THE 10 MOST COMMON CRITICAL MISTAKES WHEN LEASING YOUR PROPERTY

1. THE 10 MOST COMMON CRITICALMISTAKES WHEN LEASING YOURPROPERTY If you’ve been considering renting out a house you own, or buying a house to rent out, you have things to thinkabout. While owning a rental can be a good way to make some extra money, there are concerns that should be taken veryseriously. You need to take a good look at the pros and cons before making a hasty decision. At the very least, learn the basics before making yourmove. You already know stories from family or friends, and things you see on thenews. Tenantswill break their lease and leave before fulfilling their terms. Others will overstay their welcome without paying the rent. Some tenants are wilfully destructive, and have no respect for your property, punch- ing holes in the wall, or ripping doors offhinges.

2. We’ve all heard about the Tenants from hell that take the appliances, break all the windows or spray graffiti on thegarage. Although a rental house can be a good way to earn some extra money, it’s not always the easiest. If you want to rent it out, it has to be managed correctly, and mistakes can cost you dearly. The truth is, there is no sure fire way to eliminate all the risks, but you can improve the odds of successby carefulscreening. Learning about the most common mistakes will avoid a lot ofheadaches. 1) MAKE SURE TO DOCUMENTEVERYTHING A written lease is very important. You need the right rental agreement for your situation andstate. You need to record the condition of the home before the tenant moves in (we call this a P.I. property inspectionreport). Photos of the property are a great idea. List anything that can be moved, broken or dugup. You will need to create a document that covers points that are specific to your property, in detail. This paper should cover things like repairs, pets, deposits, late payment charges, utilities (water charges are a bigissue). Handshakes And Verbal Contracts/Leases

3. Verbal contracts and handshakes for leasing will not stand up in CTTT (Consumer, Trader and Tenancy Tribunal) at all, especially if you have to clime damages to theproperty. Common sense should tell you it’s best to have a signed lease, just to enforce the rules if nothingelse. You can obtain standard, generic Residential tenancy agreement online, but they won’t apply to some things about yourproperty. Even if a tenant is in a property under a verbal agreement, they still retain protection under thelaw. A casual agreement to rent doesn’t mean a casualeviction. The same legal process for eviction will apply, whether or not a formal lease was contrac- ted. The courts tend to give the tenant the benefit of the doubt in disputes over rent and evic- tion, because he/she will be losing their home when it’s alldone. This is probably the single biggest step you can take to protect yourproperty. 2) NEVER FALL INTO THE DISCRIMINATIONTRAP It’s extremely important that you know the Anti-DiscriminationAct. Understand not only your own rights, but also those of your tenants. Figure out if your rental listing has excluded certain groups, to avoid the appearance of discrimination. When showing the house to any prospective tenants, questions about an applicant’s marital status, disabilities or social behaviour could be seen asdiscrimination.

4. Make sure you provide solid support for any decision you make when rejecting an applic- ant, based on a background check and rentalhistory. • Australian law offers protection from discrimination or harassment due to any of the following factors. • Race (colour, nationality ordescent) • Sex (male orfemale) • Pregnancy • Marital status (e.g. singles or unmarriedmothers) • Disability (physical, intellectual or psychiatricdisability) • Homosexuality (both gay andlesbian) • Age (both young andold) • Transgender(transsexual) • 3) INSURE YOURSELFPROPERLY Rental propertiesare a higher risk than a home you live in, to an insurance company, and typical homeowner’s insurance doesn’t cover full-timerentals. Specialised landlord insurance policies are available to protect your property from finan- cial loss, damages and accidents. Some factors that aren’t usually covered include malicious damage by a tenant, loss of rent or publicliability. According to NSW Fair Trading, a landlord can require a tenant take out tenants insurance. Landlord insurance policies do not cover a tenant’spossessions. In general, this does not affect you as alandlord.

