The ‘accidental’ landlord
Almost one-quarter of all landlords fall into the role by accident, not by design. With so many ‘accidental’ landlords, there’s a good chance they are putting their financial security at risk by not being prepared.
For many Australians, property is a considered investment. But others find themselves in the role of landlord by accident. There are numerous circumstances that can lead to an owner finding themselves renting out a property – including inheriting all or part of a property, having to let their home due to divorce or separation, relocating for a new job, moving in with a partner, or having to rent their home if they weren’t able to sell it.
Research by MCG Quantity Surveyors found 23 per cent of those with an investment property lived in it initially as owner-occupiers. Through circumstance, they then find themselves with an investment property.
Unlike those who have made a conscious decision to invest in property to rent from the outset, ‘accidental’ landlords are less likely to have considered all the aspects of leasing property and less likely to understand the risks, their rights and obligations. EBM RentCover recommends all landlords engage the services of an agent (PM) to manage the investment property.
Some considerations that need to be explored when it comes to being a landlord include:
- Tenancy legislation – the landlord/tenant relationship is governed by the Residential Tenancy Act of each state/territory and landlords need to make sure they are familiar with their rights and responsibilities under law.
- Mortgages – the lender must be advised that the property is no longer owner-occupied. Lenders may require the loan to switch to an investment mortgage as rented premises pose more risks for the lender with borrowers frequently relying on rental payments to cover the mortgage.
- Tax implications – including rental income and expenses, depreciation, negative gearing, capital gains and stamp duty. Landlords would be wise to engage a tax agent to understand the financial implications of leasing property.
- Tenant selection – tenant interviews and checks (references, income and employment) are crucial for ensuring a suitable tenant is chosen. Such checks must comply with state/territory laws, including privacy.
- Tenancy agreements/leases – need to document responsibilities, terms and conditions for the lease and take into account legislative requirements.
- Rental bonds – requirements for calculating, collecting, lodging and reimbursing bonds/deposits vary by state/territory.
- Carrying costs – these include being able to finance repairs and maintenance, keep up mortgage repayments during periods of vacancy, and pay PM fees or fees associated with self-managing such as advertising costs.
- All things rent – rental appraisal, setting rents, rental yields, collecting rent, increasing rent, dealing with arrears…
- Inspections – need to be carried out within legislated parameters.
- 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).
Last, but by no means least, is the matter of insurance. Protecting an investment property is a financial imperative, which is why it’s important to choose the right insurance.
Many ‘accidental’ landlords are under the false impression their building insurance covers them in the case of damage or loss of rent during a tenancy. Comprehensive 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. And 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. There are different policies for different types of property (e.g. house, apartment/unit/townhouse, furnished or unfurnished) and also for how it is rented (on a fixed-term/periodic lease or on a short-term basis such as a holiday let, serviced apartment or through a platform like Airbnb).
EBM RentCover is one of few specialist landlord insurers which offer a full suite of comprehensive landlord covers to meet the different lease arrangements and protection against a range of risks. We offer more than landlord insurance – we offer certainty by providing reliable insurance solutions to help landlords and their property managers feel confident their investment is well protected.