Becoming a landlord for the first time can be a daunting experience – whether you are moving out of the family home and renting it, or purchasing a property as an investment. Here are some tips to help get you through the process and maximise your returns.
If you are moving overseas, renting out your home not only guarantees additional income whilst living abroad, but can provide many tax benefits as well. However, when you plan to rent out your home, you have to ensure that the whole process is managed appropriately otherwise it could cost you dearly – starting from finding a tenant to signing a lease, managing the house during a tenancy and the tenant moving out of the home.
The easiest way to manage all these issues is to appoint a good property manager, but if you don’t these are some things first time landlords should consider.
1. Understand the tenancy laws in your State
All landlords should ensure that they are familiar with their rights and responsibilities under the law on leasing of a property. These laws differ depending on which state your property is located. The Residential Tenancy Act of each state and territory governs the landlord-tenant relationship. A landlord has a number of responsibilities before, during, and even after the tenancy ends and there could be serious implications if you violate any of these tenancy laws. Therefore, it is important to educate yourself by checking out the details on the appropriate state government or real estate institute website where your property is based.
2. Focus on the rental income
The main purpose of renting out your property while you are moving abroad is to get a return on your investment. It is important to set the rent at a level where you will be able to attract and retain the tenant, but also maximise your rental return. You can decide on the rental amount by taking into consideration the size, location, amenities and competitive rental rates in your locality, as well as whether the property is furnished, whether garden or pool maintenance is included, and who will pay for things like water consumption.
3. Market your property effectively
Having a good marketing plan is the best way to reduce long vacancy periods. There are various ways to market your property including through newspapers and street signs, but the most common medium for promoting rental properties now is via real estate websites. The most popular ones in Australia are www.realestate.com.au and www.domain.com.au. At present, these websites are only accessible to registered real estate agents / property managers, and so if you are managing the property yourself you will need to use other websites. Be aware however, many tenants with poor rental histories will target properties advertised on secondary websites such as gumtree.com.au where private landlords focus their marketing.
4. Thorough screening of prospective tenants
An important point to keep in mind for first time landlords is to not rush and accept the first potential tenant you meet. Ensure you undertake background and credit checks so as to ensure that your property will be properly cared for and your rent will be paid on time. This is all the more necessary since you will be settling abroad and will not be able to manage or follow up each and every issue related to your property. If you are using a property management company, then they will have access to a bad tenants database to check whether your prospective tenant has any issues with past tenancies.
5. Make sure everything is documented
A lease agreement is a vital evidence for both the landlord and the tenant. The agreement ensures that all parties are on the same page. It typically specifies all mutually agreed points between the tenant and the landlord such as; the monthly or weekly rent, security deposit or bond, rent increase dates, date of occupancy, what type of alteration a tenant can make to the property, and whether pets are allowed etc. The contract should also lay out the consequences in case the tenant breaks any of the above. A standard residential lease agreement can usuallly be accessed for free from the relevant State real estate institute or government agecy. Professional property managers will also have additional standard clauses that they include in a lease agreement to fully protect the landlord’s interests.
6. Collect a Bond
Before you hand over the keys to your property be sure to collect a bond for the property and the first rental payment. The maximum bond amount is dictated by the relevant State government legislation but is usually equal to 4 weeks rent. Properties at the upper end of the market may be able to collect a higher bond amount.
The state government legislation will also dictate where the bond should be held – usually with a state government authority.
7. Whether to allow pets or not
Like everything else you need to consider the pros and cons of allowing pets inside your property. Pet-friendly properties are always in demand and tenants who have pets tend to stay a bit longer than others. However, the downside is that pets can cause damage typically to the flooring, carpets, and gardens, as well as leaving a difficult to remove odour.
If you decide to accept a tenant with pets, you may want to include additional special clauses in your rental agreement (eg. dog is to remain outside), or you can ask for an additional “pet bond”. The pet bond is usually limited by government legislation.
8. Collect your rent electronically
With advances in technology, tenants should no longer need to pay you in cash or cheque. Request your tenant to pay you via online banking or for them to setup a regular electronic transfer.
9. Stay organized
Apart from the lease agreement, landlords should keep a proper record of all revenue and expenses for taxation purposes. Whether you are an Australian resident for tax purposes or not, you will be required to declare your rental income from Australian property to the Australian tax office via an Australian tax return. You will also be entitled to deduct your expenses associated with that income such property management fees, maintenance costs, council rates etc. Maintaining good records will help you at tax time.
Also check whether you need to declare your Australian rental income or property value in the country you are living. Every country taxes property in a different way and you may also need to consult the double taxation agreement with Australia (if one exists) to understand how the property will be taxed.
10. Get landlord insurance
Many first time landlords are under the impression that their building insurance covers them in the case of damage or loss of rent during a tenancy. However, normal building and contents insurance covers you for specific events which will generally not include damage caused by a tenant or failure of a tenant to pay rent! So, in addition to your building insurance you can take out an additional landlords insurance policy to cover you for such events as malicious damage caused by a tenant, loss of rent due to tenant default or the house becoming “un-tenantable” due to damage to the house such as flood or storm damage.
Your existing insurer may be able to convert your existing insurance policy, or you can usually purchase landlords insurance through your property manager.
11. Do not hesitate to increase rent
Its a fine balance when deciding whether to increase your rent. Increasing rent obviously improves your returns but can be a trigger for your tenant to vacate the property. At the end of the day you need to find the right balance to maximise your overall returns – weighing up the costs of finding a new tenant and vacancy periods versus the increased revenue from the higher rent.
In a hot rental market, it is best to atleast make small incremental rent increases at every lease renewal to keep your property as closely aligned with the current market as possible.
12. Find a good property manager
Unless you have lots of free time to understand your obligations as a landlord, finding a good property manager should be a priority. Particularly if you are not living close to your rental property.
A good property manager will
- understand the relevant tenancy laws,
- be able to market the property most effectively to maximise your rent and minimise vacancies,
- respond in a timely manner to any maintenance issues
- conduct thorough checks on prospective tenants
- follow up tenants for late payment of rent
A property manager also provides a buffer between you and the tenant should any difficult situations arise during the tenancy agreement (eg. the need to evict the tenant).
If your house is in Victoria, NSW, or Queensland, you may be able to benefit from our special offer with Little Real Estate and obtain 6 months of property management fees free. Click here to find out more.
Disclaimer : This information is for educational purposes only and does not constitute financial or taxation advice. As this information is not advice and has been prepared without taking into account your objectives, financial situation or needs you should, before acting on this information, consider its appropriateness for your circumstances. Independent advice should be obtained from an Australian financial services licensee before making investment decisions, and a registered (tax) financial advisor/accountant in relation to taxation decisions. To the extent permitted by law, we exclude all liability for any loss or damage arising in any way.