5. However, tenants insurance can prevent a suit by a misinformed tenant, who lost his stuff in a fire he started in the kitchen, and who thinks he can sueyou. SO YOU HAVE LANDLORD INSURANCE AND YOU THINK YOU’RE OK? THINKAGAIN! You think you’re covered, well we still come across landlords that have not looked into their landlords insurance policy and find out they are not covered, for malicious damage and public liability (these are not standard features of an insurance policy), crazy isn’tit! We recommend TICA insurance that specialise in landlordinsurance. 4) BE TRUTHFUL ABOUT IMPORTANTINFORMATION If you know of problems like lead paint, asbestos or mould, you may be required by the res- idential tenancies act 2010 to tell tenants about thesehazards. Failing to do so can expose you to fines and loss of rent. Anything that is a health and/or safety risk that the owner is aware of has to be dis- closed to thetenant. Asbestos is a key issue around the Seven Hills area as approximately 40% of homes have asbestos and around 10% need some sort of repair to be deemedsafe. To add to all of this, Real Estate Agentsare not qualified builders and cannot make decisions whether a wall or a roof is asbestos and if it needsrepair. It is your job as a property owner to be aware of the ACT, and to comply withit.

6. 5) FAILING TO SCREEN YOUR TENANTSCAREFULLY If you think you are a good judge of character, you’rewrong. The old saying is true in thiscase. You really can’t judge a book by itscover. Just because someone has good manners and nice clothes doesn’t mean he isn’t spending more than hemakes. It might just mean he’s a good conman. While it can be a pain to screen tenants in detail, it’s better than a tenant who doesn’t pay the rent on time, or doesn’t care for yourproperty. Eviction will be stressful, drawn out andcostly. That will make the original screening seem much moreworthwhile. It’s well worth the effort to remain patient and always require a tenant database check. This is the easiest way to select a reliable and responsibletenant. You need to know if someone has been evicted before, if he’s not telling you about a crim- inal record and if he can afford what you are charging forrent. Industry standard is a monthly income that is three times the amount ofrent. Keep in mind property managers have access to tenancy referencing software/data that is not available to the public and only qualified property managers canaccess.

7. Australia has two major tenant databases and not all real estateagents have both of them (to do a full check you need both because the tenant maybe flagged as a bad tenant on one of the databases and not theother. Property managers know the residential tenancies act when it comes to searching an applicant’s background. The ACT is quite strict when it comes to personal data; like destroying the data found in a background check once it is done and shredding documents once an application has been processed to prevent identitytheft. Your gut feeling still matters, but it goes along with this type of tool. It doesn’t replace it. 6) TAKE YOUR RENTAL BUSINESSSERIOUSLY One of the biggest mistakes you can make as a landlord is to treat your rental with a casual attitude. Though it may seem informal, never forget that renting out your real estate is a business. Failure to communicate with your tenant or the authorities can lead to stifffines. The ATO (Australian Taxation Office) also take a serious view of your rental prop- erty. They consider it a business, and your rent is business income, as far as they are concerned. You should take it at least as serious as theydo. Always report your rent proceeds as income, or you will live to regretit. It will mean paperwork, but don’t skip thatpaperwork.

8. That will end up costing you penalties for non-payment, you will have to payback your taxes (nobody wants to do that) and interestcharges. There are also tax benefits,however. Documenting your property dealingswill open the door to thosebenefits. Deductions for business expenses are available, such as certain repairs, as well as mortgage interest and property managementfees. Your insurance company also takes your rental businessseriously. This is why you need landlordinsurance. A regular homeowner’s policy doesn’t cover a rental if it burnsdown. Liability insurance is to protect both your property and the people that live there. Others that take your rental businessseriously is the CTTT inNSW. There are a lot of laws that protect tenants from discrimination and hazards in their homes. If you don’t install a smoke detector in your own home, that’s onething. If you do the same thing in a rental property, you fail to meet a legal responsibility to the safety of yourtenants. The same is true of sheds or garages that areunsafe. While you might be able to get away with it at the house where you live, it’s another matter when you are charging rent for that samehouse. It’s like parents andchildren. You are legally responsible for their safety when it comes to yourproperty. That means structures, chemical hazards like asbestos andsecurity. You have to make sure the property is up to the Residential TenanciesAct of2010. You must respond to tenants who complain about safety, urgent repairs, and criminal activ- ity reported by neighbours. This is the easiest way to select a reliable and responsible tenant. If you’re going to do it, do itright.

