Thinking of investing in property?

Buying

Thinking of investing in property?

Thinking of investing in property? Great idea. We'd love to help you get started, however, it’s important to have a clear long-term real estate investment strategy. Are you going for high rental returns for the short term or are you more interested in long term capital growth?

If you’re thinking about investing in property for the first time, it’s important to seek professional advice.
Investing in property has several benefits, including the potential to:
•Generate capital growth – increase in the value of your property over time
•Generate rental income and yield – annual rental income less maintenance & mortgage costs
•Gain potential tax advantages associated with negative gearing – you can deduct the costs of owning your investment property from your overall income, reducing your tax bill.




WHAT TO BUY
If you’ve decided that investing in property is the way to go, it’s important to recognise that the way you might choose an investment property is very different from how you would choose your own home. Some points to consider:
•Buy a property that fits your strategy, e.g. do you want to negatively gear, are you interested in commercial or industrial real estate, do you seek properties which you can improve?
•Understand all the expenses including, stamp duty, strata levies, council and water rates, property management fees.
•Consider getting Landlord Protection Insurance to cover you if the unexpected happens.
•Whether you can cover mortgage repayments if the property is vacant for a period of time.
•Choose a loan that suits you and consider an interest only option, as it will lower repayments and increase your cash flow.
•Keep up to date on the latest property trends.
Is it better to buy an apartment or house?
•Do your research to find out what the market demands locally.
•Talk to a First National Lazaridis & Yap agent to find out what’s popular in different regions.
•If you have a location in mind, focus your research on what type of property is in demand, historically, in that area.
•If you plan on building a portfolio of properties, a mixture of houses and apartments is a good strategy.
•Some investors like to buy apartments because the Owners Corporation looks after the common property and overall building management. Some dislike Strata Title quarterly levies and the risk of ‘Special Levies’.
•Apartments are usually less expensive so the answer may lie in affordability.
•Some property investors believe apartments are too similar to one another and that houses offer more potential to differentiate and add value.
•Investors who buy houses must bear 100% of the costs of maintenance whereas strata title and community title owners share costs.




WHAT TO LOOK FOR WHEN INVESTING IN RENTAL PROPERTY
From an investment perspective, a rental property is best when it is located close to transport and centres of employment. Typically, this means properties within a 10 km radius of town centres of CBDs will perform better over time.

Tenants like the same fundamentals in a home that you do, so look for bright and sunny aspects, neutral colour schemes, good security, parking, storage, and modern conveniences like air-conditioning and dishwashers.

Ideally, your goal should be to buy a property that will deliver maximum capital growth over time. This depends on the three laws of real estate; position, position, position. Also, talk to your mortgage broker about the areas that banks are happier to finance because this generally provides a good guide to areas of lower risk.

Likewise, rental yields differ from area to area, so do your homework. You should be aiming to invest for the medium to long-term and will need solid cash flow to maintain your mortgage repayments.

Think about the demographics of the area in which you want to invest as well. If you’re buying a property near a university, more bedrooms are likely to be more popular with students than a big garden. By contrast, a big garden and a pool will be far more appealing to tenants in a family area.

When it comes to buying an apartment in a Strata Title or Company Title building, make sure you obtain a report on the building’s finances and management from the company that manages the building. This could reveal whether there is any major upcoming maintenance on lifts or pools, or whether there are major future expenses such as roof replacement or fire safety compliance work. With houses, conduct a building and pest inspection before buying.

Above all, focus on buying with your head and not your heart. Many investors look to buy something they would be happy to live in but this can lead to mistakes. Stick to the principle of buying a quality property in a convenient location with all the features that will keep your property rented. That way, when you come to sell, another savvy investor will be prepared to pay a competitive price for your property.


BUYING A NEW OR EXISTING HOME
Buying old
•Older properties are sometimes cheaper than new ones, depending on the location and condition of the property.
•Older homes offer charming period features and, often, higher ceilings, quality timber floors and unique architectural features.
•Older properties may need renovation of major systems such as heating/cooling, wiring, plumbing, roofing, but they can offer significantly more margin for renovation and profit.

