As an investor, you probably know the regular expenses you need to cover for your property. These include your management fees when using a property manager, council rates, water rates, insurance, body corporate fees if you own a unit, apartment or townhouse as well as the occasional required maintenance / appliance repair or replacement. That must be it you would think, you’ve got it covered! Sadly, like a bad Daonz Direct add – there’s more.
While it can be difficult to predict everything, having buffer funds, and an idea of the unexpected expenses associated with having an investment property is a good way to be prepared and consider what you might do in one of these scenarios. Here we outline some of these unexpected costs you may be encounter.
Gas and Electrical compliance
In Victoria, most investors are aware of this recent requirement. Since March 2021, for all new leases, disclosure statements must be provided to tenants. Part of these disclosure statements is confirming the most recent gas and electrical compliance. These certificates cost from $400-$700 depending on what company you use and how many appliances you have and, now must be done every 2 years. That part is easy to budget for – what you might not expect, especially with newer homes, is having compliance issues that need to be fixed on top of the cost of the certificate. Recent examples we have come across is hot water drainage – not in the correct spot, so needs to have additional plumbing ($209 for our example), improper light fitting in the ceiling cavity ($330 for our example) – both of these homes were less than 5 years old!
When the rent stops flowing
Sometimes a tenant may stop paying rent. No matter the scenario – covid, divorce, tenant has “done a runner” and left the property or they’ve passed away, there are options to claim back your lost rent. This can take time so you need to be prepared for potential months without income! Insurance covers a lot of scenarios but always read the fine print and at the moment (2021) there has been no VCAT bond and comp hearings so claiming the bond could be more than a year away! We don’t want to sound all doom and gloom however -for a tenant wilfully avoiding their rent payments, you can arrange debt collectors to chase up the overdue rent for a percentage of what they collect. Insurance can cover loss of rent if you have the correct cover but again – you have to read the fine print as there are often limitations as to how long they will cover your loss of rent. .
Tenant vacates and leaves items behind
Generally speaking – items left behind or cleaning are not covered by landlord insurance. So, if a tenant vacates your property and leaves large items behind, such as furniture, you may need to pay to get these removed. You’ll need to check the residential tenancy legislation in your state, but you could claim the tenant’s bond to have the items removed – just make sure you follow the correct process otherwise, owners can be held liable for the cost of belongings thrown out!
Animals causing damage
In Victoria, it’s become next to impossible to turn down pets in your investment if an existing tenant requests a pet (touch base with us if you want to find out more about this). With this in mind, it’s important to make sure your insurance policy has provisions to cover the costs of damage caused by pets given the right to decline them has basically been taken away.
Black mould and the elements
Mould is a serious health issue and is something that must be fixed straight away – it can also potentially lead to early termination of your lease without penalty to your tenant which is why it must be taken seriously! Once it’s in a property, it can be very hard to address. Also with the potential to cause significant damage – natural disasters and severe weather events. Make sure your policy covers your property for mould issues and damage caused by severe weather events and check the small print as floods caused by flash flooding can have different coverage to floods caused by a burst pipe.
Owning an investment property is a great way to build your wealth, build capital growth and add other sources of income to your household. Being aware of the unexpected costs you may encounter in different scenarios is a good way to be prepared and to minimise stress. This does not need to cause alarm – having an experienced property manager (like us) who has often seen and dealt with these problems before can provide you with the support and advice you need along your investment journey.
Remember, this article does not constitute financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.