With the recent boom in the real estate industry in Australia, many people have purchased different properties. Some people can barely afford to keep up, leaving several homes unoccupied for different reasons.
If you own a vacant property, you have options to make a real income from the property. Leasing your property can generate you more income and maybe a better alternative to selling at a loss or going into foreclosure.
Advantages and disadvantages of owning a residential property
Like most things in life, owning a residential property has its upsides and downsides. They include the following.
Renting your property can give you an extra source of income, provided the rent you charge is higher than your mortgage payments and other expenses.
Holding your property until the real estate market recovers can prevent you from experiencing the negative impact of foreclosure or short sale. If the property’s value increases in the future, your property may provide you with more profit.
Your real estate investment is tangible and usable as you can live in it, unlike stock certificates and other intangible assets. Real estate has been a wealth builder when purchased and appropriately managed.
Properties do not always increase in value, as the recent real estate market crisis have shown, and you may end up with less than your property’s worth.
Rents fluctuate, and your property may give you less income than expected or remain vacant for several months, leading to financial strain.
Maintaining your property and managing tenants may be difficult for some people because it requires you to put in several hours.
If your residential rental property has a mortgage, you may have to answer to the credit bureaus by your lender, unless you took a private loan. Your balance will show as a current liability, which means it will be included against your debt-to-income ratios when applying for another financing, like a car loan.
However, if the mortgage on your rental property is old, it would be more favourable as it will be in your credit history. This applies if the balance you’ve paid is a considerable amount of the mortgage.
Note that, like other credit items, your mortgage can affect your credit, depending on how well you manage it.
Consult your real estate professional and financial adviser if you’re considering selling your property. This will help you determine whether renting the property would be a better option.
Essential tips to consider when leasing your residential property
Ensure you document everything
Having a written lease is important, and you need a rental agreement suitable for your state and situation. It would be best if you also recorded your property’s condition before the tenant moves in. A property inspector can help out with this.
You can take photos of the property, list all movable things, those that can get dug up or broken. You also need to draft a detailed document covering the specific points of your property. This document should include things such as late payment charges, deposits, repairs, pets, utilities, such as water.
Verbal contracts and handshakes to agree on leasing will not stand in CTTT (Consumer, trader and tenancy tribunal), especially if you want to claim damages in your property, so ensure you sign a lease to enforce the lease.
Although you can get a general and standard residency tenancy agreement online, it may not apply to some things on your property. Even if your tenant is under a verbal agreement, they still have protection under the law, and you can’t casually evict the tenant. You have to apply the same legal eviction even when you had a casual agreement for the lease.
The court usually gives tenants the benefit of the doubt in rent and eviction disputes because they would be losing their home. Having a signed lease is the best step to protect your property.
Have proper insurance
Rental properties have more risk to the insurance company than your home, and your standard homeowner’s insurance does not entirely cover rental properties. Different specialized landlord insurance policies can help protect your property from accidents, damages, and accidents.
Your standard home insurance would not cover loss of rent, public liability, or malicious damages done by tenants. Some landlords require their tenants to have tenant’s insurance.
The landlord’s insurance policy does not cover the tenant’s possessions. Generally, the tenant’s insurance does not affect the landlord. Still, it can prevent having a suit from a misinformed tenant in certain situations like losing possessions to a fire started by the tenant.
Some landlord’s policies do not cover public liability, malicious damages and other damages, so ensure you take out an all-inclusive landlord’s insurance.
Be truthful about important information.
If your property has problems such as mould, asbestos or lead paint, you have to inform the tenants about these problems. Keeping this information to yourself can cause you loss of rent or fines. You also have to inform the tenants about anything that has a safety or health risk.
Screen the tenants carefully.
Before renting your property to anyone, ensure you carry out a thorough screening because most people are not who they seem to be. Although getting details about potential tenants and screening them may be a handful, it can save you stress and problems.
Eviction usually gives more stress, and it could be costly and take a long time. Be patient with the screening process and check the tenant’s database, including if they can afford to pay the rent, whether they have a criminal record or have been evicted previously.
The standard for determining whether a tenant can afford your rent has a monthly income that triples the rent.
You can get property managers to help you run this check as they have access to tenancy referencing data that the public cannot access. Ensure you get an experienced real estate agent with access to the two major tenant databases – Trading Reference Australia (TRA) and Tenancy Information Centre Australia (TICA). This is important because one of these databases may flag a person as a bad tenant, but the other won’t.
Renting your residential property may be the best option as it can fetch you more income. Although renting a property may be stressful for some persons, a real estate agent and property manager can make the process easy and stress-free.
You can contact AM Rutty Coastal Estate Agents today on 02 4229 6311 or 02 4268 1399 to help you manage your residential property and oversee all the processes involved in renting the property.