Home Info Centre Eight must-know tips for new landlords
Eight must-know tips for new landlords
Insurance insights

Eight must-know tips for new landlords

02 Oct 2019 7 mins read

So, you have just bought your first investment property. CONGRATULATIONS! To ensure you are on your way to owning a ‘good earner’ opposed to a financial nightmare, here are eight things you need to know when renting out a property.

But first – why is a landlord insurance provider offering up advice on becoming a landlord? Because the choices you make and the actions you take (or don’t take) can have insurance implications. This is what you need to know…

Tip #1 – get the right landlord insurance

When you’ve poured hundreds of thousands of dollars into buying an investment property, it makes sense to protect it with insurance. While many first-time landlords think about building and contents cover, often the reason landlords need to claim on their insurance actually stems from tenant-related issues (loss of rent and tenant damage) – and these aren’t typically covered by standard building insurance. That’s why it’s important to have specialist landlord insurance to cover tenant-related claims but it’s just as important to choose the right policy. There are different policies for the different types of property (houses or apartments, unfurnished or fully-furnished) and the way they are leased (fixed-term or short-term). 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.    

Tip #2 – engage a property manager

While some landlords choose to self-manage their investment property, putting the rental in the hands of a professional makes sense. Not only will using an agent free up your time in handling the day-to-day concerns of managing your rental (lease agreements, entry and exit reports, routine inspections, bond matters, rent collection, vetting tenants, organising repairs and maintenance, submitting insurance claims), they’ll also ensure you comply with all the relevant legislation. No-one wants to run foul of the law but it can be surprisingly easy to do. Keeping up with the myriad of legislation, regulations, requirements, protocols and procedures can be onerous for a landlord, but it’s part of an agent’s job – and crucial for them to retain their licensing. If you legally slip up, for example fail to install smoke detectors or unlawfully evict a tenant, it can have serious ramifications, from fines and bans to public shaming and even prison time. You could also jeopardise your insurance cover if you don’t meet your legal obligations.

Tip #3 – understand your duty of care

As a landlord, you have a duty of care to your tenants (and anyone else who is legally on the premises). This duty means you have an obligation to take reasonable care to avoid foreseeable harm to another person on your property. At a practical level, it is your responsibility to guarantee the safety of your rental property, including: 

•    ensuring installations such as gas, electricity and heating are working,
•    ensuring appliances provided are installed and maintained safely,
•    treating potentially health-threatening issues such as rising damp,
•    maintaining the structure and exterior of the house,
•    any other matter that is detailed in the tenancy agreement. 

If you fail in your duty of care and your tenant’s are injured or their possessions are damaged, you can be sued for compensation. You should also check your landlord insurance policy includes cover for legal liability and make sure you are aware of any exclusions.

Tip #4 – properly vet your tenants 

Every landlord wants a tenant who pays their rent and looks after the property as if it were their own. The right tenant can make being a landlord a dream, while the wrong tenant can be a nightmare. With bad tenants comes greater risk of property damage and loss of rent, increasing the likelihood that you will need to claim on your landlord insurance. So you, or your agent, need to properly screen prospective applicants. Don’t scrimp on the income, reference, employment and credit checks, always speak to previous landlords or agents about the tenant, verify their ID and search tenancy databases.

Tip #5 – collect a bond

It is important to collect a bond from your tenants as a form of security in case they breach their rental agreement, and you are left out-of-pocket. If your tenant causes minor damage or doesn’t pay their rent for a week or so, the bond is a way for you to recoup your losses. Of course, if the tenant causes substantial damage or doesn’t pay their rent for more than four weeks, then the bond collected will not cover your losses. This is where having landlord insurance comes in to cover the shortfall. If you have landlord insurance, you still need to collect a bond. In fact, it is usually a requirement in the policy that you collect a bond from tenants before the loss of rent and tenant-damage provisions in the insurance become effective.

Tip #6 – be aware of tax obligations

Your rental is an investment and owning and managing it affects your taxable income. Whether your rental is generating an income or not, you need to be aware of tax implications. You need to know what income to declare to the ATO (including from short-term letting), the expenses you may be able to deduct (including your landlord insurance premium) and the documentation you need to keep and how the tax rules apply (including capital gains). Seek professional advice on tax matters and check if your landlord insurance policy offers cover in the event you are subject to a taxation audit (most EBM RentCover landlord policies provide up to $1,000 to cover the costs of a taxation audit in connection with ownership of the insured property).

Tip #7 – keep up repairs and maintenance

The upkeep of your property is not only directly linked to your tenants’ legal rights for a safe environment, but also important when it comes to your landlord insurance. Urgent and emergency repairs have legislated timeframes for attention, while failing to attend to routine repairs and maintenance could be a breach of the tenancy agreement. There is also a condition in practically all building insurance policies that relate to adequately maintaining the premises. If you fail to keep up with the upkeep (in insurance speak, neglect to protect and maintain the property), you could void your insurance cover.

Tip #8 –know your rights and responsibilities

It may be your property, but when you rent it, you can’t simply do whatever you like. If you use a property manager, they can advise you on your rights and responsibilities on matters like lease agreements, tenant discrimination, accessing the property, rent arrears, inspecting the premises, issuing breach notices, giving notice, collecting/returning a bond, what are ‘urgent’ repairs, maintenance obligations, lawfully evicting tenants, increasing rent, locks and security, privacy, council/strata by-laws, who pays for utilities, court/tribunal appearances… If you are going it alone, you’ll need to make sure you are up to speed with your state/territory legislation and consult Fair Trading/Consumer Affairs or obtain professional advice to ensure any action you take won’t land you in trouble – which has repercussions for your insurance cover too.   

We hope this information has better equipped you with the knowledge needed to manage your first rental property. If you want help regarding insurance, get in touch with the EBM RentCover team – 1800 661 662

 

 

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