The 14 things you must know to be in control of your Investment Property
The heady excitement of purchasing your investment property has passed and now it sits in the background and just keeps ticking away.
But don’t forget your investment property is a business and you should run it like a business. There is key information as a landlord that you should know about your property. We recommend once a year conducting an audit on your property to make sure you are in control of your asset.
Below we discuss the 14 essentials that all landlords should know. And as a bonus, we have enclosed our ‘Investment Property Audit’ form for you to complete and retain for your records.
If you purchased your property last month you probably know the purchase date and price but the longer you have the property the less likely you are to remember.
Your purchase price and date have several implications, it will affect your tax return for the first year you hold the property, capital gains if you sell the property and whether you can benefit from depreciation schedule. And of course, how can you monitor the performance of your property if you don’t know the original purchase price and date!
Which leads us to the next thing you should know.
How can you tell if you have a high performer or a lemon if you don’t monitor your properties growth each year? There are several ways you can estimate the current value of your property. There are a number of apps and websites that will give you an estimated price range, however, we recommend using them with caution. They can give quite varied and inaccurate results. But for a quick check, try all the big property websites, like www.realestate.com.au or Domain.
Rob Di Vita one of our Senior Buyers Agents recommends “One of the best ways to get a reasonably accurate price range is to go on realestate.com.au and check out the recently sold properties in your area. It is crucial though you compare like with like. A double story townhouse is not the same as a single story on the main road.”
You can always pay for an independent property valuation but this is not necessary annually.
There have been several stories in the news lately about “loan shock” or “mortgage stress”. The best way to avoid this is to understand your loan terms and to speak to someone in the industry on the implications of the tightening credit environment.
We are always surprised by the number of landlords that don’t know their loan terms and interest rate. Know your interest rate, know your loan terms (eg 25, 30 years) and know your loan amortisation type. If you are on Interest Only, when does the Interest Only period end? It does not last forever.
When your loan changes from Interest Only to Principal & Interest your repayments can increase exponentially as the loan repayments are calculated over the remainder of the term (ie. 20 years). Be prepared for when this might occur and make sure you plan for the reduced cash flow or consider refinancing your loan to another interest only term.
Senior Mortgage Broker Natasha Choi from ALIC “Access to finance is much more stringent and onerous on borrowers to provide a lot of paperwork. Do not assume that you can renew your interest-only period with your incumbent lender or even move to a new bank because every application is now credit critical. This means the banks will assess your ability to repay the mortgage if interest rates were at 7.25%, which is almost double what your current interest should be.”
We highly recommend engaging an experienced mortgage broker. They will find you the best competitive offerings and educate you on the current lending landscape. A good mortgage broker should provide options on loan structuring to ensure asset protection and wealth creation (which should always be approved by your accountant and legal advisors).
Lastly, every Investment Property owner should speak to a quantity surveyor and find out if you are missing out on thousands of dollars’ worth of unclaimed deductions each year and you will find the fee for a depreciation schedule will be saved within the first year’s tax deductions.
I bet you know what your salary is, but do you know what you make in rent each year and how does it compare to the market? And what about your monthly management fee?
Rents and Management Fees vary state to state, and suburb to suburb. But on average we find they range from:
- NSW – 4 to 8%
- VICTORIA – 5 to 7.5%
- SA – 6.5 to 7.5%
- QLD – 8 to 10%
Senior Property Manager Tracey Farrell in Queensland advises “Lower rates are not always in your best interest. You need to know what services you are getting for your money, how many properties each manager has in their portfolio, their knowledge of current legislation, years of experience and importantly their ability to communicate clearly and confidently with you and your tenants.”
It can be a little bit harder to find out whether your monthly rental income is on par with the market rate. You can conduct independent research as a landlord by checking comparable properties in the big property websites but once again you must compare oranges with oranges.
However, Senior Property Manager Ivonne Di Perna says “A proactive property management team will conduct rent reviews on your behalf and registered agencies have access to important archive information that the general public doesn’t.”
Di Perna continues with “By all means look online, view the latest listings but please bear in mind that the advertised rent per week is the asking price and not necessarily what was reached.
Insurance is never sexy but so often we hear of people that are underinsured. And you wouldn’t believe the stories we could tell you about cars ploughing through bedrooms, sewerage pipes backing up and runaway tenants.
As a landlord, the minimal insurance you should have is building (structural) and landlord (contents).
Di Perna advises “Landlord insurance / Contents policies all have rent default cover as a standard item, however, each policy will vary in the length of time the rent will be covered for in the event that a tenant defaults and/or premises are not able to be re-let (due to damages).
And for anyone that has body corporate or strata title insurance did you know it does not cover you for contents or loss of rent. You still need to take out an independent landlord policy to cover you.
So, do you run your investment property like a business?
If you’re not sure, complete our one-page Investment Property Audit form and make sure you are in the control of your investment property and not the other way around.
Bonus Investment Property Audit Form
- Click Download
- Save the Form to your Computer
- Enter your information and Save (complete one form per property, rename the form to your property address)
- If you would any further assistance please contact us here.