When we went overseas for one year in 2014, we decided to rent out our furnished family home. We knew that this was connected with quite a few risks. The alternative would have been to keep the house vacant which despite the loss of income is not a good option either.
Risk management is essential in project management. It is all about uncertain events that have a negative effect on your endeavor. So, we embarked on a big risk management session where we thought of all the things that possibly could go wrong with renting out our home and how to minimize them. Here is our list…
Take out Landlord insurance – Transfer risk
Every landlord should have landlord protection insurance. In our case it was really simple. A few days before we left we rang our content insurance company and turned our common content insurance into a landlord insurance for a few Dollar extra.
Most landlord insurance covers will protect you for the following:
- Loss of rent and associated legal costs
- Theft and attempted theft
- Malicious damage and vandalism by tenant
- Loss of rent if your property in uninhabitable
Getting a property manager – Mitigate your risk
Broken water heating system, non-functioning garage doors…when you are overseas on the other side of the world it is very stressful to organise trades people to fix your house. Of course there is always the alternative of asking friends or family to help out. But unless they are retired, most people are busy with their own life. So do yourself a favor a get a professional property manager. This will eat into your margin as most property management firms will charge between 5-10% of your monthly rental income.
Services typically included by a property manager:
- Collect rent and follow up on unpaid rent
- Run background checks on your potential tenants
- Bond collection and management
- Entrance and exit report of your property
- Perform regular inspections and take photos
- Advertise your home and find new tenants for a commission
Check with friends on recommendations for good property managers. After all you are entrusting them with your most valuable asset.
Make an inventory list – Mitigate your risk
There are several advantages of creating a detailed inventory list of major items that are staying back in your house:
- Insurance companies may require an inventory list in case of claims.
- Add serial numbers, date of purchase and warranty conditions to have all the details available in case something breaks. Ideally you may also want to scan receipts of items still under warranty so that you have them quickly available whilst overseas.
- Add purchase cost to determine the depreciation value of your house content with your accountant.
- It helps property manager to do the entrance and exit report on your property. They are busy people and unless they are specialized in renting our furnished houses they most likely won’t spent the attention to detail in their reports. It will help them to easily tick off items that are in your house.
|Item||Brand||AUD||Date||Warranty||Life of asset||Proportion for tax deduction FY xxxx|
|Roller blinds||Spotlight||$1,248.20||22.5.2014||2 years||10||$124.82|
|Washing machine||Bosch / Clive Peters||$828.00||03.09.2010||5 years||10||$82.80|
|Fridge||Toshiba / Good Guys||$1,042.00||11.12.2009||5 years||10||$104.20|
Introduce yourself to the tenants – Mitigate your risk
If you are able to, find the tenants yourself through friends, via social media, Gumtree or rental websites of nearby universities. In any case, make sure that you introduce yourself or at least have a telephone/Skype conversation with them. This will actually personalize your home and people in most cases will treat it much better. For them now it is not just another rental property that’s been looked after by busy property manager. It is someone’s family home!
Perhaps you can even strike a deal with them by transferring your internet or electricity connection into their names and vice versa when you return. This will save both parties a lot of money as utility provides tend to charge for new connections but name transfers are usually for free. It will also save time in having services reconnected.
Make sure you don’t give them your contact details for when you are overseas. If something breaks they should contact the property manager. After all that’s what you are paying them for…
Remove any items that are close to your heart – Mitigate your risk
The painting that you bought on your last trip to Barcelona, the mirror that you inherited from your great grandmother…anything that is close to your heart you should consider putting into safe storage. If loosing it will break your heart and it is not easy to replace then it should not stay in the house that you are planning to rent out.
Your house might look different – Accept your risk
Even with all the above mitigation strategies in place, there is still a small residual risk left that there might be damage to your property. Your tenants might not pay the rent on time, the property manager changes five times whilst you are away (happened to us)…accept that this may happen. Nothing is perfect!
If you can’t stand that thought, perhaps renting out your family home is not for your and it should stay vacant for the time that you are away.