Being emotional about the purchase. You are not going to live in it! It does not matter if you have a spa in the bedroom at home and the investment property does not, or the window coverings are not what you have at home. This is an investment and you have to look at this from that point of view.
Buying an old property
OK if you are a tradesman and have the skills, time and money to do all the maintenance that an old property needs. Also, property built prior to 1985 does not qualify for any building depreciation.
Buying a high priced property
That wonderful $million property is great for the ego to own – but what sort of return are you going to get? When economies are running along fine, expensive/ high cost rentals are fine- until the economy has a downturn. Can be vacant for a long time - or the rent must be reduced dramatically to get a tenant. Either way paying interest on this type of property with no tenant is not good. The right way to go- Buy what the masses live in!
Incorrect financial structuring
Buying 50/50 in a both partner’s names when one partner is the high income earner can be costly. Having the wrong type of loan at a high interest rate, high fees etc can all be negotiated with lenders by mortgage brokers with access to many lenders, rather than with one bank only. A loan exit strategy should be in place and loan break fees negotiated in the event that the property must be sold. Also, can you make extra payments via an offset loan or a line of credit? Is the loan portable?
Waiting till the end of the year for tax deductions
Tax deductions for depreciation on the building, fixtures and fittings can all be received on a regular basis eg each fortnight the tax deduction is added to your “take home pay” rather than waiting till the end of the financial year, submitting a tax return and then receiving your tax deduction. Your accountant can arrange this with the Taxation office.
Making an estimate of tax deductions each year.
Often, people have their accountant make a calculation re tax claimable. This may be allowed for some time and then retrospectively disallowed!
A better strategy is to engage a quantity surveyor for a small fee to give you an accurate depreciation schedule. This will ensure you get the correct tax deductions and stay popular with the tax commissioner!
Managing the property and tenants yourself
Engage a good property manager. They have the skills and experience to get a good tenant (egg you are not a member of the tenant checking association- how can you find out if a tenant has a bad record with past landlords?) Your property manager can and does, plus going through a rigorous reference checking procedure as well prior to preparing a lease etc.
Regular inspections of your property are made and a report sent to you re the condition of the property, any items that are in need of repair and so on. This allows you to budget or be prepared for any necessary repairs or maintenance before reaching a bad or dangerous condition.
Property managers have the training to handle situations with problem tenants and are fully aware of the laws regarding notices, warnings, removal etc if needed. The small fees charged are tax deductible and after all, this is an investment so why do it yourself?
Landlord protection insurance is very affordable and should really be titled “relax- sleep tight, peace of mind “insurance.
It can be purchased at low cost (maybe included in your loan?) and you will be covered if a tenant damages the property, or a fire occurs, the damage will be repaired, you will still receive your rent as well. If a tenant leaves prior to the expiration of the lease, then you will receive rent until another tenant is in place.
Buying in your own backyard
Just because you feel that you must be able to “drive past and check it out” does not make this a good idea. It will probably feel good because you feel that you know all about your area, and so on. However, Australia is a big place and there are tremendous opportunities awaiting everywhere. South East Queensland, in particular has, and is enjoying spectacular growth. 60,000 people per year moving there to enjoy the lifestyle, low cost of living, employment opportunities and wonderful weather.
Many of our clients live in the South East, and have bought their investment properties here as well. Perhaps living in Brisbane and purchasing on the Gold Coast and vice versa. The Ipswich Corridor is being focused on dramatically by the State Government via the newly released Strategic Plan. This will provide the infrastructure, planning, transport, roads, schooling and, development for the entire area. $55Billion has been allocated to ensure a great result.
Being your own property expert
OK, so you have bought a couple of homes to live in and you made a lot of money (I’m pretty good- No matter that I was lucky enough to buy just before the boom each time!!)
Now, when looking at a property to invest in there will be very different criteria. You will be looking at affordability, yields, tax considerations, finance, areas, rental returns, stamp duties, legal, property management, maintenance and so on. You can do all of these things yourself, or you can seek professional help to make sure the decisions are the right ones- in other words, to hold your hand and guide you through the process easily, with a minimum of stress.
Give us a call or send an email. Let us be your guide so that you get the result you really want.