Successful investment practices produce maximum capital growth and strongest rental return. The following strategies will help you avoid the pitfalls of mistakes.
1. Do not treat property investing as a hobby.
Most people who buy a business worth $500,000 treat it very seriously with the resources and systems in place to achieve the best results. Unfortunately, many people buy a property and then treat it like a hobby and don’t achieve its maximum potential. You need to have the right mindset if you are going to be successful. The best investors remain unemotional about their properties. If you are driving past the property each week to check the roses, perhaps you need to consciously distance yourself from the property.
2. Do not form a direct relationship with the tenant.
Dealing directly with the tenant can make it difficult to make the best business decisions. It is human nature for people to unwittingly take advantage of people when we know them. For example, a tenant is more likely to pay rent late if they think you won’t mind. It takes a special kind of person to successfully separate your business relationship from your personal one when serving an arrears notice on a tenant with whom you have a close relationship. The same applies to rent increases and bond claims at the end of the tenancy.
3. Do not think of the property as your own home.
Good investment opportunities can be missed because the investor thinks they would not like to live in the property. You may choose not to live in an apartment with no parking, but one near a university and close to public transport may be a great investment. New landlords often enjoy painting or decorating their property. You might think an orange feature wall looks amazing or that bright blue carpet is very trendy, but you don’t have to live with it. The rule is to keep it neutral and make sure that what you do appeals to the widest range of tenants.
4. Keep the property in good condition and make repairs quickly.
You increase the value of your asset by making improvements. A coat of paint, removal of a wall or a more elaborate renovation can make a big difference to the value of your property. Also, the rental yield can be increased by repairs and improvements for which the tenants will pay extra rent. However, in an effort to save money, some landlords will not keep the property in good condition which can be a false economy if the property does not lease quickly or achieves a lower rent. Repairs, particularly with painting and carpets, should always be done quickly and held to a professional industry standard, even if they are minor.
5. Not having a depreciation schedule.
A depreciation schedule is the inventory of items that can be depreciated at a certain rate to claim a tax deduction. It is amazing how many people don’t have one or think this is used only with new properties. Too many accountants rely on what their client says rather than encouraging them to have a depreciation schedule professionally prepared by a qualified surveyor. The reality is that an investment of a few hundred dollars can save many thousands of dollars in tax, even for an old property.
Part 2 to come next week. Until then,