10 Essentials to Property Investing
1.Can we afford it?
Steady cash flow is a critical step to property investing. Understand how much cash you have to invest in property and whether you can afford the cash flow impact on owning an investment property. Realise, that in addition to your mortgage, you have additional council rates, building insurance, landlord protection insurance and water (though a reasonable portion is recoverable by the tenant). A good place to start is by listing all your assets including incomes and working out your expenses. Determine, how much cash and/or equity you have for a deposit. 20% is a good place to start, however we recommend you talk to a mortgage broker, so they can better understand your personal situation.
2.Whats the long term plan?
What’s your why? What are you hoping to achieve? At Essential Property Management, it is our goal to help you achieve yours, but we are not financial planners or accountants, so it is important to be clear about these and talk to experts such as your accountant and financial advisor. You need to consider your short and long term goals. Is this for extra cash flow? Is it for retirement? Is it to pay for the children’s school fees? Before meeting with an expert, be clear on why and what you hope to achieve. This assists them in giving you the best advice.
3.How much can we borrow?
Congratulations! You’ve assessed your budget and determined there’s room for an investment, we recommend that you get pre-approval from a trusted mortgage broker for an amount so you can go searching for a property with certainty based on how much you can spend. This will also identify where you might purchase and whether you buy a house or apartment.
There are many ways to structure an investment loan. Contact us direct so that we can refer you to our trusted mortgage broker. They have assisted many transactions for our family and they can quickly identify the best way for you to proceed.
4.What are my tax implications?
When we talk to people, so many immediately talk about ways to avoid tax. It is important to understand the tax implications of buying an investment property and your accountant is the best person to talk to about this.
There are many strategies including positive and negative cash flow scenarios. Your accountant will know your personal circumstances and be able to advise the best approach for you. Also determine with your accountant which name and/or entity you should purchase the property in as this will impact future tax benefits, stamp duty and land tax implications.
5.Find a property manager
Many people buy a property, then engage a property manager. There’s nothing wrong with this, but we often find that people haven’t taken the time to consider things we would consider. And sometimes, a purchase is made anticipating a rent return that’s not achievable. This can have cash flow implications.
A property manager costs approximately 7-10% of your total rental income. Remember though, a qualified property manager is skilled at ensuring the value of your property. It’s also important to remember the costs are a tax-deductible expense.
Many investors are financially-savvy, but very few have the time to take calls from tenants, arrange trades people, inspect the property, check their accounts regularly for payment and report their financials.
Essential Property Management aim to ensure this is a set and forget process for you and as stress free as possible.
6.What’s important to you?
Take the time to consider who you consider as the ideal tenant. The things you should consider: location, public transport, close to schools, close to shops/amenities.
Then when searching for a property, take the time to consider whether it makes an ideal investment. The things you should consider: types of floor coverings, types of blinds, number of bathrooms, does it have built in robes, quality of paint, are gardens low maintenance, is it air conditioned?
Because you’ve taken the time to already appoint a property manager, we can advise you on the best property and in some instances assist you in the search process.
Whats the right property for us?
So, you know how much money the bank will give you and you know whether to negatively gear or positively gear, so let’s find the right property for you.
What’s the goal?
Is it cashflow, or capital growth or reducing tax?
7.Find the property
This is the fun bit, but it’s also the frustrating bit. Do your research, talk to other agents and people who have invested. Once you have a budget, decide whether you want a house or apartment. Consider things such as strata/body corporates and all of the items above. Go for neutral colours but remember paint fixes everything. Don’t get caught up in whether you do or don’t like the tiles, because you’re never likely to live there so it’s really not important. What is important is they’re easy to maintain and keep clean, so don’t become emotionally attached to the property. Remember, it’s an investment, and your focus should be on maximising capital and rental return.
Keep an eye on the real estate portals such as realestate.com.au and domain.com.au, you can set alerts to ensure you are notified when the type of properties that interest you hit the market.
Because you’ve already found a property manager you trust, get their opinion, but remember it’s your money and ultimately your decision.
8.Sort through the legal jargon
Changing titles, determining the entity or name to purchase in and overlooking the contract to protest your interests is quite daunting and complicated. At Essential Property Management, we recommend the services of a solicitor or licensed conveyancer to help you through the jargon.
Hopefully your investment property is being managed and you have reliable tenants paying their fortnightly rent on time. Your property manager will provide a monthly income and expenses statement and be able to provide you with a report for your end of year accounting. There are a few other accounting implications and requirements so make sure you discuss this with your accountant.
10.Catch the bug
In most instances, property investing is a relatively stress-free task. We recommend a mortgage and financial health check annually. Your financial planner, accountant and mortgage broker can advise if it’s time to buy another.