In a perfect world it’s easy to be a landlord. Your property will match the market’s expectations and you’ll quickly find the perfect tenants. They’ll pay the rent on time each month and look after your place like it’s their own. In reality, things are rarely so simple. Some well-organised investors who are prepared to get involved in the day-to-day affairs of managing their property do successfully control their investment, but most find it’s better to appoint a professional manager.
Houses and units regularly need minor repairs and maintenance during a lease, and it’s not uncommon for tenants – even good ones – to miss a rental payment. It can be helpful to enlist the services of an agent to handle issues as they occur.
Choosing tenants is not as easy as it may seem, despite the fact that demand for rental properties is outstripping supply in most areas around the country. First-home buyers are cautious about jumping into the market and fewer new homes are being built, keeping vacancy rates low and allowing landlords to be choosy about tenants and reap healthy returns.
Rental yields of 5 to 7% (and even higher) are available in many capital cities. A rental vacancy rate of 3% is generally considered an indication of a neutral market, where there is neither an oversupply nor undersupply of rental properties. Even Melbourne, which had a flood of new apartments come onto the market in 2011 and 2012, had a moderate vacancy rate of 3.6% in January, according to the Real Estate Institute of Victoria.
Professional property managers have experience in selecting tenants and have access to national databases on which they can check tenants’ histories. Different rules apply in each state about the data that can be collected and shared about tenants, but they are useful tools. Services are becoming available to allow private landlords to access these registers too.
Tips for landlords that can save you cash
- Managing the physical aspects of a property is important, but don’t short-change yourself by overlooking the financial aspects. Most investment properties are negatively geared, but there’s still no point paying more off the mortgage than necessary. Conduct a home loan health check annually. With interest rates now at record lows, it’s a good time to shop around for the best deal.
- Most investors are familiar with the major tax deductions that are available for investment properties. Interest charged on the mortgage, strata and management fees and repair bills can all be claimed as deductions in the year in which the cost is incurred. Keep track of your spending, file any tax receipts and make sure you claim everything possible.
- Some expenses can be deducted from tax over several years. Items of plant and equipment, such as carpet, blinds and air-conditioners can be deducted at varying rates. An annual building allowance of 2.5% applies to capital works such as tiling, kitchens and shower screens. Ask a quantity surveyor to prepare a depreciation schedule that outlines what you can claim.
Zoë Fielding, Financial Review Smart Investor, April 2013 issue
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