Five ways to make your rental investment work harder

With the right property purchase and effective portfolio management, you may be able to really enhance your investment experience. Here’s how to set yourself up for landlord success.

1. Plan for the unexpected

In an ideal world, a rental investment will hum in the background, requiring little hands-on attention from its landlord. But if a severe storm hits or a tenant faces hardship, Sam Gordon, property investor and founder of the Australian Property Scout, says landlord insurance can help swiftly rectify the situation.

“Having an investment-property specific insurance provider is very important – I have a large property portfolio and a few times a year I’ll have a tenant go into arrears, and there’s a huge amount of stress that can come with it,” Gordon says.

2. Cover your costs

According to The Australian Institute, more than 533,000 Australian households are underinsured, and Gordon says a lot of property owners still haven’t adjusted their insurance coverage after building costs rose during the COVID-19 period.

“One of the biggest risks I see most people make in property investment is that they don’t review the replacement build cost of their asset.”

It’s important to be realistic about replacement costs when taking out an insurance policy, Gordon explains. That way, your cover is more likely to align with what it would take to rebuild if needed.

3. Hire a great property manager

An experienced and proactive property manager will take a lot of the stress out of managing an investment property, especially when something goes awry, such as a tenant going into arrears or property damage.

“Finding a great property manager is the most important element for having as stress-free a journey as possible,” Gordon says.

“The first thing I look for is someone who has good market presence and experience – I like to find people who have been in the game for a while with a nice portfolio that they have managed for a period of time; you know there’s stability and quality that comes with that.”

Whenever he onboards a new property manager, Gordon asks them questions like, ‘How would you manage an insurance claim if it were to come through? How would you manage a problem tenant who goes into arrears? What is your follow-up process around arrears?’

“An experienced PM will answer those straight away, and if they can’t, you will see through it very quickly,” he points out.

4. Keep your property in great shape

Maintaining your investment property could save you money in the long run, according to landlord insurance specialist Terri Scheer.

“A quick DIY fix could result in substandard workmanship, or a legal liability claim if there is injury or loss resulting from a safety hazard that has not been attended to,” says Carolyn Parrella, head of customer service at Terri Scheer.

“Attending to maintenance issues promptly will also keep tenants happy as putting off maintenance or insufficient repairs … may signal to the tenant that you don’t care about the property or value their concern for its condition.

“Your tenant may begin to question their own commitment to the property and become more careless about it, or consider vacating when the lease expires, resulting in an empty property that isn’t generating an income.”

5. Look after your tenants

One of Gordon’s key investment property performance strategies is to minimise rent hikes, where appropriate for the circumstances.

“It almost seems counterintuitive, but I think the biggest mistake people make is trying to go for top dollar on their rent all the time – when the lease is up for renewal, they’re always increasing it,” Gordon says.

Gordon likes his properties’ rent to sit just under market rent because it helps to foster a good relationship with the tenant, which he says may be cost-effective over time.

“I know interest rates are pinching right now, but if you jack rent up on a renter who is really struggling, you might get an extra $30 or $50 a week in rent, but if the tenant says no, and you have to re-let it, you might have a two-to-four week vacancy period, then your re-let fee might be another one or two weeks – suddenly you could be down four to six weeks, which could be $4000 or $5000, because you were trying to get an extra $50 a week,” he says.

“I was definitely guilty of always going for top rent dollar in the past, but it almost always backfired. When I changed tact, it improved my tenant retention and overall cash flow over the course of the year, not to mention fewer headaches. It means that nice synergy between landlord, tenant and property manager can continue.”

Terri Scheer is Australia’s leading landlord insurance specialist. For more information, visit www.terrischeer.com.au.

This article is general information only and does not take into account your objectives, financial situation or needs. Consider whether it is appropriate for you and seek independent advice before making any decisions.

Insurance is issued by AAI Limited ABN 48 005 297 807, trading as Terri Scheer. Before buying insurance, read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) available at www.terrischeer.com.au.