Managing An Investment Property

Many Australians help fund their retirement with property, recognising that it offers a low risk investment strategy. Over the long term, provided you choose well and your property is both well managed and well maintained, you will benefit from the capital growth and the rental income.

Direct ownership is a shrewd strategy. You have control over you asset (not available with property trusts), and it offers an excellent record of capital growth, tax advantages and the comparative safety of owning a highly saleable asset.

Before you buy

Before you start looking for an investment property, consult an accountant or financial advisor. It’s important to obtain independent advice.

Property investors may claim tax deductions for expenses associated with renting an investment property against all income earned (assessable income) during that financial year. Your accountant can advise on which deductions you can claim – items such as advertising for tenants, bank charges, strata levies, council rates, insurance, interest on loans and property agents’ fees and commission.

Another taxation advantage is the ability to negatively gear. This usually occurs in the early stages of a loan before you have built up your equity. Negative gearing is when the income generated from the rental property is less than the costs of mortgage repayments, council and water rates, repairs and maintenance and other management costs. Negative gearing allows you to use the shortfall from your rental income as an offset against other assessable income such as salary, wages, business and any other investment income to reduce the overall tax you have to pay.

Make sure you factor in all the associated costs such as maintenance, repairs and stamp duty when calculating your buying price range. Many investors also allow for a minimum of four weeks each year when they may not receive rent because of a changeover of tenants. Be realistic about what rental returns you will have on the property and make sure you research what the market is currently paying.

Deciding what to buy

Your budget will be a deciding factor in what you buy. Do you want to buy a house, townhouse or a unit? Different styles will have advantages and disadvantages. For instance, a new strata property could mean that the cost of repairs will be less than maintaining a house.

You also need to think about the location of the property and whether it will be attractive to tenants. Look at rents charged for similar properties in the local newspapers, real estate agents’ windows and on the internet.

Investment properties may also attract land tax in NSW and other States and Territories. Where the land value of the property exceeds the threshold then you maybe liable to pay land tax annually, so you should allow for this additional cost when you consider your investment. For more details visit the OSR website.

Another thing to consider carefully when buying an investment property is the overall return. Not only is the rental income important, but also the potential for capital growth can add value to your investment.

Managing your investment 

The majority of property owners in NSW entrust the management of their investment to professionals. An experienced real estate agent who works as a property manager offers knowledge and expertise, which allows you the opportunity to be as ‘hands on’ or ‘hands off’ as you care to be.

Repairs and renovations 

Whilst all property needs regular maintenance and repairs, owners of rental property have an added legal responsibility to ensure that the premises are safe.

Smart property owners also regularly renovate and upgrade their property to maintain the value of the investment – both in terms of the capital value and the rental return. Fixing problems promptly can also prevent major expenditure further down the track.

When you negotiate your management agency agreement with your real estate agent, clearly state whether there is an agreed maximum level up to which an agent can authorise repairs, or that all repairs are to be referred to you.

Tenants will usually notify the agent if repairs are necessary. However, some tenants may not, so it’s important to conduct an inspection of the property at least once or twice a year. The Residential Tenancy Agreement must contain the names and contact numbers of tradespeople for the tenant to contact in the event of an emergency.

If there is an urgent repair and the tenant cannot reasonably contact the owner or agent, the tenant is able to authorise the work using a qualified tradesperson and seek reimbursement for these repairs up to $1000.

It is important to always hire licensed and insured tradespeople to do repairs and maintenance. Ask to see their licence and insurance details.

Inspections and safety checks 

You or your managing agent should conduct regular inspections of the property to ensure that it is safe and adequately maintained. The frequency of inspections will depend on the age and condition of the property. Consider regular building and pest inspections as well. Discuss your individual needs with your agent.

Security 

Legislation requires that the property is reasonably secure. The need for security measures (eg window locks, bars, and deadlocks) will vary depending on the area so it’s a good idea to objectively assess what security is required. Your agent will also be able to guide you on what is appropriate.

Smoke alarms 

Since 1 May 2006, it has been a requirement that owners of residential property install smoke alarms in all buildings that provide sleeping accommodation.

For further information on a property owner’s obligations refer to the Office of Fair Trading factsheet – ‘Smoke alarms and residential premises’; the consumer factsheet ‘Rental property – Maintenance and safety’ on the REINSW website or ask your local REINSW member agent.

The key to enjoying a hassle free property investment is common sense – ensure the premises are well maintained and appoint an experienced property manager. The Real Estate Institute of New South Wales provides member agents with ongoing training, industry and practice updates that can add to their level of expertise and enhance their professional skills and knowledge.

For more information

Real Estate Institute of NSW
30-32 Wentworth Avenue
Sydney NSW 2000.
Ph: (02) 9264 2343

For consumer enquiries, call 1902 223 959
(Calls are charged at $1.65 GST incl. per minute. Higher from mobiles and payphones)

NSW Office of Fair Trading
Ph: 13 32 20
www.fairtrading.nsw.gov.au 

Land and Property Information
Ph: (02) 9228 6726.
www.lands.nsw.gov.au 

Law Society of NSW Solicitors Referral Service
Ph: (02) 9926 0300 or 1800 422 713
www.lawsocnsw.asn.au

NSW Office of State Revenue
Ph:1300 139 816
www.osr.nsw.gov.au

Posted in Articles and tagged .