Managing property investments optimally requires knowledge of what the costs are relating to each rental property, and a clear understanding of who is responsible – tenant or landlord.
No lease agreement is exactly the same and making provision for recovering specific costs should be stipulated in the contract. A written contract that gives clarity on the responsibilities of each party makes for a congenial working relationship from the outset, and avoids unnecessary and often costly disputes later on.
There are two types of costs, direct and indirect, which should be included in the rental agreement:
Costs borne by the tenant
Direct costs include electricity, water, sewerage and refuse. These are generally for the tenant’s account but this should always be stipulated in the contract. Individual metering, or even better, prepaid meters simplify the process of managing monthly readings and costs.
While some landlords think it makes sense to let the tenant sign up for municipal accounts so they are billed directly – this should be strictly avoided. There have been too many cases of tenants running up huge municipal bills without the landlord knowing about it. It’s often only when the tenant leaves that the landlord discovers the unpaid debts on the property. Trying to recoup these from a delinquent tenant will likely land you in an expensive legal wrangle and leave you out of pocket.
The landlord must get the municipal accounts to ensure the tenant pays what he owes on time every month. Do also be wary of a tenant whose consumption of electricity and water is overly high and deal with the issue right away.
Landlords often don’t have the time to manage property investments and IGrow Wealth can assist with the administration and management including a full rental collection service for levies, rates and taxes as well as regular inspections.
Costs paid by the landlord
Rates, taxes, building insurance and levies are indirect operating costs and are the responsibility of the landlord. Annual increases can be factored into rental increases, for example, when your building insurance premiums go up or rates rise. Also, if a tenant is using the property in any way not covered by normal building insurance then additional insurance may be required. However, rental increases should be market related and any dramatic rise in rent could chase away a valued tenant.
When strategising how to build a property investment portfolio a good rule is to try not to pass on too many costs to the tenant – and if you have a tenant you want to keep rather be prepared to compromise a bit
Building a portfolio of already vetted distressed properties and below market properties will put you on the path to financial freedom and IGrow advises and assists investors through the entire process, ensuring you avoid common pitfalls and meet your long-term investment goals.