Buying new
•New homes are designed to suit today’s fashions and lifestyles. They’re more likely to appeal to a wider market of tenants if well located.
•New properties may be entitle you to claim depreciation, giving you extra tax benefits.




BUYING "OFF THE PLAN"
Buying a property before it has been built comes with a raft of advantages and disadvantages:

For
•If the market is rising, real estate purchased off the plan can be worth more than the initial price paid by the time construction is complete and settlement comes around.
•Speculators may quickly realise a substantial capital gain, just days after settlement, having really only invested their initial deposit.

Against
•You’re buying something that doesn’t yet exist and can’t be 100% sure it will be exactly what you expect or that it will actually be completed.
•If you’ve speculated on a quick profit and the market falls, or there is limited demand when the time comes to sell, losses can be large.
•Developers can often alter the plan, based on obstacles that arise during construction, sometimes leading to a larger or smaller property than originally expected.
•There’s no certainty as to the quality of the completed construction at the time of purchase.
How can I make sure I am not paying too much for my investment property?
•Make your offer 'Subject to Satisfactory Valuation' and stay in touch with your Lender who will order a valuation while processing your loan. They will generally provide a conservative valuation. If you’re not happy, you may withdraw your offer.
•Research your chosen suburb and attend as many Auctions as possible before you bid.
•Look up recent sales in the area using agent’s websites.
•Purchase a Suburb Report from a respected data house such as RP Data – www.rpdata.com.au.
•If you are not confident, use a buyer's advocate.




LANDLORD INSURANCE
Landlord Protection Insurance gives investors some protection in the event that a tenant stops paying rent, abandons the property or inflicts malicious damage.




BORROWING MONEY
Before you start looking for an investment property you need to know how much you can afford to spend and repay.
•The amount you can borrow will depend on a number of factors. Use a loan calculator to get an estimate.
•Your Lender can give you an idea and/or a pre-approval on your borrowing capacity, which is usually valid for three months. This gives you an accurate estimate of what you can currently afford, taking into account:
- Your annual income;
- Your monthly expenses;
- The type of loan and current interest rate;
- Repayment type (principal or principal and interest);
- The loan term (number of years to pay the loan back); and
- Estimated repayments.




RENT APPRAISAL
You’ll need a real estate agent’s assessment for that. Ask us at First National Lazaridis & Yap for an obligation free appraisal.




PAYING OFF THE INVESTMENT
First National Real Estate has lots of tips throughout this website, however, here are some fundamentals:
•Get a Tax Depreciation Schedule annually to maximise your tax benefits. For more information visit www.bmtqs.com.au
•Talk to us for advice about what improvements you could make to obtain more rent
•Pay your mortgage twice monthly, rather than monthly, to pay off your loan faster




SELF-MANAGING THE RENTAL PROPERTY
If you're considering managing your own investment property, it's vital that you familiarise yourself with the specific legal rights and obligations of landlords and tenants in your state.
These regulations may change frequently, so staying up-to-date should become a regular part of your routine.



LANDLORD'S MANAGEMENT AGREEMENT
Landlords are required to complete a management agreement, which engages the agent to manage the property on their behalf. This agreement includes:
•Agency fees
•Regularity and reporting of inspections
•Details of payment to landlord
•Level of expenditure and process in relation to maintenance/repairs
•Notice required for cancellation of agreement
•Rent reviews




USING A PROPERTY MANAGER
A property manager will be able to help organise your property so it is suitable for new tenants. Whilst the property is occupied, the property manager will make sure all repairs and routine maintenance tasks are carried out.

Finding the appropriate tenant can present challenges. Your property manager can set up an advertising strategy to target the right tenants, arrange an open house inspection, and sort through applications to present you with the best range of alternatives.

Property managers can also help you establish an appropriate rental price. They do this by researching nearby properties and balancing what you want with advice about what the market has the potential to deliver.




FINDING A PROPERTY MANAGER
With different tenancy laws in every state of Australia, investors need quality property management services more than ever.

