HOW TO:
Having an investment property and
being a landlord is a huge undertaking. We could write pages and pages on just
the very basics that you need to know to successfully handle in investment
property, but in this piece we’ll focus on just a few key financial things you
should take care of.
HAVE EXPENDIBLE INCOME
As a general rule, you should never
expect to make a profit based on your rental income. Depending on where you
invest, it’s definitely a possibility, but in some cases, your rental income
won’t even cover your mortgage repayments. For example:
you have a $300,000 mortgage on your
investment property
at a rate of 5% you’ll be paying
appox. $375 per week on your mortgage
for that price, you might be able to
get a reasonable 3-bedroom, 1 bathroom place in Golden Grove
depending on the presentation, you
could rent it out for between $340 and $375 per week*
As you can see, you’d only just be
covering your mortgage in the best-case scenario and that’s only if nothing
ever goes wrong at the property! Financially, you need to be prepared for that
and you need to be able to afford the mortgage on your investment, as well as
the mortgage or rent for wherever you are currently living as well as daily
living costs. At tax time, you may get a nice refund as the expenses related to
owning an investment property will offset against your taxable income. This is
what is known as negative gearing. If you can afford to do so, it might be
prudent to keep that refund aside for emergency repairs to your investment
property.**
BE INSURED
PLEASE, PLEASE, PLEASE get proper
landlord’s insurance! There are several companies who specialise in landlord’s
insurance policies. They are generally less than $300 per year and their
policies are much more comprehensive and cover scenario’s that you’ve probably
never even thought of! Even though your tenant will pay a bond, the process of
evicting a tenant means that the bond will almost never cover all your losses
should something go wrong, so landlord’s insurance is definitely necessary.
CHOOSE WISELY
Have you ever thought to yourself
about all the “bad tenant” stories out there and wondered, “where do they end
up living?” Well, a lot of them actually prey on landlord’s who are
self-managing their property and advertising in Gumtree and similar
publications. The reason that they do that, is they know that a landlord who is
managing the property themselves, is probably not going to do the required
checks (or not do them properly)… Let’s say for example:
you have all the applicants fill in
application forms
the applicant that you liked says
that they rented from another self-managing landlord and has listed them as a
reference
you do the right thing and call that
other landlord to ask what this applicant was like as a tenant
How do you know who you’re talking
to? Your applicant could be one of those nightmare tenants who has a friend
posing as their landlord!
USE A TRUSTED PROPERTY MANAGER
You really need to consider using a
trusted Property Manager to help you find and manage your tenant. I can feel
all of you rolling your eyes at this and thinking it’s just a plug for our
Agency, but it really isn’t. In the above scenario, a good Property Manager:
would use the systems available to
them to check National Tenancy Databases to see if the applicant been reported
previously
would use the systems available to
check the “self-managing landlord” on the application is actually the owner of
the house that the applicant is claiming to have rented from them
if the applicant stated that they
rented from an Agency previously, we would easily be able to call the Agency to
get an honest review of what the tenant was like
And these are just a few of the
checks that a good Property Manager would complete when looking for a tenant.
Of course, things can still go wrong if you use a Property Manager, and tenants
who used to be amazing can turn bad due to loss of job or various personal
problems that can arise.
But, at least you can rest assured
that when you need to go to Tribunal to evict a problem tenant, that all of the
correct records have been kept, and at the push of a button, everything can be
sent or printed out as evidence to get the outcome that you want. That’s if you
select a trusted Property Manager. As for how to do that, well that’s another
whole entry!
*example is for illustration purposes
only
**Smith Partners Real Estate is not a
financial adviser. You should seek independent legal, financial, taxation or
other advice to check how this information relates to your unique circumstances
For more information:
For more information:
Ph: (08) 8251 3249
Email: info@spartners.com.au
Or come and see us at:
