Home Info Centre Cheat sheet: The ‘accidental’ landlord
Cheat sheet: The ‘accidental’ landlord
Insurance insights

Cheat sheet: The ‘accidental’ landlord

17 Dec 2020 4 mins read

What you need to know if you find yourself taking on the role of landlord by accident rather than by design.

When you set out to own an investment property, you get to do all your due diligence and research. You can uncover all the market insights, research facts and figures, analyse demographic trends, determine the locations with good rental prospects, ascertain what renters are looking for (types of property and features) and consult with the professionals (real estate agents, property managers and tax accountants).

But what happens when you find yourself with a home that you hadn’t planned to rent? It can and does happen.

Around a quarter of all landlords find themselves in the role by accident. You may inherit a property. You may need to temporarily relocate for work. You might decide to cohabit. You may find you can’t sell your residence for whatever reason, including a relationship break-up or partner death (probate can take longer than many expect). It might be financially advantageous to rent the property. You might have plans to move someone in, but not just yet…

If you weren’t planning on being a landlord, chances are you might not have all the information you need. It would probably be wise to engage a property manager to relieve you of the day-to-day obligations (rent collection, inspections, repairs, etc.), but whether you put the rental in the hands of a professional or decide to self-manage, there are some key things you need to be aware of to ensure you stay on the right side of your tenants and of the law. There’s no shortage of legislation, regulations, rules and requirements surrounding residential rentals and ignorance of the legalities is no excuse for failing to comply.

Tenancy legislation

One of the most important things landlords need to do is understand the local landlord and tenant laws – a necessity brought into focus during the COVID-19 pandemic when wide-ranging changes to legislation came into effect impacting evictions and rent prices. The landlord–tenant relationship is governed by the Residential Tenancy Act that varies in each state/territory and you need to make sure you are familiar with your rights and responsibilities, and those of your tenants. Engaging a property manager is a good way to help you stay legally compliant (they have a duty to keep up-to-date with these matters and advise you accordingly), but it also pays to have some understanding of your obligations so you don’t suffer any nasty surprises.

Tenant selection

Tenant interviews and checks (references, income, employment, etc.) are crucial for ensuring a suitable tenant is chosen. Again, these checks must comply with state/territory laws (including privacy) or you could find yourself in hot water. You also need to know the rules about placing tenants onto tenancy databases (blacklists).

Tenancy agreements/leases

These are legally binding documents that need to set out responsibilities, terms and conditions for the lease and consider legislative requirements. Everything should be in writing. Don’t enter into verbal agreements and don’t agree to anything you can’t legally or contractually (including with your insurer and body corporate) agree to. Check your state/territory rental authority for the right forms to use – and unless you are a lawyer with experience in leasing contracts, don’t try to write your own agreement!

All things rent

Renters pay rent, so you need to understand the ins and outs when it comes to rental appraisal, setting rents, rental yields, collecting rent, increasing rent, dealing with arrears… Get it wrong and instead of the rental being a ‘nice little earner', it could prove a money pit – and could also see you fronting the tribunal or court to answer a “please explain” if you do the wrong thing by your tenant. And speaking of potential appearances before the authorities – or if you end up having to make an insurance claim – it is imperative that you or your agent keep meticulous records.

Rental bonds

The requirements for calculating, collecting, lodging and reimbursing bonds/deposits vary by state/territory and you can face penalties if you don’t go about this the right way.

Inspections

Several inspections need to be carried out before, during and after a tenancy. And these need to be done within legislated parameters. It may be your property, but it is your tenants’ home and you can’t show up whenever you feel like it.

Repairs and maintenance

It is important to understand tenant rights in respect to repairs and maintenance (urgent repair timeframes are generally legislated), as is ensuring the property is adequately maintained (failure to do so can potentially void insurance cover). One of the key responsibilities of owning a rental property is ensuring that you provide a safe and healthy premises for your tenants. You have a duty to do this and, if you don’t, you could find yourself in a whole world of hurt (financially, reputationally, legally).

Mortgages

The lender must be advised that the property is no longer owner-occupied. Lenders may require the loan be switched to an investment mortgage as rented premises pose more risks for the lender with borrowers frequently relying on rent to cover the mortgage. 

Tax implications

These include rental income and expenses, depreciation, negative gearing, capital gains and stamp duty. You’d be wise to engage a tax agent to understand the financial implications of leasing property.

Carrying costs

These include being able to finance repairs and maintenance, keep up with mortgage repayments during periods of vacancy, and pay property management fees or fees associated with self-managing such as advertising costs. Get advice about what you will be up for financially, as while you may be able to put off some expenses there are others, like paying for urgent repairs, that you can’t avoid.

Insurance

It may be the last item on this list, but it should be one of the first things you investigate before leasing your property.

Many ‘accidental’ landlords are under the false impression that their home and contents insurance covers them for damage or loss of rent during a tenancy. It’s a misconception that could prove costly at claim time. Specialist landlord insurance is generally the only cover that will provide protection for the building structure (if applicable), the contents and for tenant-related issues such as damage or loss of rent. It’s also important to know that your tenants need their own renters’ contents insurance, as your policy will not cover their personal possessions.

While it’s important to secure specific landlord insurance to cover the unique risks posed by renting a property, it’s also important to make sure the right type of policy is selected. Click here to view EBM RentCover’s product range.

*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 there, contact 1800 661 662 if you have any questions. 

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