Successful property investors have practices that maximise their ability to secure properties with the greatest capital growth and strongest rental return. Dealing with thousands of investors throughout metropolitan Melbourne over the years has also highlighted the repeated mistakes that many people make. Generally, these owners think that property investment is too hard, risky or time consuming, but with the correct strategies you can avoid their pitfalls.
1. Treating property investing as a hobby
Most people who bought a business worth $500,000 would treat it very seriously and have the resources and systems in place to get the best results. Unfortunately, too many people buy a property and then treat it like a hobby and don't achieve its maximum potential.
As in most business ventures, you need to have the right mindset if you are going to be successful. The best investors remain unemotional about their properties. If you are driving past the property each week to check the roses, perhaps you need to consciously distance yourself from the property.
2. Forming a direct relationship with the tenant
Dealing directly with the tenant can be rewarding but it can also make it difficult to make the best business decisions. It is human nature for people to unwittingly take advantage of people when we know them. For example, a tenant is more likely to pay rent late if they think you won't mind. Don't mix business with pleasure certainly applies to property investment.
3. Thinking of a property as their own home
Good investment opportunities can be missed because the investor thinks they would not like to live in the property. You may choose not to live in an apartment with no parking, but one near a university and close to public transport may be a great investment. New landlords often enjoy painting or decorating their property. You might think an orange feature wall looks amazing or that bright blue carpet is very trendy, but you don't have to live with it. The rule is to keep it neutral and make sure that whatever you do appeals to the widest range of tenants.
4. Not keeping the property in good condition
One of the things I love most about property investing is that you can increase the value of your asset by making improvements. A coat of paint, removal of a wall or a more elaborate renovation can make a big difference to the value of your property. In addition, the rental yield can be increased substantially by repairs and improvements for which the tenants will pay extra rent.
In an effort to save money, some landlords will not keep the property in good condition which can be a false economy if the property does not lease quickly or achieves a lower rent. Good tenants usually apply for good properties, poorly maintained properties usually attract poor applicants.
5. Not having a depreciation schedule
A depreciation schedule is the inventory of items that can be depreciated at a certain rate to claim a tax deduction. It is amazing how many people don't have one or think this is used only with new properties.
The reality is that an investment of a few hundred dollars can save many thousands of dollars in tax, even for an old property - click here to speak to us today for info on tax depreciation or to have one of our quantity surveyor partners give you a call!
6. Failing to increase rents regularly
All landlords should regularly review rents to ensure they are at market rates. A small, regular review is much better than a large, infrequent change that shocks the tenant so much they move out. As a new landlord, it might feel daunting to increase the rent for the first time fearing that your tenant may move out. In reality, as long as the increase is reasonable you should have no problems with your tenant. The consumer price index is a reliable guide.
7. Using the wrong accountant
A good accountant that truly understands property is worth their weight in gold. We always encourage people to ask their accountants whether they invest in property and how many properties they have.
8. Failing to use an experienced property manager
Use of a property manager is inexpensive and tax deductible. For a couple of dollars a day a property manager can save thousands by ensuring your vacancy rate is low and your property obtains the highest possible rent. They also pay the bills and prepare end of month and financial year accounts so your accountant can prepare your tax return efficiently.
These 8 tips are brought to you by rRent Property Management - Melbourne's premier property managers.