THE 10 MOST COMMON CRITICAL MISTAKES WHEN LEASING YOUR PROPERTY

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THE 10 MOST COMMON CRITICAL MISTAKES WHEN
LEASING YOUR PROPERTY
If youve been considering renting out a house
you own, or buying a house to rent out, you have
things to think about. While owning a rental can
be a good way to make some extra money, there are
concerns that should be taken very
seriously. 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
your move. You already know stories from family
or friends, and things you see on the
news. Tenants will 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 off hinges.
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Weve all heard about the Tenants from hell that
take the appliances, break all the windows or
spray graffiti on the garage. Although a rental
house can be a good way to earn some extra money,
its 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 success
by careful screening. Learning about the most
common mistakes will avoid a lot of
headaches. 1) MAKE SURE TO DOCUMENT EVERYTHING
A written lease is very important. You need the
right rental agreement for your situation and
state. You need to record the condition of the
home before the tenant moves in (we call this a
P.I. property inspection report). Photos of the
property are a great idea. List anything that can
be moved, broken or dug up. 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 big issue). Handshakes And Verbal
Contracts/Leases
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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 the property. Common sense
should tell you its best to have a signed lease,
just to enforce the rules if nothing else. You
can obtain standard, generic Residential tenancy
agreement online, but they wont apply to some
things about your property. Even if a tenant is
in a property under a verbal agreement, they
still retain protection under the law. A casual
agreement to rent doesnt mean a casual
eviction. 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 its all done. This is probably
the single biggest step you can take to protect
your property. 2) NEVER FALL INTO THE
DISCRIMINATION TRAP
Its extremely important that you know the
Anti-Discrimination Act. 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
applicants marital status, disabilities or
social behaviour could be seen as discrimination.
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• Make sure you provide solid support for any
  decision you make when rejecting an applic- ant,
  based on a background check and rental history.
• Australian law offers protection from
  discrimination or harassment due to any of the
  following factors.
• Race (colour, nationality or descent)
• Sex (male or female)
• Pregnancy
• Marital status (e.g. singles or unmarried
  mothers)
• Disability (physical, intellectual or psychiatric
  disability)
• Homosexuality (both gay and lesbian)
• Age (both young and old)
• Transgender (transsexual)
• 3) INSURE YOURSELF PROPERLY

Rental properties are a higher risk than a home
you live in, to an insurance company, and
typical homeowners insurance doesnt cover
full-time rentals. Specialised landlord insurance
policies are available to protect your property
from finan- cial loss, damages and
accidents. Some factors that arent usually
covered include malicious damage by a tenant,
loss of rent or public liability. According to
NSW Fair Trading, a landlord can require a tenant
take out tenants insurance. Landlord insurance
policies do not cover a tenants possessions. In
general, this does not affect you as a landlord.
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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 sue you. SO YOU HAVE LANDLORD INSURANCE AND
YOU THINK YOURE OK? THINK AGAIN! You think
youre 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 isnt it! We recommend
TICA insurance that specialise in landlord
insurance. 4) BE TRUTHFUL ABOUT IMPORTANT
INFORMATION
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
these hazards. 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 the tenant. 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 deemed
safe. To add to all of this, Real Estate Agents
are not qualified builders and cannot make
decisions whether a wall or a roof is asbestos
and if it needs repair. It is your job as a
property owner to be aware of the ACT, and to
comply with it.
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5) FAILING TO SCREEN YOUR TENANTS CAREFULLY
If you think you are a good judge of character,
youre wrong. The old saying is true in this
case. You really cant judge a book by its
cover. Just because someone has good manners and
nice clothes doesnt mean he isnt spending more
than he makes. It might just mean hes a good
con man. While it can be a pain to screen tenants
in detail, its better than a tenant who doesnt
pay the rent on time, or doesnt care for your
property. Eviction will be stressful, drawn out
and costly. That will make the original
screening seem much more worthwhile. Its well
worth the effort to remain patient and always
require a tenant database check. This is the
easiest way to select a reliable and responsible
tenant. You need to know if someone has been
evicted before, if hes not telling you about a
crim- inal record and if he can afford what you
are charging for rent. Industry standard is a
monthly income that is three times the amount of
rent. Keep in mind property managers have access
to tenancy referencing software/data that is not
available to the public and only qualified
property managers can access.
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Australia has two major tenant databases and not
all real estate agents 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 the other. Property managers
know the residential tenancies act when it comes
to searching an applicants 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 identity theft. Your gut feeling still
matters, but it goes along with this type of
tool. It doesnt replace it. 6) TAKE YOUR
RENTAL BUSINESS SERIOUSLY
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 stiff
fines. 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 they
do. Always report your rent proceeds as income,
or you will live to regret it. It will mean
paperwork, but dont skip that paperwork.
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That will end up costing you penalties for
non-payment, you will have to payback your taxes
(nobody wants to do that) and interest
charges. There are also tax benefits,
however. Documenting your property dealings will
open the door to those benefits. Deductions for
business expenses are available, such as certain
repairs, as well as mortgage interest and
property management fees. Your insurance company
also takes your rental business seriously. This
is why you need landlord insurance. A regular
homeowners policy doesnt cover a rental if it
burns down. Liability insurance is to protect
both your property and the people that live
there. Others that take your rental business
seriously is the CTTT in NSW. There are a lot of
laws that protect tenants from discrimination and
hazards in their homes. If you dont install a
smoke detector in your own home, thats one
thing. If you do the same thing in a rental
property, you fail to meet a legal responsibility
to the safety of your tenants. The same is true
of sheds or garages that are unsafe. While you
might be able to get away with it at the house
where you live, its another matter when you are
charging rent for that same house. Its like
parents and children. You are legally
responsible for their safety when it comes to
your property. That means structures, chemical
hazards like asbestos and security. You have to
make sure the property is up to the Residential
Tenancies Act of 2010. 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 youre going
to do it, do it right.
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• What ever you do dont enter into a
  landlord/tenant situation thinking
• Shell be right mate, its easy money or
• Is common sense, you dont need to know anything
  about it, what could possibly go wrong? or
• What the ATO and the CTTT dont know about cant
  hurt them
• There are massive penalties if you get it wrong.
• To read decisions made by the CTTT against
  landlords, for not knowing and breaching the
  Residential Tenancies Act click here its a good
  read.
• 7) ITS NOT A ONE MAN SHOW YOU NEED A TEAM

