There are five common traps investors can fall into when renting their property to family, friends or loved ones, according to Terri Scheer Insurance.
The landlord insurance specialists warned that while it’s great to have people you know and trust in your property as opposed to strangers, there are a few things to look out for to ensure your investment remains profitable.
The first mistake investors commonly make in this scenario is not having a property manager, says Terri Scheer Insurance manager Carolyn Majda.
"Some of the responsibilities that landlords have, such as chasing up late rental payments, can be awkward when dealing with someone you know well," Ms Majda said.
"Hiring a property manager to professionally manage the property can help to ensure that your role as a landlord doesn't damage your personal relationship with your tenant.”
The second problem that Ms Majda outlined was that investors can be too lenient when rental payments fall behind.
"It can be easy to turn a blind eye if a family member or friend is late on their rent, or promises that they will pay as soon as they can," she said.
“However, if a tenant defaults on rent, certain notices must be issued. If the landlord is later required to make an insurance claim, the claim may be reduced if there was a delay in sending the appropriate information.”
Landlords also need to think about how they will manage financially if their rent is halted.
Thirdly, Ms Majda said property inspections are sometimes avoided before the tenant moves in and every three to four months while the tenant is occupying the property.
"You may not feel it's necessary to conduct regular property inspections if you know the person renting your property," she said.
"If a tenant is injured at the property as a result of required maintenance that is unbeknown to the landlord, it could potentially lead to a costly legal liability claim."
The fourth mistake that investors commonly make is failing to have a formal tenancy agreement.
No matter how much you trust your tenants, the terms set out in a tenancy agreement can help to resolve some disputes that may arise regarding the tenancy in the future.
Finally, investors sometimes don't see the need to have landlord insurance in such scenarios.
“Even the most trustworthy tenant is able to damage a property, whether accidental or otherwise,” she said.
“Uninsured landlords really need to think about how they would manage financially if they were faced with thousands of dollars worth of damage to their rental property, or were unable to re-let their property while repairs were being made.”
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