When it comes to property investing, there are many things to consider. Something that is often initially overlooked is the fact that as an investor, you’re also becoming a landlord. You’ll want to be renting out that new property to be servicing your mortgage and that in itself leads to a whole new kettle of fish for you to consider BEFORE purchasing that first investment.Now, before you start thinking we’re advocating managing your own properties, slow down. It doesn’t matter whether you look after the day to day running of the property yourself or engage a property manager, these are issues to think about before you even sign the contract.
The Key Investor/Landlord Considerations
New VS Old
Many investors start with the idea of purchasing a cheaper investment property which generally equates to an older property. This may be driven from an emotional standpoint of “I don’t want my tenants to have a better home than me” or simply a financial one. Either way, this can lead to increased maintenance costs, limited depreciation opportunities (more on this below) and, last but not least, lower quality tenants. You want tenants that will look after your property, so choose a property that will attract the right sorts. The cost of tenants not paying rent or having to be evicted can exceed their bonds, leaving you out of pocket and rueing your earlier decisions.
How much is enough?
Rents are a difficult thing to balance. Everyone realises that if rent is too low your investment will quickly become a liability. Something often overlooked is that higher rents can lead to vacancies which actually do more harm than good in the long term. For instance, with the current weak rental market, holding an existing tenant is pure gold. Even a rental hike of $10 per week could cause them to look elsewhere, forcing you to chase new tenants. If you’re renting at $400 per week and it’s vacant for only two, that’s $800 lost for a gain of only $520 over a year. Yep, the math doesn’t lie. So use your head, use your contacts, use any information available to you to find the right balance.
Depreciation
If you don’t know what depreciation is, then you’re in for a treat. Even if you do, knowing and maximising are two separate things. Depreciation in its simplest form is a way to reduce your tax based on the reducing value of items within your property. This is most pertinent in brand new homes, where it’s filled with brand new things, each of which has dropped in value as soon as it left the showroom floor. Hiring a quantity surveyor to identify these items could just be the best money you ever spend, as the deductions continue for a number of years, providing long term benefits.
Use your Property Manager
If you’re not running rentals as a business yourself, then you probably don’t have time to deal with an investment portfolio of tenants and will have engaged a property manager. That’s great, especially when you start to utilise them to the max. A good property manager can and will incorporate your bills and rates into the service, at no extra charge. They’ll pay these straight from the rent, keeping excellent records that you (or your accountant) will be most thankful for come tax time. Remember, they’re more than just rent collectors.
As you can see, there’s so much more to investing than just buying a bargain. That’s why it’s important to get the right advice. At Australian Property Panel, we’re here to help, stepping you through the process from start to finish. And finish is not just the purchase of a property, but the creation of a property portfolio for you to enjoy the life you want. So why not come along to one of our free seminars, or simply get in touch with one of our friendly advisers now.
If you’ve got more questions, then please visit our FAQ’s page or contact us here.
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