These 7 steps should help you hire a property manager with confidence:

1.Ask if comprehensive reference checks including employers, referees & previous managing agents are done with each application.
2.Ask if your agency uses a National Tenancy Database to check all tenant applications.
3.Check the agency’s reputation by conducting an online ‘reviews’ search.
4.Ask if you’ll have a dedicated Property Manager or will several staff manage your property.
5.Ask if your agency allows tenants to register their property search online, and, whether it uses tenant-matching systems to find tenants faster.
6.Ask whether your agency will accompany all tenants when they inspect your property.
7.Ask how your property will be marketed, when vacancies happen.




THE RENTAL PROPERTY LEASE AGREEMENT
A lease/tenancy agreement will be prepared that specifies the rights and obligations of the landlord, agent and tenant, and will include the following:

•Rental payments;
•Terms of lease/tenancy;
•Requirements of the landlord clearly stated and obligations of the tenant fully outlined;
•Details of how vacation notice must be given;
•Rental bonds; and
•Special conditions as presented by the landlord/agent and agreed by the tenant.




TAX DEPRECIATION
Every investment property owner needs a capital allowance and tax depreciation report. As a building gets older and items within it wear out, they depreciate in value. The ATO allows property investors to claim a deduction related to the building, plant and equipment items contained within it. For more information, visit www.ato.gov.au

Any owner of an income producing property can claim depreciation. This deduction essentially reduces the investment property owner’s taxable income – they pay less tax! There are usually thousands of dollars to be claimed in depreciation deductions on any investment property.

There are many benefits for investors when claiming tax depreciation, some include:
•More money in your pocket at tax time.
•You can adjust your previous tax returns – get your money back from the ATO!
•The fee for a tax deprecation report is 100% tax deductible.




ASSOCIATED COSTS
When you acquire a property, there are government charges by way of stamp duty and registration fees on the transfer of title and mortgage. There are also solicitor’s fees for the conveyancing of your property (and selling it if you decide to do so in due course).

Making sure you have the right real estate company managing your investment is vitally important. First National Lazaridis & Yap can save you time and take the hard work out of owning an investment property.




A PROPERTY CONDITION REPORT
This is a report that is compiled at the commencement of a tenancy, prior to your tenant moving into the property, and at the end of the tenancy.

The report outlines the condition of the property at the commencement of the tenancy and is also referred to when the tenant vacates, to ensure that the property is left in the same condition as when the tenancy began. A final inspection is carried out as soon as possible after the end of a tenancy, when the tenant has returned the keys.

The Property Condition Report is used at this final inspection and each item is checked off to make certain that the property is in the same condition as when the tenant took possession. It is at this inspection that any items that need to be rectified by the tenant are identified.




A ROUTINE INSPECTION
Routine inspections are conducted after a tenant takes possession of the property and are conducted periodically for the life of the tenancy.

These inspections are essential to ensure that your property is being maintained to an acceptable standard and to identify any maintenance that may be required. A copy of the routine inspection report is forwarded to you after each inspection and, should it be necessary, a member of the Property Management Team will contact you to discuss items noted on the report.




WHEN A TENANT STOPS PAYING RENT
Tenants have several options to pay their rent, leaving no excuse for late payments.
•By cheque or money order.
•Internet Banking through their chosen financial institution.
•Direct debit from their nominated bank account.
When a tenant falls behind in their rental payments, they are issued with a notice of breach advising them that they are behind and requesting that they rectify the problem. If this is not done within the stipulated time period, then a termination notice is issued, requiring that they vacate the premises.




RENT MONEY PAID
Unless instructed otherwise, all monies held are paid to you by way of direct debit/cheque to your nominated bank account at the end of every month. A statement is issued at the same time, outlining the debits and credits for that month.




LAND TAX
Land tax is an annual tax payable by owners of land. Land tax is administered by your state or territory government and is applicable everywhere except in the Northern Territory. It does not apply to your principal place of residence but does apply to every investment property you own.




INSURANCE
It’s wise to insure from the moment you have signed a contract to buy your home. Risk passes from seller to purchaser, immediately upon purchase, even though you have not settled and taken possession of your new home.




