Buying your first investment property is a momentous occasion – in fact, you've joined a special club that, according to the ATO, only approx. 20% of Australian households belong to. And while it's cause for celebration, it does need to be tempered with sage advice. Here's what you need to know as soon as settlement occurs on your first investment property.
Preparing for tenants.
Before anyone can inhabit the home, you'll need to assess whether there are any repairs or maintenance to be undertaken, or additions or renovations. Heating and cooling are big-ticket items, so, if they aren't already installed, you'll benefit far more from doing this.
Obtaining landlord insurance is important, as this helps protect you from financial losses. You should also start a rental property depreciation schedule to help you understand the amounts you're eligible to claim on your tax returns. Compliance must be met, too. This includes smoke alarms, window locks, blind cords and water efficiency.
Stay educated and informed.
Knowledge is power, so staying educated and informed as an investment property owner is critical. This can be as simple as staying on top of all the reports passed on to you by your appointed property management team, or as detailed as increasing your knowledge by learning as much as possible from industry experts.
It will also ensure you don't suffer from a budget blow-out or cash-flow crisis. Because while there will be cash coming in (your rental income), there will also be many expenses, including lots which don't occur regularly. Manage your finances well - prepare in advance for all outgoings and establish offset accounts for excess funds. And always remember: cash is king!
Plan your investment strategy.
It might be your first investment property, but, if you're like many others, it won't be your last. So, you need to know how to manage your investment to reach your financial goals.
A capital growth strategy is one where your property increases in value over time. It's measured by the difference between the market value and its purchase price. If you want capital growth and fast gains, you should consider negatively geared properties.
The opposite is a rental yield strategy. This means the property is positively geared, so the rental income is greater than the costs of owning and keeping the property. It's a good idea if you're after passive income.
For those serious about expanding their property portfolio, accessing the equity in your current investment to purchase another is a great strategy. Equity is the difference between the current value of the property (or your home) and how much you owe on it. Some of the best performing suburbs to consider, according to the April 2020 property market update from Smartline, are Kotara, Islington, Charlestown, Waratah, Wallsend, Tighes Hill and Mayfield areas (all located within a 20 minute drive of the Newcastle CBD). You'll need to talk to a trusted financial adviser, but it's a very popular method for growing your portfolio.
Finding and appointing an exceptional property management team.
Many property investors choose to self-manage, and some are quite successful. However, with the time involved in collecting rents, managing arrears, arranging repairs, ensuring the rent is at a market level and finding the best tenants (together with checking references), most owners soon discover their time is more efficiently spent on other tasks. These investors also tend to become personally involved with their tenant, so the ability to deal with rent arrears and increasing rent becomes a challenge as there is no middle-man to complete these tasks.
A good property manager will make you money on your investment, not cost you money and, of course, their fee is a tax-deductible expense! It is also wise to consider the legal implications of property management. We are living in litigious times, with tenancy laws and their interpretations regularly changing. A property owner can ill afford to handle a problem tenant incorrectly. Professional property managers understand tenancy law and are abreast of constantly changing legislation. We can give you impartial advice and undertake instructions on your behalf without you becoming personally involved.
Century 21 Newcastle are proud of our record low days on market (currently under 5!) and that 70% of new business is by referral. We're also backed by a strong marketing strategy and leverage technology to ensure your valuable investment is well looked after.
Why not see for yourselves the difference a dedicated team of property managers makes? For a free copy of our Property Investors Guide or for an obligation-free chat, email our Director, Casey Healy on casey@c21newcastle.com.au or phone 02 4928 7400 today.