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Property is one of the few investments that gives you complete control over management. Whether you choose to Do It Yourself (DIY) or use a professional manager, consider the following to maximise your returns.
Most Australian property investors choose to have a professional manage their property. Professional property managers have the experience and knowledge of market values and tenancy legislation necessary to handle most aspects of renting your property. They also have access to the National Tenancy Database, which is invaluable for finding good tenants.
All this knowledge, however, comes at a cost. Expect to pay a commission of five to 10 cent of gross rental income. Agents’ fees are tax deductible and may include associated costs such as advertising, cleaning and some repairs.
If you choose to DIY, remember you are responsible for advertising, screening tenants, preparing tenancy agreements, handling arrears, placement of the bond with your state Rental Bond Authority, inspections, repairs, collecting rental arrears, legal issues, insurance and taxation.
As many owners negative gear their investment property, proper record keeping is essential for tax purposes.
Owning a rental property is classified as owning a business, so the same deductions apply. Claimable costs include interest on mortgage payments and borrowing costs, insurance, professional property management, land and water rates, advertising and legal costs and home office expenses.
Note that only repairs that restore the capital to its original condition are deductible. This excludes improvements and replacements. Owners of investment property will pay GST on related goods and services but cannot claim this back separately, nor can they charge GST on rent.
Keep track of costs and expenditure as these are subject to change. For example, if your loan is not fixed, changes in interest rates can reduce your return or even make it unprofitable.
Monique Wakelin of Wakelin Property Advisory says scrimping on maintenance and cleaning is false economy.
“Many tenants do expect a good standard of accommodation and this is perfectly appropriate given that no one wants to live in substandard conditions. Since their rental income is helping fund your investment, it makes sense to maximise rent levels by offering tenants an attractive, functional environment,” she says.
In her book Streets Ahead, Monique recommends rental properties be maintained to the followings standard:
- Functional, built-in heating or cooling
- Fresh paintwork
- Clean, functional and relatively modern kitchen and bathroom
- Clean carpet or polished boards
- Adequate storage.
The key to protecting your property investment is getting the right balance between regular repairs and unnecessary expenditure. The following schedule is recommended for a typical freestanding home in most parts of Australia. (Note, if the property is located near the ocean or in extreme weather areas more regular maintenance may be required.)
Monthly
- Mow lawns
- Sweep paths
- Water and/or weed garden.
Six monthly
- Wash windows
- Prune trees, remove garden rubbish
- Check wet areas for signs of leaks
- Check smoke detectors (earlier if battery powered)
- Check brick or weatherboard for signs of cracking or rot
- Check paved areas for signs of lifting, cracking or movement.
Annually
- Steam clean carpets
- Check roof and guttering for leaks
- Repair any broken windows, latches and screens
- Check fences
- Repaint scuffed skirtings
- Inspect for white ants and bora (preferably use a professional).
Remember to organise a time with the tenant before carrying out any inspections or repairs. Monthly maintenance is best organised at the time of drawing up the lease. Finally, if the property is strata or company titled, be sure to check out all planned repairs or improvements with the body corporate beforehand.
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