The first day of March not only heralds the arrival of autumn, it is also the time when we see a spike in insurance claims for rental arrears.
The festive season and start of the new work/school year can put tenants under financial pressure. Their financial ‘hangover’ often stretches into the first three months of the year, resulting in tenants falling behind on their rent.
By March, many landlords (or their agents) have completed the eviction process and are looking to claim on their insurance to recoup their losses. It’s a recurrent process and makes a specialist landlord policy, with cover for rental loss, a wise investment.
Comprehensive landlord insurance is a great safety net (standard home and contents cover does not provide for rental loss claims) but, as the old saying goes, “prevention is better than cure”.
Here are eight tips to help you minimise the risk of rental arrears (and help with any insurance claims you may need to make too):
If you self-manage, it might be time to consider engaging the services of a property manager. Agents have the experience, expertise and time to handle your investment property.
They know the legal requirements and have access to resources and tried and tested procedures to streamline processes.
If you use an agent, they can ensure the actions below are carried out for you.
Background checks on prospective tenants are crucial (but make sure any checks you do comply with your state’s tenancy legislation). Check tenancy databases, call referees, speak to previous landlords and agents, and verify employment and income.
Even if you use an agent, it can often be beneficial for you to meet the tenant, as they may be less likely to default on their rent if they’ve met you (they can put a human face to the hardship their non-payment could cause, instead of simply seeing you as an account number where their rent gets deposited).
Once a tenant has moved in, conduct regular property inspections. ‘Red flags’ may suggest absconding or defaults are on the horizon, for example the home is packed up although the lease is not close to expiry.
Look out for unauthorised sub-letting arrangements too.
Maintain an up-to-date record of tenant contacts, including details of a relative to contact if you can’t contact the tenant.
Disgruntled tenants are more likely to break their rental agreements, abscond or default on rent.
On the other hand, happy tenants are more likely to pay their rent on time, stay in the property longer and look after it as if it were their own.
Open and transparent communication with tenants can often mean that they notify you of payment difficulties.
Knowing there is a problem can mean that a plan to tackle the arrears can be created that benefits you and your tenant.
Clearly explain the rent payment procedure to tenants so there is no ‘grey area’ from the outset.
Adopt a zero-tolerance policy for rent arrears and nip late payments in the bud early before it turns into a chronic situation.
Get your tenants to set up automatic payments such as direct debits.
Having procedures in place to deal with unpaid rent means you’ll be on top of the issue. Subject to the laws in your state, contact tenants immediately when they are behind and request payment.
A documented plan of addressing arrears should include timeframes for action (e.g. phone calls, letters, formal notices, tribunal/legal proceedings) and take into account the legislative requirements.
There are circumstances that can legitimately impact a tenant’s ability to pay, such as job loss, relationship breakdown, illness, partner death or unforeseen expense, and if they were otherwise an ideal tenant consider what can be done to help.
However, don’t accept just any excuse and be cautious of tenants with highly believable, yet continual, excuses for late, partial or non-payments.
If cutting the tenant some slack is simply not economically feasible, you may need to instigate eviction proceedings. Ensure you understand the legislated procedures and how you can seek restitution or eviction.
If you end up needing to evict or go to court, make sure you have all your paperwork in order.
If you need to make an insurance claim for rental loss, it’s important that the eviction process has taken place. Eviction usually takes weeks, so you need to act quickly in rent arrears cases to limit the financial impact before you can claim and to meet your policy obligation to prevent further loss.
Neither you nor your agent would rent a property to a tenant expecting that they’ll default on their payments, but sometimes life and circumstances beyond anyone’s control can derail even the best intentions.
You can feel confident that with the right insurance cover in place, you have the protection you need, when you need it the most.