Investor’s handbook: 8 things to know before becoming a landlord

Becoming a landlord is often a much more involved experience than you would anticipate. You have a lot of responsibilities, so it’s not just about sitting back and pocketing your rental income. Here are some tips and things to be aware of to help you be successful in your landlord journey.

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1. Should I get a property manager to look after my rental investment property?

When you purchase an investment property that you intend to rent out, you’ll have to consider whether you want to manage the property yourself or hire a property manager. Being a landlord can be more time consuming than you would expect. You’ll be required to deal with problems when they arise, and not when you are available. This can mean middle of the night phone calls and much, much more.

If you’d like to avoid this, it’s smart to hire a property manager. Their responsibilities will differ depending on your needs, but their main duties include:

• Collecting and negotiating rent
• Selecting tenants
• Carrying out routine inspections
• Making arrangements for repairs and maintenance
• Sharing notices and financial statements with the landlord
• Paying council taxes/rates from the rent
• Collecting bond payments
• Terminating difficult tenants if necessary

Make sure that you do your research to find a suitable property manager. Costs vary, but you can usually expect a property manager to charge a small percentage of the monthly rent for the investment property.

Another benefit of property management services is that you can purchase an investment property on the other side of the country and not have to manage it yourself. This is a great option for aspiring property investors in expensive cities like Sydney as it allows them to get on the property ladder in a more affordable city or town.

• Related: guide to Rentvesting: renting while investing

2. Understand strata

If applicable to the kind of rental property you purchase, it’s important to understand strata. Too many people jump in and buy an investment without knowing if they have to pay strata and how much it is. Buyers should investigate it first and raise questions if the strata rates seem unusually high.

When strata fees are higher than expected, this might mean that there are underlying issues with the building or complex (e.g. damp, leaks) and the strata committee are building up funds for a big repair job.

Read our article on strata fees to learn more.

3. Find a good handyman

Repairs will come up and you won’t be able to fix all of them on your own. Try to build a good relationship with the tradespeople you hire. Ideally, you want to find someone reputable, who is fast at responding and completes work priced within your budget.

4. Make sure you are well-insured

Some tenants will unfortunately not show respect to your property. Alternatively, things can just go wrong that are beyond you or your tenants’ control. Take out a good landlord insurance policy that protects your property and its contents.

If you rely on rental income to build or supplement your personal income, it’s smart to also consider income protection insurance.

5. How to find good tenants

It’s best that you - or your property manager - meet tenants face to face. People can be very different on paper and meeting face to face is a good way to build rapport. Always vet references over the phone to increase your chances of landing a great tenant.

However, sometimes a good tenant can turn sour. To prevent this, it’s best to adhere to your responsibilities and show mutual respect.

6. What responsibilities and legal obligations do landlords have?

The primary responsibility that a landlord has to their tenants is to provide a safe, secure and inhabitable property that complies with building, health and safety laws. This will require you to perform routine maintenance and make repairs when needed to prevent injury to your tenants.

Landlord responsibilities differ slightly between states and territories, but you will generally be required to:

• Respond to requests for repairs and maintenance in a timely manner
• Treat potential health issues, such as mould or damp
• Provide tenants with a copy of the relevant state/territory booklet outlining their rights
• Pay all charges and bills you are responsible for, in accordance with the tenancy contract
• Check what the guidelines are for inspections, including frequency and notice

If you don’t respond to urgent repairs (e.g. broken toilet or gas leak) ASAP, your tenant has the right to arrange for repairs to be carried out, usually up to the value of $1000. You are legally required to reimburse the tenant for this cost. Read our article on rental property repairs for further information on what is considered an urgent repair.

Depending on the nature of the damage, urgent repairs need urgent attention and landlords must act within 3-7 days. Obviously, issues like a gas leak that are potentially urgently life-threatening to tenants and the general public should be dealt with immediately.

Routine repairs (e.g. routine plumbing work, minor roof leaks) should be carried out within about a month. Ideally, you should try to arrange for these repairs and maintenance sooner to prevent the damage worsening and your bill skyrocketing.

Of course, you will not be required to pay for all repairs. If the damage is caused by tenants (excluding reasonable wear and tear), they will be required to pay. This means that if a tenant or their guest engages in negligent behaviour that results in damage, they will be responsible for paying for repairs.

• Related: Are repairs to investment properties tax deductible?

In accordance with anti-discrimination legislation in Australia, landlords must not discriminate against tenant candidates during the application process. This means that you can’t discriminate based on characteristics such as:

• Gender
• Age
• Religion
• Sexual orientation
• Marital status
• Pregnancy or children
• Disabilities and mental illness

7. What are your rights as a landlord?

You certainly have a number of legal obligations and responsibilities as a landlord, but you also have rights. If a tenant causes damage to your property, such as by punching a hole in the wall, you are within your rights to make them cover the cost of repairs.

You also have the right to increase rent at the end of a fixed-term tenancy (e.g. a 12 month lease). However, tenants also have the right to challenge this increase if they believe it is unreasonable. If you have great tenants, it may make more sense to maintain their current rent, instead of risking them leaving if you increase it.

In most states, landlords can sell their property during a tenancy. However, the tenant won’t necessarily be required to vacate the property before the end of their fixed term tenancy agreement. Check your relevant state’s legislation to find out what you need to know about providing notice, frequency of inspections with prospective buyers, terminating tenancy early and more.

What happens when a tenant stops paying rent?

When a tenant stops paying their rent, you have rights here. Reasons for a tenant not paying rent can be varied. For example, it could be the result of forgetfulness or short term cash flow issues. Or, it could be a long term complex issue such as recent unemployment, personal issues such as bereavement or relationship breakdown.

If your tenant doesn’t pay rent by the agreed upon due date, they can be considered to be in arrears. In some states, tenants can be issued with a notice to vacate if they are more than 14 days in arrears.

This notice has to be carefully worded and sent via post. In most states, the matter has to be presented to the tenancy authority (e.g. VCAT) where the tribunal will decide whether the tenant should be evicted.

Legislation is different state to state, so it’s smart to check your state-specific requirements.

8. What rights and responsibilities do tenants have?

As a landlord, you should familiarise yourself with some of the rights and responsibilities that tenants have. Most tenant rights are to do with having a safe, secure and quiet place to live, but check out our table for more:

While landlords must undertake repairs and maintenance, they are not obligated to provide home improvements or updates (e.g. installing new carpet), unless an update was negotiated prior to the tenant moving in.

• Related: How do taxes work on a rental investment property?

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.