IMPROVEMENTS WHICH ADD VALUE
Each time a tenant vacates, you have the opportunity to assess whether you can quickly add value to your investment and still be competitive with a higher rent.
Always consult your Property Manager about the most cost-effective improvements but consider:

1.Window Coverings. Nothing lifts the appearance of a property more quickly than the installation of new blinds, curtains or plantation shutters. Tenants far prefer homes fitted with window coverings and plantation shutters, in particular, are hard wearing and add substantially to the perception of value.
2.Fencing. Fencing your property not only improves security, it makes the home more appealing to tenants with pets. Over 60% of Australian households own a pet so you immediately broaden your pool of potential tenants.
3.New Oven/Stove. If your property has a freestanding oven/stove, is it in need of replacement? Many appliance suppliers will deliver, install and take away your old cooker all for the one price. A shiny, modern new cooker instantly makes your property so much more appealing and more valuable.
4.Built in wardrobes. Built-ins make your rental property infinitely more appealing than a property with no storage. They’re quick to install, inexpensive and put your property streets ahead of competitors without wardrobes.
5.Dishwasher. Have you got an empty space where a dishwasher should be in your kitchen? Many suppliers include installation in the purchase price and a dishwasher means living in your property will be so much more convenient. Better still, dishwashers start from as little as about $600 so they won’t break the budget.
6.Flooring. A new floor can be inexpensive, quick to install, and dramatically improves appeal.




REPAIRS OR CAPITAL IMPROVEMENTS
It’s important to understand the difference between repairs and capital improvements when it comes to tax time.

Repairs & maintenance are any work done to fix damage or deterioration in your investment property i.e. fixing a damaged fence.
Work completed to prevent deterioration is defined as maintenance i.e. servicing an air conditioner.
Repairs and maintenance expenses can be claimed as a tax deduction within the current financial year.

Capital improvements improve the condition or value of an item beyond its original state at the time of purchase. They can be depreciated or claimed as capital works deductions over time.
Examples of capital works are structural additions, adding or extending a wall, or adding items that are fixed and cannot be easily removed.

A tax depreciation schedule, prepared by a professional tax specialist, will assure you maximise your investment property’s tax deductions and keep out of trouble with the Australian Taxation Office. For more information, visit www.ato.gov.au




KEEPING ACCOUNTING RECORDS
Investment property owners should ensure they keep proper accounting records and plan ahead for next year’s tax return.
80 per cent of property investors fail to take full advantage of the tax benefits of owning an investment property.

Many investors don’t realise that regardless of whether they have spent any money on their property, the wear and tear on their asset and its fixtures, can be offset against any income they earn from the property. Property depreciation is a non-cash deduction available to income producing properties and can be claimed on both positively geared and negatively geared properties.

Tax benefits associated with negative gearing can sometimes be equivalent to 60 per cent of the total purchase price of a property.
Even decorative garden sculptures, common areas in an apartment building, tree houses or recreational facilities may be legitimately claimed.
Other costs that the ATO allows to be deducted include interest costs, maintenance expenses and holding costs such as building insurance and rates.

Establishing a Depreciation Schedule from the outset ensures all expenses and items are deducted to their full capacity. For more information, visit www.ato.gov.au

Investors always look for the greatest return on their investment, and the best place to start is by securing the services and advice of a professional.
First National agents have the local knowledge and experience, supported by our leading edge technologies, to ensure they provide the right and most appropriate advice on property and property management.
We also have access to a range of experts associated with property management, such as BMT, so clients can enjoy all the benefits of property ownership. For more information visit www.bmtqs.com.au

The constantly changing ATO rules make it essential for investors to use competent depreciation companies, like BMT, to undertake an onsite inspection of their property as desktop estimates no longer suffice.




HOLDING ONTO QUALITY TENANTS
Renting out a home can be a great way to increase your income while investing in a valuable asset.
However, just as important as finding the right tenants for your property is holding on to them. Having disruptions in tenancy can not only cost you money, it can be a stressful and time-consuming problem.

Quality tenants will provide you with regular income, as well as help to keep your investment in good condition. With this in mind, there are many strategies you can use to make sure your tenants remain yours.

Privacy
At the end of the day, your rental home belongs to you. However, renters do not want to feel like they’re living at the whims of their landlord, especially when it comes to privacy. By making sure you do all you can to give your tenants privacy, you will help them to feel like they’re living in a proper home, not just a temporary abode.
The best way to do this is to give proper notice before dropping by the property, as well as not overdoing it with your visits.

Attention
Just as important as knowing when to leave your tenants alone is knowing when to put them at the forefront of your mind.
Things like needed repairs should be taken care of as soon as possible. Simply telling your tenants that you’ll take care of a problem isn’t the same as following through on it, so when it comes to inevitable issues like fixing or replacing things in the home, do your best to be attentive and responsive.

Appreciation
In many ways, a good tenant is like a good employee. After all, your income depends on them, and if they’ve shown themselves trustworthy and respectful toward your property, it can pay off to show your appreciation much in the same way an employer would. Obviously offering raises and vacation time isn’t in your power, but small gestures like notes of appreciation and gifts during the holiday season can not only show your gratitude, they can help to create a bond of loyalty between you and your tenant that will keep them around longer.




INCREASING RENT
Many people choose to invest in property because it is a great tactic to build wealth and secure their futures financially. However, as it's an investment, owners should look for ways to maximise the returns on their properties. First National property managers always do. If you're looking for strategies to get the most out of your rental property, here are three tips to help you on your way.

Hire a professional
Have you ever had to bang on a tenant's door to pick up missed rent? Has your phone gone off at midnight after a tenant's hot water cylinder has burst for the third time this year?

Managing your own rental property can be a difficult task, especially if you have a vast portfolio. Instead of trying to juggle multiple properties at once, enlist the help of a professional property manager to take a few off your hands. Property managers have the knowledge, time and skill to ensure your investments and tenants are taken care of.

Review your rent
It may have been years since you last reviewed the price you're charging for your rental property.
The important thing to remember is that the market can change quite often. Fluctuations in vacancy rates and median rents can all impact how much you can charge for your property, and you may end up charging too little.

Review your rent on a regular basis to meet the market. Compare your home with other rentals similar to your property, or obtain a rent appraisal from an agent.

Regularly refresh your rental property
The key to ensuring your rental property remains tenanted is to keep it in good condition. By staying on top of maintenance issues and refreshing the interior, your investment can be kept looking great for longer.

At the end of each tenancy, you might want to give the home a quick lick of paint, have the carpets cleaned and the garden reworked. You might even be able to charge a bit extra for rent, while also making your home look more appealing to tenants.




WHEN TO REVIEW THE RENT
Landlords should review their property portfolios on an annual basis to assure an appropriate rent is being asked, and that any improvements that would help maintain their property’s competitiveness and return are executed.

Landlords are entitled to raise the rent periodically and although no tenant wants to pay more rent, it is sometimes necessary to implement rental increases to cover the rising costs of maintaining a property.

Before increasing rent, however, it is important to:
•Familiarise yourself with the legislation in your state or territory to ensure you aren’t breaking any laws or rules
•Consider your tenant’s payment history – a good tenant that pays the rent on time is worth keeping in place
•Carefully consider whether your desired rent increase is fair, when compared to other available properties
•Think about the opportunity cost of a vacancy period, should your existing tenant choose to vacate rather than accept the increase.




COMMON MISTAKES LANDLORDS MAKE
Some property investors choose to manage their own rental properties. This has both advantages and disadvantages. One advantage is that you can save on real estate agent costs but there are challenges you need to be mindful of. Some mistakes self-managing landlords make are:

•Access – Landlords must obtain permission from their tenant to access their property - some fail to give adequate notice. Whether it is for inspections or to undertake maintenance duties, landlords must not ignore the rules about access
•Bonds – Some landlords ask for more than four weeks rent (which is against the rules) and/fail to lodge a rental bond with the appropriate authority, where applicable, in their state
•Proper documentation – Some landlords fail to put written tenancy agreements in place, complete comprehensive property condition reports, or keep proper records of rental payments. This can lead to significant difficulty if or when a dispute arises.
•Charging for utilities – There are clear rules for when you can and can’t charge for water usage and other utilities but these vary from state to state.
•Failing to make communication easy – Some landlords fail to provide tenants with their full name and address or phone contact details. This can make it difficult for tenants to communicate about problems or respond appropriately in emergencies
•Not seeking help – Landlords often forget they can seek guidance from appropriate tenancy authorities in their state. Many services and information sheets exist and state based real estate institutes can help direct landlords to the help they need.