9. What ever you do don’t enter into a landlord/tenant situationthinking; • “She’ll be right mate, it’s easy money”or • “Is common sense, you don’t need to know anything about it, what could possibly go wrong?”or • “What the ATO and the CTTT don’t know about can’t hurt them” • There are massive penalties if you get itwrong. • To read decisions made by the CTTT against landlords, for not knowing and breaching the Residential Tenancies Act click here it’s a goodread. • 7) IT’S NOT A ONE MAN SHOW YOU NEED ATEAM With all these details to keep track of, hiring a property manager is a good idea. Keeping up with Residential Tenancies Act about property and renting can seem like a full timejob. For some people, it is a full time job. It can be a great idea to hire some of thosepeople. PropertyManagers A good property managercan free you from these burdens, and can also schedule and superviserepairs. Property managers can do the heavy lifting when it comes to screening and background checks. They can advise you on fair market prices and handle advertising. This means a rented house at a great price and more reliable tenants which ultimately means more time and money foryou.

10. Accounts An accountant can do wonders to keep the ATO atbay. There is fantastic deductions you can have as a property owner and you can offset your tax from yourincome. An accountant is aware of these deductions and requirements, and can prevent a costly mistake. All of these people can be worth far more than theycost. 8) RENT AND MORTGAGE PAYMENTS ARE NOT THE SAMETHING It may seem logical that the rent from a property should cover the bank payment/mortgage, but the two things aren’t figured out the sameway. Your bank payment is figured from your down payment, the total amount of the loan and your interestpayments. Add into this the market value of the property when you bought it, and your credithistory. None of this is used to figurerent. Unlike a mortgage, which buys you a permanent house with tax advantages, rent only buys a place to stay for awhile. To figure out how much to charge, compare rent values for houses like yours on the local market, or hire a property manager do a CMA (comparative market analysis) and advise you on how to get more money for your rentalproperty. Money from a rental is for extra monthly income (cash flow), not to secure aninvestment.

11. Talk with a qualified financial advisor or your account to show you the details of how the cash flow works and they can advise you on how to maximise your currentsituation. 9) POCKETING THE BOND AND CHARGING MORE THAN 4 WEEKSRENT Never skip a written lease and never pocket the tenantsbond. A formal lease agreement protects your rights, and allows you to spell out the rules. Don’t assume you’ll be getting that bond once an informal agreement isbroken. After all, where’s your proof a bond was ever agreedto? It’s going to be spelled out, in that writtenlease. The law limits your security bond to four weeks rent. The written lease lays out payments to be made for damages, and the bond will cover one month’s lostrent. You cannot just put the bond money in an account you have createdyourself. All bonds must be lodged immediately with Fair Trading NSW and a receipt/record ofthe payment details are on the tenancy agreement or you will get in trouble with thelaw. Don’t stress you can make a claim against the bond for certain reasons after the tenancy ends. Some landlords try to charge more than 4 weeks rent but legally no more than 4 weeks rent can be taken as a rentalbond.

12. All too often it may not be enough to cover really bad tenants, but if you are disturbed about this risk we would strongly recommend taking out landlord insurance, and a top notch property manager to reduce therisk. You must lodge your bonds with Fair Trading NSW immediately. Fair Trading records will protect you if a tenant takes you to court. While the bond and damage payments may not provide full security, landlord insurance should serve to fill in thegaps. 10) UPGRADE YOUR PROPERTY AND ATTEND TO URGENTREPAIRS A lot of Australians think, “she’ll be right mate the paint peeling off the walls will be fine, I’ve lived with it for years.” Or “I don’t need to fix the air conditioning, I just don’t use it, and besides electricity is too expensiveanyway” Well that type or thinking is costly that can lose you thousands of hard earned dollars and potential money makingopportunities. A good property manager can show you what tenants will pay for and what they willnot. It’s a simple fact of life: the nicer the property, the nicer thetenants. It may seem a bit counter intuitive to fix up the property for others but it will pay off big time. You see it’s worth it in the long run to use quality taps, paint and appliances (with war- ranties) for your rental property, just make sure to do your shopping aroundfirst. Don’t under estimate what a coat of paint and new stainless steel taps can do to add per- ceivedvalue. The extra expense will be made up by how long theylast.

13. A satisfied, responsible tenant will have no reason to move out, and will pay rent for years to come (as long as you keep up with repairs).