Buying your first investment property can be both exciting and daunting.
You’ve spent your
hard earned savings and/or equity on an investment property, and now you take
on there responsibility of being a landlord and the challenges of managing
your new investment property to ensure you maximise your return on investment.
So to help you
avoid property
management mistakes, here is a list of what I
would consider the "7 deadly sins” of property management committed by
beginning investors and some tips on how you can avoid them.
1. DO NOT BECOME EMOTIONAL
Investing in
property is about facts and figures, but all too often investors make the
mistake of becoming emotionally invested in their investment property.
Sometimes the best
investment is one that you can never imagine living in yourself.
Perhaps it needs
minor refurbishment or doesn’t meet your lifestyle, but it’s a perfect fit for
the primary demographic of the location.
Then there are the
landlords who want to stamp their own personal style on their investment
property.
This might include
loud colours on the walls and garish flooring, but the best rule to follow in
order to maximise your property’s rental and resale appeal is to always go
neutral with the décor and wherever possible, select durable, hard wearing
finishes.
2. ALWAYS MIND YOUR OWN BUSINESS
You would never
consider throwing half a million dollars into a new business without a business
plan right?
But surprisingly,
this is what a lot of investors who are starting out do.
They jump straight
into buying an investment property without first formulating a detailed
investment strategy/business plan, even though building a portfolio must be
approached as a business endeavour in order to be successful.
Additionally, just
as a new business owner must employ the best team to ensure their company takes
off, so too must an investor surround themselves with experts who can help them
make informed decisions, such as accountants and solicitors.
Far too often
people get into property investment as a "hobby” and end up only ever owning one
investment (which is just as ineffective as owning none), or up to their
eyeballs in debt that they struggle to pay back.
Avoid this trap by
replacing emotion with some business savvy.
3. KEEP THE HOUSE IN GOOD ORDER
One of the most
frustrating aspects of property management are landlords who
think the best way to make money is by not spending a cent on the upkeep of
their investment property.
They fail to
conduct repairs in a timely manner and can’t see the value in a coat of paint,
new air conditioner or dishwasher or a kitchen makeover.
The fact is, minor
renovations can not only add significant capital value to your investment, it
can also increase your rental returns overnight.
General maintenance
is also important as it will ensure your property’s value holds up and make it
easier to re-let when required.
For this reason and
to do the right thing by your tenants, it’s important to attend to repairs in a
timely and professional manner.
4. DO NOT BEFRIEND YOUR TENANTS
You should always
be nice to your tenants in terms of conducting maintenance as required and
ensuring their property is a comfortable and safe environment, one thing I
firmly discourage is forming a relationship with your tenants.
All too often,
landlords decide to form a relationship with their tenants and then the
problems start.
The tenants think
that because you’re a friend, you might not mind too much if the rent’s a
little late each week.
It’s always best to
keep the tenant/landlord relationship on a business level and use a system like RealRenta or employ a professional property
manager to act as your go-between.
5. ASK FOR HELP
It’s difficult to
avoid the above mistake when landlords decide to look after their property
without the assistance of a system or professional property manager.
Many landlords
think they can save a bit of money on management fees, by choosing to "cut out
the middle man”, but it can cost you quite a bit more in the long run if you
take this route.
Not to mention the
fact that there are alternatives to property managers like RealRenta that are inexpensive…and tax deductible!
A System like RealRenta can market your rental property to prospective tenants, manage the
rental applications and check bad tenant databases.
The platform collects the rent on your behalf, does invoices/receipts and it
even sends out reminders and breach notices, all automatically.
All communications
between you and your tenants are done through the platform keeping that arm’s
length relationship and keeps a log for when things do go wrong.
Tenants can even
login and put maintenance requests through the platform and you can manage
those requests.
All this saves you valuable
time that you could spend searching for your next investment opportunity!
6. ALWAYS APPRECIATE DEPRECIATION
Having a
depreciation schedule professionally done can save you at tax time.
Many landlords think
that this is only necessary with a new property though and don’t fully
appreciate the concept of depreciation.
There are numerous
items in a rental property that can be depreciated at a certain rate, allowing
you to claim a tax deduction on them.
I know of some
property investors who manage to reduce their debt significantly just by
depreciating as much as they can and using their tax refund to pay down their
loans.
7. OTHER MISTAKES PROPERTY OWNERS MAKE
Some of the common
mistakes property owners can make are,
Not having a lease agreement, Not filling in a condition report, Not
understanding Tenancy laws, Not doing proper tenant checks and Not asking for a
bond.
If you avoid
committing these sins and instead, seek to understand the rules of the property
investment game, your portfolio will generate heavenly capital gains into the
long term and put you on a path to successful wealth creation.
Jason Gwerder
Friday, 11 March 2016
