Buying an investment property is an exciting milestone but there’s a lot to consider as a landlord. From finding a good tenant and understanding your responsibilities to knowing tenant’s rights, there are some tips below to help make the transition easier for you.
Tips for finding good tenants
Getting the right tenant into your investment property is crucial. Ideally you want a long-term arrangement with a good tenant that’s mutually beneficial for all involved and incident free. With the wrong tenant it can be a nightmare of uncertainty, lost income and damage to your property.
As the tenant’s rent provides you with a stream of income you want someone reliable with a steady job and good rental history who can stay long term. There are a few steps you can take to make finding a good tenant easier.
Get your property online
Nowadays, most people hunt for rental properties online instead of going through a real estate agency. You want your property to appear on websites such as Domain, realestate.com.au or even Gumtree, where you can create a listing for free or a small amount.
Photos can make the difference between getting many applications or very few. It’s worth taking the time to photograph the property properly with good light and presenting all the features, plus accurately showing what condition the place is in. At a minimum consider uploading five photos but more photos means more chance for potential tenants seeing something they like and then applying. A detailed description of your property will also make your ad stand out from the pack.
Screen prospective tenants thoroughly
You want occupants who will pay their rent on time, look after your property and stick to their responsibilities as tenants. This is where the screening process comes in, as it examines various aspects of a prospective tenant’s history to give you an idea of their suitability and if they’re the right fit.
The screening process includes:
- A rental application. This must be submitted and is a good way to profile potential tenants and compare them to each other. It includes identification, their employment details and history, rental history, and references. When looking at rental applications, take note of incomplete forms - it may be a sign a tenant might not be responsible or reliable.
- Verifying their income and employment history. First and foremost, you want to make sure your tenants can afford the rent. Ask for copies of their pay slips to confirm their income, and contact their employer to check their employment status. It’s also worth reviewing their employment history for the past decade to see if there have been any long absences from the workforce, or they've changed jobs every few months.
- Looking at their rental history. You can request to see a copy of the applicant’s previous rental ledger, which lists their rent payments and corresponding dates. This gives you an idea of their capacity to regularly pay rent on time. A tenant background check can also be done using the National Tenancy Database to ensure they haven’t been blacklisted.
- Checking references. Rental applications should come with both professional and personal references. It’s important to contact these referees as it helps you understand the type of person the applicant is outside of financial details and rental history.
Top tips for landlords
There’s more to being a landlord than just collecting rent. Being a landlord means you have a set of responsibilities you need to meet. Some are to protect you from unexpected financial costs or damage, and others are to protect tenants while renting from you.
Keep your property in good shape
Maintaining and investing in your property will help attract new tenants and keep your current tenants satisfied. Quality extras and finishes can be smart investments as you can charge more rent and attract tenants who may not have previously been interested. Good heating and cooling systems, a fresh lick of paint, new window furnishings such as curtains or blinds, re-polished floors or new carpets can make a big difference to the appearance and functionality of your property.
Once tenants are living in your property, it’s up to you to stay on top of ongoing maintenance. This means responding to repairs as quickly as possible and ensuring they’re carried out professionally. Keeping your tenants happy will incentivise them to extend their occupancy and ensure your property stays in decent shape.
Stay on top of your finances
Having a financial safety net will ensure you can cover unexpected costs when they arise such as urgent repairs to the hot water system. If you’re paying off a mortgage, a financial buffer will also reduce the chance of defaulting on your repayments.
Another way to protect yourself from unexpected financial issues is to take out landlord insurance. This type of insurance is aimed at protecting a landlord’s investment property and the level of protection may be tailored to cover buildings only, contents only or combined buildings and contents. Depending on the insurer’s offering, this type of insurance may also cover loss of rent, associated legal costs incurred and the cost of fixing malicious damage caused by tenants or their guests.
Staying up-to-date with the relevant tax rules will also make managing your property much easier. Keep good records of your rental income as well as any property-related expenses you can claim such as insurance, advertising for tenants and body corporate fees. If you decide to sell your property get familiar with Capital Gains Tax (CGT). You’ll be subject to CGT if you make a profit (capital gain) on your property when you sell it if you purchased it on or after 20 September 1985.
The Australian Taxation Office (ATO) website has several useful resources for understanding property and tax.
Understand your rights as a landlord
As a landlord you’re entitled to certain rights. You also have a set of responsibilities to meet which are designed to protect your tenants. It’s worth understanding these to keep both you and your tenants happy and to resolve disputes as quickly as possible.
Each state has its own set of laws so familiarise yourself with the legislation relevant to you. Generally speaking the most important points to be aware of are your landlord rights and responsibilities around:
- repairs and maintenance - you generally have to respond to urgent repairs within 24 - 48 hours
- bond payment including what happens if your property is damaged
- rental concerns such as increases and arrears
- lease agreements including amending or breaking a lease
- evicting tenants
- your tenants’ right to privacy
- security and safety at your property, including working smoke alarms.
Maintain a good relationship
Once you’ve found good tenants, try and retain them for as long as possible. Quality tenants will respect your property and may rent it for years from you, plus there will be less chance of having your property unoccupied for lengthy periods.
Aside from efficiently responding to repair requests stick to your responsibilities as a landlord, listen to their needs, communicate with them in a professional and courteous manner and think about them as long-term prospects. If your tenants have proven to be good renters and you want to keep them for years to come, you could consider keeping the rent unchanged for a time, and be flexible on pets or minor amendments they want to make to the property.
Prepare for the unexpected
Even with the very best tenants, issues and mishaps can occur. This is where landlord insurance comes in handy; it offers financial protection when you’re renting out your property. Depending on the landlord insurance you take out you may be financially safeguarded in the event damage is inflicted by your tenants or from the loss of rental income if your tenant suddenly leaves the property.
Landlord insurance often covers:
- loss of rental income while the property is being repaired due to damage by an insured event, and is unliveable
- intentional damage to the property or theft caused by tenants or their guests
- cover for natural disasters, such as storms, bushfires and floods
If you have a mortgage on your property, most banks require your home to be protected and provide confirmation that building insurance is in place, regardless of whether it is an owner occupied or an investment property. This helps protect you, as well as the financial institution, against the financial risks associated with building damage caused by insurable events.
Check with your mortgage provider to see if they need your property to be protected by building insurance for the purpose of obtaining a home loan.