Posted on: July 8, 2024

Securing Your Future: Essential Tips for First-Time Investors

Thinking of joining the 2.24 million Australian taxpayers who are property investors?

They’re not necessarily ‘mum and dad’ landlords, but more diverse, according to this article in The Conversation. This year, Millennials are coming to the fore as our country’s most active property investors.

Whatever your demographic, these nine common pitfalls are useful to consider before you tip your toe in the water. Apprehension is normal, so aim to be well-informed, understanding the risks and how to manage them.

Concern 1: Market fluctuations

Market volatility affects property values and rental income, but don’t assume it’s uniform across the country for capital cities and regional areas.

Concern 2: Initial Investment Costs

Do you have a good handle on the upfront costs? They include:

  • Your time/fuel to inspect properties, search listings, become knowledgeable about the property market, liaise with selling agents, etc.
  • Building/pest inspection report
  • Valuation fee (your financier might organise this before they give you a loan)
  • Fee to get a copy of your credit score
  • Financial advice (if you decide to pay for this)
  • A deposit (typically, at least 20% of the home’s value)
  • Bank loan establishment fee
  • Legal/conveyancing fees, and refurbishment, and
  • Refurbishment so the property is suitable for renting.

Concern 3: Ongoing Expenses

Thinking ahead after the purchase, what else will you need to fork out? Generally, you’ll need funds for:

  • Property manager’s advertising campaign to find you a tenant
  • Lease establishment fee
  • Mortgage repayments including the principal and interest and any annual account fees
  • Maintenance and unexpected repairs
  • Property management fees
  • Potentially body corporate fees (if you’re buying an apartment/flat under that arrangement)
  • Council rates
  • Land tax and other property taxes/fees (they can vary by state/territory – Victoria has the most at 16)
  • Building/landlord insurance (highly advised)
  • Water service (not usually consumption) charges, and
  • A spruce-up in between tenancies.

Don’t assume the rental income will cover all the above charges, but that might be a good thing if you’re aiming to negatively gear.

And, consider if ‘rentvesting’ could work better for you – that’s where you’re a tenant but also a landlord.

Concern 4: Understanding Legal Obligations

As a landlord, you might choose to manage the property yourself and not through an agent. That can work if you have the nouse, time and trust your judgement in selecting tenants. Then, you may need to deal with difficult tenants, source good tradies, manage high tenant turnover, and legal issues around bonds, damage and evictions.

Landlords are responsible for providing the tenant with a written tenancy agreement that’s then lodged with the Office of Fair Trading in your state, and for property maintenance. There’s much more to it – find out more about landlords’ and tenants’ rights and responsibilities, such as via this guide for NSW.

Concern 5: Staying Compliant with Safety Regulations

Some safety regulations to comply with include:

  • Ensuring smoke detectors are working (must be tested each year)
  • Electrical and gas services checks (usually annually – for example, the ACT minimum energy efficiency standards for rental homes).

These aren’t comprehensive due to the lack of space – please ensure you do your due diligence.

Concern 6: Finding Reliable Tenants

Use these tips to vet and select high-quality tenants who reliably pay the rent and treat your property as their cherished home.

  • Price the property competitively
  • Invest in professional photography to advertise the premises
  • Have more than an inkling of your target demographic and where you could reach them
  • Do reference checks, verify their identity, check the National Tenancy Database blacklist, and see if the would-be tenants’ names come up on past bankruptcies, court records or ASIC data
  • Recruit a recommended property manager.

Concern 7: Handling Difficult Tenants

Try these strategies for managing tenant disputes, rental arrears, noisy tenants, evictions and more:

  • Be calm as you discuss the issue to work out your next step
  • Collect information to work out if there’s a middle ground
  • Understand your rights and the Residential Tenancies Act in your state
  • Communicate clearly and promptly, keeping records (email the tenants after you meet with them to confirm what was discussed)
  • If needed, consider issuing a breach notice, notice to vacate, terminate the tenancy agreement, or apply to your state’s tribunal

Concern 8: Regular Maintenance and Repairs

The challenge of maintaining property condition and value.

For instance, the first you might know about the gutters being blocked is when the tenant (or property manager) rings about mould in the house. Set yourself a reminder towards the end of autumn to have the gutters checked and cleaned.

Concern 9: Achieving Long-term Financial Goals

Balance short-term yields with long-term capital growth. And, when you do sell the property down the track, factor in capital gains tax.

Boosting your risk management

A safety net is available – landlord insurance. It’s a cornerstone of prudent investing. Often, a landlord insurance policy could cover:

  • Tenants or their guests damaging or stealing from your property
  • Rental income loss
  • Rent default
  • Legal costs should tenants take you to court
  • Liability, and
  • Building cover for fire, lightning strikes, flooding and water damage, tree falls, explosions, vandalism, storm damage, impact (of a car crash into the home or break-in).

If your investment property is furnished, you can opt to cover appliances, furniture, carpets, curtains, and fittings for a range of events.

There are exclusions, such as for building defects, market conditions, general wear and tear, tenants’ ‘handiwork’ and general maintenance.

A customised policy for your unique circumstances can take the stress out of property investment and build confidence. That’s where we can help, as your broker/adviser.

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