In your attempt to find the best possible tenant, sometimes it’s a temptation to pick a family member and maybe rent to them. You think, “Oh, well. I’ll put Aunt Mary in there, or our little cousin, or even our son or daughter, because I know what they’re like.” There are some things that you need to be aware of. In today’s show we talk with Carolyn Majda, from Terri Scheer Insurance.
 

Transcript:

Kevin:  In your attempt to find the best possible tenant, sometimes it’s a temptation to pick a family member and maybe rent to them. You think, “Oh, well. I’ll put Aunt Mary in there, or our little cousin, or even our son or daughter, because I know what they’re like.” There are some things that you need to be aware of. Let’s find out what they are.
Joining me now is Carolyn Majda from Terri Scheer Insurance. Carolyn, do you see this very often?
Carolyn:  We do tend to see it. I wouldn’t say it’s the most common form of renting, but certainly, we do see it, especially if people are in the country – rural areas – and their children might move to the city for studies or things like that. We often see it.
Kevin:  Of course, there’s nothing wrong with doing it, provided you treat it like a business and are prepared to treat them like a normal tenant.
Carolyn:  Absolutely, and it really depends on each family’s circumstances, obviously. But I think keeping the emotion out of it and making sure that you do remember it’s an investment property – you’re investing for a reason – and make sure that whoever the family member is does respect the fact that it is a rental property and they still have obligations whether you’re their mother, or their aunt, or whoever you are.
Kevin:  Give us the ground rules. What should we be aware of if we are going to go down that path?
Carolyn:  Certainly. Make sure that you have a proper lease in place. A verbal agreement is all well and good until something goes wrong, and things can go wrong. You never know what’s going to happen with family, so we would certainly recommend having a lease in place.
Appointing a property manager even takes it a little step further in having somebody managing it for you. The property manager is looking after it on a day-to-day basis, and you’re not having to get too involved. That keeps it more of a business-type relationship as opposed to an emotional family relationship.
Kevin:  Yes, because the temptation would be great there – wouldn’t it? – given that it’s someone you know to say, “Well, look. We’ll just do this rental agreement between us and manage it myself.”
I mean there’s one thing about managing a property with a tenant you don’t know, but it’s probably even worse with someone you do know.
Carolyn:  It really could be. Some of the things that we see, of course, is people who don’t pay the rent on time because it’s mum or dad or whatever. They’ll say, “Look. You just hold me over this month, and we’ll get it to you next month.” Then next month becomes the following month, and suddenly, you’re in a bit of strife.
Similarly, with caring for the property and keeping it neat and tidy – whether or not the owner would actually do inspections as often is because they might have seen that because there’s a family member in there that they’re looking after the property properly. It’s not a given that that does happen.
Kevin:  For any owner of an investment property who wants to manage their own property, what services do you provide through Terri Scheer Insurance?
Carolyn:  We do offer an insurance policy for self-managed landlords. Previously, it was only available if you had a property manager, but we do recognize that there are a lot of investors who almost have their own little business in investing and know how to look after a property. There’s certainly insurance available now to assist to help cover those things that you just can’t control. That’s things like your loss of rent and the damage that can be caused by tenants.
Kevin:  What are some of the classic areas where you’re finding claims coming in, where people are being protected?
Carolyn:  Loss of rent is obviously the most frequent claim that we have, and there are various reasons that people might not be paying their rent. It could be something like hardship where they’ve lost their job or something like that and they’ve been released from the bond obligations, right down to your absconding tenants, things like that. Loss of rent is certainly right up there.
Quite often with a loss of rent claim, there will be a malicious damage claim, as well, especially if a tenant has been evicted. They might be very angry about that, and so their parting gift to the landlord – if you like – is a couple of holes in the walls or something like that.
I spoke with a property manager once who was telling me that he served notice on a woman, and she had just come back from doing her grocery shopping. She had a carton of eggs in her hand, and she proceeded to throw the eggs all around the lounge room walls and up into the ceiling fan. There was just egg splattered everywhere.
They’re the types of things that can happen. You just don’t know.
Kevin:  No, you don’t know. I think it gets back to what you said right at the very start, too – no matter what you’re doing, whether you’re managing it yourself or whether you’re getting an agent to manage it for you, you must treat this like a business because that’s what it is and to make sure that you get the leases in place and run it like a business.
Carolyn:  Absolutely. I think the other thing, too, is making sure that if your tenants do get behind in their rent that you act really quickly to try to reduce that loss. Generally, with a landlord insurance policy, you’ll need to show that you’ve taken steps to try to mitigate that loss. You can’t just let it go and not serve notices on tenants. Whether they’re your family or not, you still need to do that if you’re running it like a business.
Kevin:  Very good advice. I’ve been talking to Carolyn Majda from Terri Scheer Insurance. Carolyn, thank you very much for your time.
Carolyn:  Thank you.