Being a first time property investor comes with a lot of responsibility and for those with limited knowledge of managing an investment property, mistakes can occur.
Not treating the property like a business
One of the biggest mistakes first time property investors make is not treating the property like a business. Spending several hundred thousand dollars on an investment is not a small purchase, but some investors treat their property like a hobby and don't create a property strategy or plan.
Before signing a contract or making any offers, it is important that you have a business plan in place so you know exactly what you are wanting to achieve with the property.
Not maintaining the property
For many first time investors, money can often be tight and in order to save a few dollars, you may not keep your investment property as well maintained as it should be.
However, a fresh coat of paint or tidying up the front yard can make a big difference to the value of the property. Not only can a well maintained property help boost its value, but it will also be more appealing to renters and can help keep it tenanted. If a property looks rundown, renters will not be willing to pay as much for it.
Before deciding on a property, pay attention to whether the property will need any maintenance before tenants move in. The property could seem like a bargain at the time, but when you take in repairs and maintenance, it could end up costing you more.
Creating personal relationships with the tenant
While it is important to be on good terms with your tenant, many first time investors make the mistake of forming direct relationships with their tenants.
It is often when landlords and tenants form personal relationships that the problems begin. If your tenant thinks of you as a friend, not a landlord, then they may start to take advantage of you. Rent may start to arrive late or the property may not be maintained as well because the tenant may think you won't mind.
This is why landlords need to maintain professional relationships only with their tenants. It may also be a good idea for new landlords to employ the services of a property manager to liaise with the tenant, that way you will not have to be in contact with the tenant at all.
No depreciation schedule
There are a number of items in an investment property that can be depreciated at a certain rate, which you can then claim as a tax deduction against your taxable income. The value of these items needs to be established up front. Engage your accountant at the time you are purchasing the property to advise you on getting the depreciable items valued properly. Setting up a depreciation schedule from the start will ensure you get the maximum deductions.
Depreciation can be a tricky subject to understand, so it is important to speak with your accountant to ensure you are making the most out of depreciation.
Not creating an expert team
Having the right people around you who can help you make the right decisions is a great asset, but not everyone knows what experts they need on their team. Listed below are the top 4 experts every first time landlord should have:
Accountant: An accountant will be a key player when it comes to managing your investment property. Your accountant will be able to provide advice on the tax implications of the property. Whether it is positively or negatively geared could mean the difference between getting more tax back or paying tax. You need to understand how your investment property will impact your financial situation. As a first time landlord, there are a number of financial factors to consider that you may not have thought of, that is where an accountant will come in handy.
Financial planner: Number crunching and investing can become tricky if you don’t know what you are doing. A financial adviser can help you work out your goals and objectives and your attitude to risk. They can advise you on the type of property you should be looking for that will help you achieve your objectives.
Solicitor: There are a lot of legal processes you need to go through when purchasing and managing an investment property. A solicitor is able to give you legal advice throughout the whole process.
Not only can a solicitor read through and help fill out important documents such as property contracts to ensure the agreements are legally binding; they can also represent you if something was to go wrong with your investment property.
Lender: Finding the right home loan can make all the difference when it comes to making a profit. The right lender can crunch the numbers for you up front and show you what type of property you can afford. They can also show you how much you will need to contribute towards your purchase.
There are a number of home loan options available with a range of money saving features that can specifically help investors save money throughout the loan term.
If you are looking to purchase an investment property and are considering home loan options, check out the State Custodians’ range of home loans. Our Lending Specialists are also on hand to chat to you about what you are looking to do, so don’t hesitate to give them a call on 13 72 62 to discuss your options.