Understand your costs
It’s important to understand that property investing is no different to owning a business, you have income from your rent and tax benefits and, you have your expenses which includes things like property management fees, maintenance, insurances and so forth. Before you rent out your property or purchase an investment property, it’s important that you understand the cash flow scenario of your property and ensure that it makes good business sense for your circumstances.
Understanding all the costs involved in purchasing and holding on to a property long-term can be difficult so you should always seek the advice of a financial advisor or accountant who knows about real estate investment.
Some of the main areas you need to consider:
- How much income will your rental property generate?
- Will the rental income be enough to cover your outgoings?
- Can you manage any shortfall?
- Account for contingencies such as vacancy periods or unexpected maintenance.
Examine your investment analytically and always ensure you make adequate allowances to avoid any nasty surprises.
Property management vs self-managing
Many investors may be tempted to manage their own property or portfolio; that is finding tenants, organising the collection of rents, maintenance, understanding all the laws pertaining to renting, knowing the value of your rental and conducting regular inspections with the intention of saving money to boost profit potential.
In the short term, this may seem like a valid strategy, but what happens if you start to build your portfolio or your lifestyle changes don’t allow you to be so hands on? The ongoing management of a property and/or a portfolio amounts to a full-time job!
Leveraging the expertise of a professional property management company to handle all of these tasks on your behalf not only frees up your time but also means you can get the best outcome such as a good tenant and the best possible returns. They’ll also help remove your emotion from the process which can be difficult when you own any property.
When you hire a property manager, always go local to the geographic location of your investment. If your property management company specialises in an area then they’ll have a thorough understanding of your target market, local demands, how to match your property type to a suitable tenant and the potential rental return on your property.
Standing out from the crowd
You’ve purchased your investment property, listed it for rent on the market…but no one is snapping it up. It’s important to ensure that your property and its location has a demand for your ideal tenants. What features are people willing to pay for? Close to the city and amenities, low maintenance, lock and leave, large backyard and a swimming pool.
Equally if your home ticks all the boxes for your perfect tenant, if you don’t know how to highlight these features then it becomes easy for people to look past your property and snap up the neighbouring competition.
This is where you can benefit from the expertise of a good property management company. At Benchmark we specialise in the Northern corridor of Perth (Joondalup and surrounds) and with our local expertise we’ve been able to help our clients stand out from the crowd with on-demand advertising, exclusive home opens and a quick turn-around response. As a result, we’ve leased properties within days not months, minimised vacancy rates and above market average rental returns.
Do you know what your tax benefits are?
Many property investors aren’t aware of the tremendous tax benefits that property investing has to offer and with tax time looming, it pays to understand your entitlements.
As mentioned above, property investing is like a business you have incomings and you have outgoings that are tax deductible. Those include, maintenance fees, insurances, interest on your loans and more. See the full list of tax-deductible expenses you can claim on your rental property here.
If you’re a first-time investor, you may not be aware of property depreciation which is the extra cherry on top! When you invest in a property, you don’t just own the land and the building, but also the contents within the building such as carpets, window treatments, the oven and so forth. These items are known as depreciating assets and their decline in value can be claimed as a deduction over several years, usually their effective life. Check out the ATO website for more information on the deduction values and benefits of depreciating assets.
Emotion over logic
When you buy your first home, your purchasing decision is predominantly based on an emotional decision which is completely understandable.
When it comes to investing in a rental property however, it’s a common trap to apply the same buying behaviour particularly as a first-time investor. Allowing your emotions to overshadow your judgement means you become susceptible to over-capitalising, rather than using a business mindset to focus on your investment goals and objectives.
All property investors need to approach their strategy the same way they would a business which means buying based on analytical research and understanding the market. Rather than attaching to what you want in a home, here are some of the questions you should be asking as part of your research:
- What factors will ensure this property provide a good return?
- Is it the best location to attract quality tenants?
- What will appeal to the owner occupier market in the area to help sustain growth so that I can hold my property long-term?
When you start to look at your property as a vehicle to wealth, rather than something you want to buy because you love the gardens, you start to change your mindset to financial gain.
After all, owning a rental property is about economics not emotions.
Something that all investors need to understand is that property investment can also involve high emotion as the stakes are higher and the financial gain typically only comes from long term hold. Often a first home becomes a rental property and with this comes even more emotion – there is more attachment to a home you grew up and lived in. If you’re considering renting out your property that you’re living in, it’s important to understand that your investment will be someone’s home, there will be wear and tear over time, gardens will mature, and fixtures will age and deteriorate. This is often a difficult adjustment, so take careful consideration with this strategy.
The F word
When it comes to renting out your property, something we’re often asked is what generates a better yield and pool of tenants – furnished or unfurnished?
In short, the answer depends on your location, the type of tenant you want to appeal to and your overall strategy.
Furnished properties will always appeal to professionals on a work contract or students – both of which don’t typically stay on long term thus reducing your tenant pool, higher vacancy rates and tenant finding fees, and the liability of having to repair or replace furniture and appliances. However, there are upsides to furnished rentals such as the potential of a higher rental yield and of course any expenses replacing furniture are tax deductible.
The mot popular choice for long-term investment strategies is targeting good long-term tenants which is typically found through people seeking unfurnished properties to make the house their home.
When it comes to renting out your property, there is no shortage of information about what budding investors should do to ensure success and what pitfalls to avoid in the property game. So, to help you on your property investment journey, be sure to check out our latest guides on How To Maximise The Return On Your Rental Property and The Best Suburbs In Perth For Property Investors.
If you own a rental property in Perth and looking for the reliability and local expertise of a property management company to handle your property or portfolio, contact us today for a no-obligation chat with one of our experienced property managers.