2023 is already shaping up to be quite a challenging year for property investors and landlords, with the impacts of interest rate rises beginning to bite and economic uncertainty dampening the market. There are, however, tried-and-tested ways for investors to get ahead. Get the latest tips for property investors.
Recalibrate your investment strategy
Investors who want to succeed this year must focus on strong capital growth areas with high rental demand. With immigration opening up in Australia, the government expects some 235,000 immigrants so focus on areas with strong population growth potential and look for properties with high rental returns. With vacancy rates at an all-time low around the country, high rental yields can offset any potential rises in interest rates.
Learn from mistakes
Time is an investors’ biggest asset, and one mistake investors should avoid over the next year or two is buying into big projects with two to four-year sunset clauses.
With banks constantly changing their lending criteria and developers uncertain of market conditions there is a considerable risk that some developments may not proceed. When this happens your deposit money is tied up and you lose years of potential compounding capital growth.
Another mistake is zeroing in on mining towns where mining is the only industry. With changes in government and new energy all the rage, mining towns could become a thing of the past, severely affecting property prices and rent returns.
Tap the right people – brokers, agents, and managers
While it is not impossible for one to succeed in the property investing space without tapping agents and brokers, it still pays to have the right people on the team. First Brick Property Buyers Agency director Kyrillos Mansour said there are merits to getting a mortgage broker, especially for investors who are starting to build their portfolio.
A well-informed mortgage broker can significantly benefit investors — they can compare hundreds of loan products and find the best-fit solution for the investor’s individual situation and needs. With a mortgage broker, the arduous task of speaking with multiple banks can be eliminated, reducing the hassle of the loan application process. Buyers agents are as important for investors – Mr Mansour said a knowledgeable and data-driven agent can immensely help investors decide where to purchase.
In scenarios where the investor is proactive and has a data-driven approach, bbuyers’agents may not be necessary, but their experience in negotiating and transacting hundreds to thousands of properties can still aid in securing a better deal. They can help investors make informed decisions, free from emotional biases. This is one of the advantages of investors who tap buyers agents over those who take the do-it-yourself route.
Meanwhile, those with established portfolios are highly encouraged to get a property manager.
Here are some of the other benefits of getting a property manager.
- Professional management. With their professional background, managers can ensure that properties are well maintained and running smoothly, maximising the return on investment for the investor.
- Compliance. Property managers are knowledgeable about various laws and regulations.
- Tenant relations. With property managers, investors are able to secure quality tenants. Managers also handle the lease negotiation and any disputes that may arise.
- Financial management. Investors can stay on top of the financial performance of their properties with the help of managers who take over the jobs of rent collection, bookkeeping, and preparation of financial reports.
Improve the marketing of the property
In a competitive market, improving the rental listing is key to ensuring that the property stands out. Consider the following strategies:
- If the property is newly bought, ask the selling agent for existing professional photos, floorplan, and videos of the property.
- For existing properties, spend some money on professional photography for the listings. Add lifestyle shots showing nearby amenities to boost the appeal of the listing.
- Show the property during the daytime and early evening.
- Have advertised openings with pre-qualified applicants.
- Be flexible to allow the maximum audience to see the property.
- Pay for a premium listing to highlight online.
Retain quality tenants
Maintaining a good relationship with tenants is a must. First, fix any problems in a timely manner.
investors must understand that losing a good tenant can dent their finances. For example, if a good tenant cannot pay an extra $50 a week to bring it to a market rent of $600 per week and you decide to list the property for rent on the open market, the costs to re-let the property could be up to $2,400 to the landlord. You may lose a good tenant and obtain a bad one, you just never know. Do your calculations and ensure it is worth the risk.
Think of green upgrades
Energy efficient upgrades can be attractive to potential renters as they can see a reduced electricity bill benefit and result in a tenant occupying the property longer and therefore reducing vacancy.
However, not all upgrades can provide bang for your buck. For instance, investors must weigh the pros and cons of solar panels. Solar panels can cause roof leaks and future maintenance or replacement costs but if the landlord is paying for the electricity, this can be a way to increase cash flow. You need to weigh up the cost of installing the devices against the savings to determine viability.”
Keep in mind that it takes time, energy, and fossil fuels to create these green upgrades, which also have a limited shelf life. Still, there are some practical green upgrades that are not as costly and can be easy to do, like having energy-efficient appliances. Sealing windows and doors is also a good upgrade, as it can help reduce airflow inefficiencies and improve the overall quality of air inside the property.
Get the property insured
A study from the Insurance Council of Australia showed that only around three in five rental properties across the country are covered by landlord insurance. There is no denying the importance of landlord insurance, which protects investors from potential lawsuits, any potential loss due to damage, and other risks.
When choosing landlord insurance, make sure the policy covers accidental damage caused by the tenants as well as loss of rent. Shop around or engage a good insurance broker to do the work for you. Make sure you choose an insurer who specialises in landlord insurance.
A landlord insurance policy usually covers the dwelling itself and other structures within the property. However, it might also be useful to add some optional coverage to the policy including vandalism, burglary, renovation, and building codes.
Take advantage of tax breaks
Investors must also learn to not just keep all the receipts for works done on the property but to also record all fees, including interest and bank costs.
You may also want to consider buying the property through a family trust or even a self-managed superannuation fund (SMSF). If you don’t already have one, seek out a qualified accountant who understands property investment and can recommend the best purchase structure according to your situation. Use a depreciation schedule to help increase your tax deductions.
A new home will give greater depreciation benefits than an older home. You only have to get a schedule done once and give it to your accountant who will use the depreciation to reduce your taxable income.
Conduct a home loan review
Given the changes in interest rates over the past months, investors must revisit the terms and features of their home loans. Interest-only payments is something worth considering on the back of rising rates. This will free up more cashflow and ensures lower repayments. As long as the total value of the property increases during your time as owner, you will see good capital growth with this option.
Taking advantage of an offset account is also a good route to take, as it can help provide a safety net for when unexpected maintenance costs arise.
It’s also a good idea to increase your frequency of repayments. Over time, this limits the amount of total interest owed on your property.
Checking your tenancy agreements
When finalising the tenancy agreement, landlords must:
- Have everything clearly laid out in writing to avoid any future complications
- Prepare for the worst and reduce your risk to achieve the best
- Include all necessary clauses
- Seek professional advice from the property manager and/or solicitor before signing the agreement
- Always keep a copy of the signed agreement for your records and future reference
- Know when all appliance warranties expire to ensure they are not replacing something that is under warranty – this also creates future replacement expectations
Know the people you are renting to
- Confirm the tenant’s identity by cross-checking with government IDs
- Understand their level of employment and ensure their ability to pay rent
- Ask what their future plans are – how long do they intend to stay?
Prepare for the worst-case scenario
- Determine the appropriate number of days you must give the tenant to vacate the property after giving them notice
- Know your rights to the bond payment in the event of damages
- Know what actions you need to take if a tenant decides not to vacate the property and ensure the property manager has experience in these situations
How can we help?
If you have any questions or would like further information or you are seeking property tax advice, please feel free to contact our office via email –info@investplusaccounting.com.au or phone 02 9299 7000 to either speak with someone or arrange a time for a meeting so we can discuss your requirements in more detail. You can arrange a free 15 minute no obligation chat to discuss your options. Please arrange an appointment with our office by clicking here
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