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.**
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.
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
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