PROPERTY DEPRECIATION
As a building gets older and items within it wear out, they depreciate in value.

The Australian Tax Office (ATO) allows property investors to claim a deduction related to the building and plant and equipment items contained within it. It can be claimed by any owner of an income producing property. This deduction essentially reduces the after tax cost of owning an investment property.

All properties regardless of their age will attract depreciation deductions. A common myth is that older properties will attract no claim. Visit the BMT website www.bmtqs.com.au, for more information on claiming depreciation for older properties.

All residential properties built before 15th September 1987 are not eligible to claim for capital works deductions (building write off allowance). Investors may still be able to claim depreciation for plant and equipment assets and any renovations that have been completed, even if they were completed by a previous owner. Contact a depreciation expert today to find out more.
What’s the difference between Prime Cost or Diminishing Value methods of depreciation?
Two methods can be applied when depreciating property, the Diminishing Value (DV) and Prime Cost (PC) method.

Diminishing Value:
Using the Diminishing Value method allows you to claim higher deductions in earlier years of property ownership.

Prime Cost:
The Prime Cost method of depreciation spreads your deductions more evenly over the lifetime of your property.
Learn more by visiting the BMT website today at www.bmtqs.com.au




RENOVATING AND DEPRECIATION
Considering your depreciation deductions before you start any renovations can potentially result in thousands of dollars in additional deductions for you. Property investors can claim a 100% deduction for the residual depreciable value of any assets that are removed or replaced during a renovation. This is known as ‘scrapping’.

To ensure that you are accurately maximising your claim each financial year, BMT Tax Depreciation recommends that a schedule is completed before renovating and is then updated once the renovations are completed.
1.Pre-renovations schedule: Completed prior to renovations starting to identify all depreciable assets and their current value. You can use this initial schedule to claim depreciation until your renovations are completed.
2.Post renovations schedule: Completed after the renovations have been finalised to ensure that your schedule is updated to reflect the current state of your property. Any assets that have been ‘scrapped’ from the first schedule can be written off immediately as a deduction.

When renovating properties speaking to a tax depreciation specialist about your potential renovations can help you ensure that you’re not missing out on any deductions.




MARKET VALUE
"Market value" is whatever a willing buyer will pay for a property when it sells.

While this advice doesn’t help new buyers, or even experienced buyers, there are ways to work out what you should pay for a property. Here are our tips:
•Use technology. Many real estate websites provide suburb median prices and recent sales details. Remember that a median price is only indicative of the middle price in a suburb; it may not reflect the value of the property you are considering
•Ask real estate agents
•When buying an investment property, rental returns are the key factor in determining value. 5 per cent gross rental return is considered the ‘rule of thumb’ which essentially converts to $1 in weekly rent for every $1,000 spent buying a property
•Obtain a valuation. Formal valuations can cost between $500 and $1,000 but a licensed valuer must support his or her indicative price with solid comparative market evidence




BEST AREAS TO BUY
The ideal properties to invest in are properties in areas where it is cheaper to buy than rent. This gives a better chance of strong capital growth and higher returns. But also look out for:
•Houses and apartments that are close to employment centres
•Properties that are positioned close to transport, schools and areas where there are plenty of jobs
•Homes occupying good positions but where inexpensive renovations would help them produce higher rents
•Properties where an extra bedroom can be created from the existing floor plan. This can add substantially to the yield and subsequent capital growth (when you sell)
•Real estate that is poorly presented or marketed and may not therefore realise its full market value.




SELLING A TENANTED PROPERTY
Remember, although it’s your property, it’s your tenant’s home. It’s vital your agent communicates effectively and respectfully with your tenants about access arrangements.
•Consider negotiating a reduced rent period while the property is for sale to facilitate cooperation
•Consider arranging 2 or 3 one-hour periods per week where prospective buyers will be shown through. This helps tenants present the property properly and minimises inconvenience
While it’s easier to sell an un-tenanted property than a tenanted property, remember…
•While tenanted, you are receiving rent money and this makes your property more appealing to investors
•If your property is vacant, it may look less appealing. Consider hiring a presentation consultant.

At First National Lazaridis & Yap we are more than happy to talk you through the processes and the best option for you.