements, and completing property condition reports. Depending on the agent, they may also be able to help arrange your landlord insurance. If you decide to self-manage, you’ll need to make sure the lease agreement meets requirements and that you document (and perhaps photograph) the condition of the property before any tenant moves in. And arrange your insurance. Speaking of which, if you need to make a claim, you will need to provide a copy of the lease agreement and, depending on why you’re claiming, copies of the condition report and inspection reports too.
Now that you’ve got some tips about what you need to do to prepare for your first tenants, in part two we look at some of the things to consider once your rental is ready to be occupied and beyond. If you want help with insurance for your investment property, get in touch with our Expert Care team – 1800 661 662.
*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are here, contact 1800 661 662 if you have any questions.