Owning property – whether it’s your own home or an investment property – comes with risks.
While it would be great to be able to wrap the property in cotton wool and protect it from every risk exposure, it simply isn’t possible.
As an agent, no doubt you will help your landlord clients to mitigate some of the risks associated with owning an investment property – like helping them understand the tenancy laws and their legal responsibilities, such as their duty of care, and maintaining a safe, secure and habitable rental.
You will probably also support them in avoiding certain risks by looking after the property – securing good tenants, conducting routine inspections, and arranging repairs and maintenance.
However, there are some risks rental properties face that are beyond the control of even the best property manager – unforeseeable events that can derail a landlord’s plan (and jeopardise your income from managing the rental). In some cases, these risks may be mitigated through landlord insurance.
As we are now well and truly into 2025, these are the emerging risks to be aware of in the year ahead.
Tenants defaulting on rent
Cost of living pressures continue to mount, and rental affordability remains an issue for many.
REIA’s affordability report for the September 2024 quarter revealed rental affordability had continued to decline.
The proportion of income required to meet median rents had increased to 24.9 per cent over the quarter.
Data from SQM Research also showed national rents had risen 7.4 per cent in the 12 months to December 2024.
The decline in affordability is taking a toll. A survey conducted by Masters Builders found more than one-third of Australians have had to forgo essentials like food, medicine, or education to afford their rent, while 39 per cent have struggled to pay their rent in the last year.
As tenants struggle, it is almost inevitable that some will be unable to pay their rent.
If a tenant falls behind on rent (and the bond held will only go so far), not only will you need to go through the legal eviction process, but your landlords could be left out-of-pocket (as could you, if there is no rental management income coming in).
However, if your clients have specialist landlord insurance cover, they may be able to recover the lost rent.
Heads up! It is important that you act swiftly when it comes to rent arrears, as there is a limit to how much landlord insurance providers will pay out for loss of rent due to rent default.
Changing legislation
Another emerging risk stems from changing legislation.
Some changes could have a direct impact on how rentals are let and managed, such as preventing landlords from refusing pets or allowing tenants to make minor modifications.
Legislation usually includes provisions requiring the rental property to be restored to its original condition once the tenant vacates.
This means that any damage caused by pets must be repaired, and any modifications made must be removed if the landlord requires it.
However, should the tenant fail their obligations, the landlord could be left footing the repair bills and chasing the tenant for reimbursement.
If they have landlord insurance, they may be able to claim the costs incurred.
Changing weather events
Temperamental weather is another emerging risk that can impact a rental.
The increasing frequency and severity of natural catastrophes and extreme weather events can have devastating repercussions for properties.
If a rental property is damaged by such a weather event, the landlord may face not only the cost of repairs but also the potential loss of rental income if the tenant needs to vacate the premises, whether temporarily or permanently.
However, with the right landlord insurance policy in place, the owner may be protected against those costs and losses.
General damage and tenant related risks
Of course, there are ongoing risks that investment properties face too, such as damage.
A rental property could be damaged by fire, storms or floods, or other insured events like water damage or theft. If such a disaster strikes, the landlord may be protected against the financial fallout by having appropriate insurance.
While the events just mentioned are common to all properties, rental properties face an additional challenge – tenant-related risks.
These risks predominantly fall into two categories – loss of rent and tenant-related damage.
Loss of rent and tenant-caused damage are the main reasons why landlords need to claim on their insurance.
Without specialist landlord insurance, it is unlikely a landlord could claim for any tenant-related loss (which make up about half of all EBM RentCover claims each year).
Liability
Another important, though often ignored, risk is legal liability.
If a landlord’s negligence leads to a tenant or anyone else legally on the premises suffering a bodily injury or financial loss, the landlord could be sued for compensation. Such payouts can potentially reach millions of dollars.
Landlord insurance may protect the owner from personally having to pay a claim. EBM RentCover, for example, offers up to $30 million in legal liability cover in landlord insurance policy
To summarise
I’m not saying that all risks that a landlord may face can be covered by insurance – they can’t.
Some risks are just not insurable, like financial losses due to market forces, the costs of routine repairs and maintenance, wear and tear, losses that aren’t due to a single event like erosion, or events that are not viable for the insurer to cover such as actions of the sea.
If insurers were to cover all the eventualities, the financial burden would be too great that it would be impractical, or the premiums would be too expensive to afford.
However, landlord insurance is designed to cover the common risks that property investors face.
It provides policyholders a level of protection against a range of insured events safeguarding the landlord’s finances should their property be damaged or they incur an insurable loss.
So, ensuring that your landlord clients have the right specialist insurance cover is the best way to help them protect their investment properties in 2025.
As ever, feel free to reach out to your EBM RentCover Relationship Manager if you have any questions.
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