5 Biggest Mistakes Landlords Make

5 Biggest Mistakes Landlords Make

20 September 2023

When it comes to being a landlord, there’s often much more to it that many investors think when purchasing and owning an investment property. In the complex property landscape of today, there are so many variables to consider and so many potential traps to fall into, understanding the most common pitfalls of being a landlord is the first step in becoming a successful property investor.

Here we will look at the 5 most common mistakes that landlords make.

 

1. Not taking out Landlord Insurance

When owning an investment property, it’s very important to be on top of the recurring costs. But one cost that should be considered non-negotiable for all investors, is landlord insurance.

Many investor owners will take out a building insurance policy on a rental property without realizing that this may not cover them for things such as loss of rent, damage from pets and excessive wear and tear. Whilst having building insurance is certainly important, ensuring that you have an appropriate landlord insurance policy to cover you in the event that a tenancy goes bad is just as crucial.

It’s also important to ensure that your landlord insurance policy offers you the appropriate amount of cover – this is something you need to pay very careful attention to. Recent changes to rental laws have given tenants many more rights that they never previously had, and the potential consequences of having a poor tenant in your property can be disastrous – ensuring you have appropriate cover in the event that something goes wrong is essential.

2. Offering long leases to save on lease renewal and letting fees

Another mistake we commonly see landlords make is attempting to save on lease renewal and re-letting costs by offering longer than average leases. It is normal practice (although not law) in Queensland to offer 6 or 12 month leases, but in some cases, a landlord may offer a tenant a two or three year lease, in order to prevent the property becoming vacant and extra costs being incurred.

The main problem with this approach, particularly in a hot or rising market, is that this negates any potential for a rent review. Rent amounts can only be reviewed and increased at the end of the lease, subject to current legislation, and if you are offering your tenants extended leases, you may find yourself getting well below market rent with no way to revise it.

It also puts you in a position whereby if the tenancy goes bad, and your tenants stop paying rent, you may find yourself without any mechanism to regain possession of your property without a protracted and costly legal dispute. Consider carefully if you wish to offer your tenant a lease longer than 6 to 12 months, as this could potentially have dire consequences. If they are good tenants, then there is always the option to renew at end of lease, and the cost for doing this is usually far less than the potential problems it could cause.

Final note on this – Having an extended lease in place also has ramifications for your ability to sell the property should the need arise. Unless they are able to obtain possession of the property within a reasonably short time frame, many owner occupier purchasers will not be in a position to buy your property with a long lease in place. This could affect your sale price considerably. It is also an inconvenience for the tenants who were in all likelihood assuming they would have unhindered use of the property for the full term of the lease. If you have plans to sell, a long lease is not desirable.

3. Not actioning maintenance requests

With the rising cost of living, and increasing interest rates, it can be tempting to skip out on maintenance requests and important repair works when requested by tenants. But this can cause major problems long term, as unchecked maintenance can often lead to much bigger problems at the property, and the bill to rectify could potentially be huge.

Actioning maintenance requests promptly allows you to keep on top of the overall maintenance of the property, and keeps your tenants happy. The value of having satisfied tenants in your property cannot be understated; if they become dissatisfied with your lack of action, this can lead to break-lease situations and lengthy (and costly) disputes.

Ultimately, if you maintain your property in good order over the years, this will boost its value, and overall rentability. You will get better tenants, better rent, and a better sale price if you ever wish to sell. But the more you ignore maintenance requests, the more the property will fall into disrepair, and that’s when things can really turn bad.

4. Chasing too much rent

Obviously, as an astute investor, you want to make sure you’re getting maximum return on investment from your precious nest egg. In a nutshell, this means achieving the maximum possible rental return. But it’s important to remember also, that when your property is vacant, time is money. Or more specifically, money lost.

What this means is that for every week that the property remains vacant and listed for rent, you have just lost the equivalent value of one weeks rent. If the property remains vacant for several weeks or even months, this can equate to literally thousands of dollars in lost rental income. If you are relying on the cash flow position of the property to maintain a mortgage, this could be disastrous.

What you need to consider here is, is the rent you are chasing preventing you from securing a tenant? In many cases, it makes far more financial sense to adjust the listed rental price in order to get the property rented. Is the extra $20 or $30 per week really worth it? And even if you do eventually get it, how long will it take you to recoup what you’ve already lost in weeks (or months) worth of rental income not received?

Your property is worth more to you with good tenants in place and rent coming in – vacant, with no rental income, it is a major liability. Consider if your expectations are realistic and adjust them accordingly.

5. Choosing a property manager based only on cheap fees

Your property manager is the gatekeeper of your investment. There is an old saying in real estate: “You only find out how good your property manager is when something goes wrong”. Like anything in life, owning an investment property comes with its fair share of hurdles and problems to solve. Even when you have good tenants in your property, things can change in a heartbeat. People’s circumstances are subject to constant change, and even the best of tenants can fall on hard times or succumb to personal issues often without warning.

It is when these sorts of things happen, that you realize how important it is to have a good property manager. Unfortunately, due to the high levels of stress and pressure involved,  property management is a transient profession with a lot of people entering and leaving the industry in a short period of time. Many rookie investors don’t consider this and appoint a property manager simply based on whoever quotes of the lowest fees. This approach is fraught with danger.

What you need to consider is this: Are the relatively minimal savings you are making by appointing someone who charges low fees worth the risk of incurring potentially tens of thousands of dollars in damages and legal costs if a tenancy goes bad? If you appoint someone who is inexperienced, or who does not have the necessary knowledge of current legislation, what could this potentially cost you in the event of a problem?

Like all things in life, you tend to get what you pay for, and the best in any profession invariably charge more. This isn’t to say that there aren’t poor agents who still charge high fees, but you will be hard-pressed to find a good and experienced agent who charges low fees. Consider this before being lured by cut price management rates.

As always, feel free to contact us any time for advice on anything real estate related.

Til next time, ciao 😊

 

Disclaimer: The information is this article is for general information only, it is not intended and should not be considered as either legal or financial advice. The information contained herein should not be relied upon solely and all parties are encouraged to obtain their own independent advice before making any financial decision.
Lee Knutsen

Article by Lee Knutsen

Co-founder & Managing Director of House, Lee Knutsen first entered the real estate industry in 2006 as a residential sales specialist. After more than a decade as a sales agent…

Call 0412 757 981 Email Lee