Eight Investment Property Tips For Beginners
1. Research Research Research
It is said that you make money on a transaction at the beginning. I mean that you need to buy the property at the right price.
That may sound simple enough, but the amount of people that get FOMO or fear of missing out during a boom never ceases to amaze me.
Sometimes “doing nothing” is the best investment you can make.
But if you are going to buy during a boom, at least use software like Corelogic to get an accurate estimate of the property’s value before you buy it.
2. Maximise rentals
With most capital cities in Australia experiencing capital growth that hasn’t been seen in Australia, now would be a good time to think about maximising rental yield.
When capital growth slows, investors need to turn to rental yields and perhaps spend some money upgrading to achieve higher rentals.
The first thing is to make sure the property is rented. It’s no good setting a rental for a property that the market will not pay. Because of the spread of real estate on the internet, most tenants now know exactly what similar properties cost in rent, and they will not pay more than the market. A vacant property brings in nothing and costs money to advertise.
If a property is vacant, take the opportunity to upgrade, this will extend its appeal. A split-system air-conditioner costs about $2500, is depreciable and probably means you can raise the rent a little. Same with a dishwasher. Neat, clean and tidy also widens the appeal. Make sure you regularly repaint, carry out the necessary repairs and keep outdoor areas looking good.
Landlords can also increase the market if they allow pets. According to the RSPCA, 61% of Australians own a pet, so it’s worth landlords considering a sensible pet policy, which would allow pets in a rental property as long as all damage is repaired at the end of the lease period.
This is even more true after COVID-19 when pets were in such huge demand.
Another thing to think about is that if you have good tenants, it may be worth trading off higher rent for a longer lease.
3. Claim all deductions
“Let the taxman pay for your investment property” has been the catch-cry of many marketers of off-the-plan apartments. Without the benefits of negative gearing, many who bought near the top of the market would be unable to hold on.
Tax benefits should be the icing, but it’s foolish not to maximise what you are legally entitled to. Most investors know they can claim the interest paid on mortgage loans tied to investment property.
But many are unsure about what else they can claim. The Australian Taxation Office website outlines what can and cannot be claimed as a property investor. And if there is still any confusion, consult an accountant specialising in property investments.
4. Investment property tips Beginners – Depreciate
Most investors realise that new properties benefit from a tax depreciation schedule, but some do not know that older properties can also yield good tax breaks. In this market where property prices have increased, investors need to ensure they are claiming every deduction available. A professionally prepared rental property depreciation schedule can make all the difference.
Take a brand-new two-bedroom apartment. The first-year claim could be between $8000 and $12,000. And the first five years could amount to up to $40,000. Even on a 20-year-old building bought for around $550,000, we still manage to claim $5,000 per annum for the client.
Use the Rental Property Depreciation Calculator to calculate how much you can save on your investment property.
5. Go for a weekly tax break for
If you are a PAYG wage earner, the smartest way to claim negative-gearing entitlements is weekly rather than waiting until the end of each tax year. It works like this:
Apply to the ATO to have the tax deductions on your salary varied to take account of losses on investments. To do this, lodge a PAYG income tax withholding application. Make sure you use the correct version of the form, which is updated each financial year. It can be lodged either as a hard copy or electronically over the web.
What’s the gain? The ATO website uses the example of John, a real-estate salesman who earns $45,000 a year from his job (obviously, his earnings have been affected by the house price slump). John also estimates he has a $15,000-a-year shortfall from his investment property. Typically, he would be taxed on $45,000, but he could apply to have his tax varied, so he is only taxed on an annual income of $30,000.
Using the 2004-05 personal tax scales, the amount of tax withheld weekly from John’s pay packet would fall from $186 to $99, and his take-home pay would increase from $679 to $766.
6. Find a better mortgage
Now is an excellent time to review your loan structure and capitalise on low-interest rates. What is now available that wasn’t when you took out your loan? Consider refinancing and maybe freeing up some equity to buy another property.
The contracting home-loan market may see lenders more prepared to do deals to retain their customers and attract new ones.
Try mortgage comparison websites like Canstar
7. Review your property manager – Beginner investment property tips
Management fees are generally about 6%-9% of the gross rental, so if things are tight, owners could take over the property management themselves. But this will take time if it’s to be done correctly.
Good management, particularly ensuring all minor repairs are taken care of speedily, is vital to retain contented tenants. An efficient property manager should inspect your property at least every six months and make you aware of maintenance issues.
They should report to you regularly on the progress of the tenancy, rental arrears, repairs and maintenance.
They must make recommendations before the end of a tenancy about the rental outlook and best lease terms for your property to ensure a good capital gains outcome and cash flow whilst you own the property.
Remember, the property is a long-term investment, so it’s worth paying attention to it while owning it.
Hopefully, this will keep the vacancy rates low, and you’ll end up with capital gains tax issue, not a capital loss.
8. Get adequate insurance – Investment property tips
Ask whether savings can be made by combining all insurances with one company. Should you also have landlord insurance?
Good landlord insurance covers not only the property asset but also malicious and accidental damage by tenants, legal liability and loss of rental income. If an investment is a flat, consider whether the body corporate has adequate insurance for the common areas.
When you do buy an investment property, make sure you get a depreciation schedule on your investment property.