If you are an investor looking to make minimal payments towards your investment property and rely almost solely on the rental payments from tenants to cover your mortgage its time you get realistic and make sure you are prepared for any circumstances.
Many landlords buy into real estate looking to make a sizable return from rent, significant enough to cover the mortgage so they do not have to pay anything significant towards the loan. In some cases this may be possible, but its best to be prepared for the unforeseen situations in which you find yourself stressed when you can not make loan repayments.
Relying solely on income from tenants is not a viable option in many cases because we can never predict the future. People’s circumstances change, families’ breakdown, employment changes, financial stresses for whatever the reason can impact on your investment and the mortgage payments may not make the bank.
There are many reasons why your property may be left empty for a considerable amount of time, and if you are only dependent on the rent from a tenant you may find yourself under a considerable amount of stress.
When tenants fall in arrears your property manager will follow the procedure to ensure the money is recovered. Part of this procedure requires lodging Form 2 (remedy of breach) and if the tenants do not make a payment when the Form 2 expires ( usually between 7 and 9 days, depending on postage) a Form 7 (application the residential tenancies tribunal) is applied for . Once this application is lodged it may be up -to 8 weeks before a hearing date and your tenants may still be living in the property.
The tenants may be evicted at the Residential Tenancies Tribunal or they may be put on scheduled payments depending on the circumstances surrounding their rental arrears. If evicted you will be awarded the bond but this will in most circumstances be 4-6 weeks rent, still not covering the amount outstanding.
Due to this and the other circumstances as previously mentioned we recommend that it would be an ideal situation to set aside around 3-4 months of mortgage payments , just to cover those “incase” situations.
Obviously there is landlord insurance which is always recommended to anyone that has an investment property. As property managers we have to follow procedure and although it may leave you without income in the short term it will be a requirement should you wish to lodge to be reimbursed through your landlord insurance. – we will cover landlord insurance soon so stay tuned to this blog for more information on how to minimize your losses and remain in control of your investment.