What costs am I liable for as a residential landlord?

One of the most common things we hear from new or inexperienced landlords is that they did not realise what they were financially responsible for with regard to their rental property. The costs for a rental property can be broken down into three categories: mandatory costs, general practice costs and negotiated items. When purchasing an investment property it is important to factor in all of these expenses to accurately calculate your return.

Mandatory costs

The landlord is solely responsible for paying the council rates, water rates and any owners corporation fees. Landlords often mistakenly assume that the tenant is responsible for paying the water bills. Tenants are only responsible for the water usage; the landlord is responsible for the water rates, unless the property is not separately metered, in which case the landlord is responsible for all water bills, including the usage.

If you engage the services of a professional agent to manage your property, there will also be their costs to consider. Most fee structures for agents across Victoria are similar and will include a monthly management fee, a leasing fee for securing your new tenants, and advertising costs. They may charge a variety of other fees that you should be aware of. Always make sure you ask for an itemised breakdown of all fees you may be charged.

General practice costs

If the property is not governed by an owners corporation, the landlord should ensure they have a comprehensive building insurance policy. All landlords should consider taking out a landlord’s insurance policy that covers items such as contents (window and floor coverings), loss of rent, damage by tenants and public liability. It remains the responsibility of the tenant to insure their own personal contents, and to make certain they have adequate cover.

The landlord is also responsible for maintaining the smoke detectors within the property and ensuring they are in working order. We recommend engaging the services of a professional smoke alarm servicing company for a small fee. There are various legal requirements pertaining to correct smoke alarm installation and they can guarantee your legal obligations are met.

Negotiated costs

If the property has a swimming pool, spa or large garden, the tenant typically will be responsible for ensuring these are kept in a reasonable condition, however you could consider including caretaking of these as part of the rent. This can attract more potential tenants to your property and will guarantee that the gardens or pool are well cared for throughout the lease period.

If your property is partly or fully furnished, you are responsible for the maintenance of all white goods and/or electrical equipment left at the property, and ensuring that these are kept in working order. If something breaks down and is not repairable, you must replace like with like, which is another cost to consider for landlords.

The tenant is usually responsible for the connection and usage of utilities charges including electricity, gas, phone, Foxtel and broadband, however these can be negotiated into the agreement. Most of the maintenance costs for an investment property are tax deductible so we recommend you use an experienced accountant to ensure you maximise your return.

Article supplied by Frank Valentic, director of Advantage Property.

Photo: Meg/flickr, used under a creative commons license.