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 time job. For some
people, it is a full time job. It can be a great
idea to hire some of those people. Property
Managers A good property manager can free you
from these burdens, and can also schedule and
supervise repairs. 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 for you.
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Accounts An accountant can do wonders to keep
the ATO at bay. There is fantastic deductions you
can have as a property owner and you can offset
your tax from your income. 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 they cost. 8)
RENT AND MORTGAGE PAYMENTS ARE NOT THE SAME THING
It may seem logical that the rent from a property
should cover the bank payment/mortgage, but the
two things arent figured out the same way. Your
bank payment is figured from your down payment,
the total amount of the loan and your interest
payments. Add into this the market value of the
property when you bought it, and your credit
history. None of this is used to figure
rent. Unlike a mortgage, which buys you a
permanent house with tax advantages, rent only
buys a place to stay for a while. 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 rental property. Money from a
rental is for extra monthly income (cash flow),
not to secure an investment.
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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 current situation. 9) POCKETING
THE BOND AND CHARGING MORE THAN 4 WEEKS RENT
Never skip a written lease and never pocket the
tenants bond. A formal lease agreement protects
your rights, and allows you to spell out the
rules. Dont assume youll be getting that bond
once an informal agreement is broken. After all,
wheres your proof a bond was ever agreed
to? Its going to be spelled out, in that
written lease. 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 months lost rent. You cannot
just put the bond money in an account you have
created yourself. All bonds must be lodged
immediately with Fair Trading NSW and a
receipt/record of the payment details are on the
tenancy agreement or you will get in trouble with
the law. Dont 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 rental bond.
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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 the risk. 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 the gaps. 10) UPGRADE YOUR PROPERTY AND
ATTEND TO URGENT REPAIRS
A lot of Australians think, shell be right mate
the paint peeling off the walls will be fine,
Ive lived with it for years. Or I dont need
to fix the air conditioning, I just dont use it,
and besides electricity is too expensive
anyway Well that type or thinking is costly that
can lose you thousands of hard earned dollars and
potential money making opportunities. A good
property manager can show you what tenants will
pay for and what they will not. Its a simple
fact of life the nicer the property, the nicer
the tenants. It may seem a bit counter intuitive
to fix up the property for others but it will pay
off big time. You see its 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 around
first. Dont under estimate what a coat of paint
and new stainless steel taps can do to add per-
ceived value. The extra expense will be made up
by how long they last.
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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).