Maximise your investment property income

Investing in real estate is a great investment which virtually ensures profit through capital growth and of course the tax advantages associated with owning an investment property.

There are many ways in which the investor can maximise the income derived from their investment property. Most investors think that the only way to do this is by asking for or achieving the highest possible rent.

There are a number of invisible ways in which the property investor can maximise the income of their investment property.

First is to have an annual program of reviewing and increasing rents to a figure just below market rent. This ensures not only a growth in rental income, but by setting rent just below market rates, you ensure that your tenant’s perceived value and interest in your property and is more than likely to remain for an extended time, therefore reducing the chance of vacancy and real loss of income of minimising the chances of having a non income producing asset.

Another invisible way that investors maximise their investment property income is to tailor the lease term around the peak letting times of the year. Rather than having the standard six month lease term in place, savvy investors steer clear of standard lease terms and ensure that a lease term expires in the better letting periods of the year. In these instances, should the tenant vacate the property it will be on the market in a better reletting period which in turn reduces days vacant and increases the opportunity of achieving a higher rental.

By tailoring the lease term, the investor is taking advantage of market place conditions to ensure a better continuity of income and ability to have a greater chance to increase cash income via a higher rent achieved in a peak letting period.

Your property manager is pleased to assist you in tailoring your lease term to assist in maximising the income you derive from your investment property.

How we assess the rental achieved on your property

When reviewing rents and tenancy agreements the question often arises “Should the rent be increased and if so, by how much?”

When we review your rent, the first thing we do is determine the nature of the tenancy and then do a comparative market analysis to assess the rent the property may achieve on the current market. This is how the market rent is determined.

Many investors are reluctant to increase rents at properties where they have retained a good long standing tenant and although this is sometimes a good practice where vacancy rates are high and the rent has only marginally risen, it is important to refrain from consistently choosing this approach.

It is also important to move with the market as conditions do not always reflect increases in costs. When these costs occur, as income is not being maximised, the costs can have a negative effect on the performance of your investment.

If an investor is put in a position where they need to sell their property, having the rent at less than market value can have a negative impact on securing a sale at a reasonable price.

EOFY is looming

Well, the End of the Financial Year is only three months away!

Now is the time to review your property investment to ensure that you have got all your financial documentation in order such as all rental statements and invoices for expenses.

It is also a wise time to be undertaking preventative repairs and maintenance to your property, not only to improve the amenity of the property but also to maximise the tax deductions that you can achieve.

Have you invested in a tax depreciation schedule which could save you thousands of dollars a year in tax deductions? Please call your property manager who can arrange this for you.

The last quarter of the financial year is also a good time to review the insurances on your property. Are they adequate and do they offer a full array of landlord protection insurance features to protect you and your investment? Once again, your property manager is pleased to arrange a quote for you

By getting your paperwork in order now and doing some reviews as outlined, you can save tax dollars for this financial year rather than leaving it to the last minute and then having to wait another year to get the benefit.

Dressing up your property for lease

It has long been accepted that the styling of a property for sale optimises the sale value and reduces the period of time in which a property is on the market.

The same holds true for rental properties.

Careful thought and consideration should be made when marketing your property for lease. The first consideration is professional photography.

For Lease marketing is littered with properties with poor quality photographs which do not show the true advantages of the property.

By investing in professional photography, your property instantly becomes more appealing to prospective tenants who will be more inclined to click and enquire upon your property. As with sales, statistics show that rental properties with professional photography lease quicker and a achieve an optimal rent.

Styling your property may mean “staging” for the property to be furnished with modern fittings for promotional purposes. Styling also includes clearing cluttered areas prior to photography. By removing clutter from benchtops and living areas you are making the area more attractive and making it appear larger.

By investing in professional photography and a little thought into styling and presentation prior to marketing for intending tenants does make a difference in attracting the right tenant in the shortest period of time.

Article and research on behalf of LPMA (Leading Property Managers Australia)

Take an interest in your Strata affairs

We often hear from our investor clients that they don’t know why their quarterly levy contributions have risen or why a special levy is payable.

In such instances, we ask if the client attended the strata meeting or obtained the agenda and minutes of their strata plan’s meetings to gain an understanding of the changes in strata contributions.

Often our clients tell us they don’t have the time to attend meetings or simply are not interested – feeling that participation in strata affairs could be a burden on their time.

The purchase of an investment property is the largest investment other than the family home that most people will make, hence it is imperative to be aware of what is happening within the strata scheme and to become involved in the decision making processes of the strata plan, otherwise others can be affecting the expenses that you incur which ultimately determines your immediate outgoings and the profitability of your investment.

Becoming strata aware does not mean that you are tied to decision making processes or are in constant need to attend meetings. However, it does mean that you are involved in making sure that your money is being used effectively and that you know where your levy contributions are being spent.

To protect your investment, we suggest:

– You attend strata meetings and committee meetings so you are part of the decision-making process

– Become familiar with how your strata plan operates and who are the committee members and your strata manager

– Ensure that your building is adequately insured and that the appropriate budgets are being prepared for current and future expenses.

By being strata aware you are protecting your investment and at the same time saving yourself dollars.

Article and research on behalf of LPMA (Leading Property Managers Australia)

Increase your rental returns

As a property investor now is the time to think about making the ultimate new years resolution, and that is to increase your rental returns.

Take the time to review the past rental year. Did you have a vacancy and if so how long was the property vacant and did you get a rent increase and secure a long term tenant.

Resolution number one: When does your current lease expire? Does it expire during a low demand season? Your property manager can inform you of the high demand periods of the year. So, upon renewal of the current agreement tailor the lease term so it expires in peak letting season of the year. This way should your tenant vacate your property will be available during a premium reletting period resulting in a shorter vacancy and the chance of achieving a higher rental.

Resolution number two: Have you revisited your investment loan terms? Rates are very competitive at present and many lenders are now offering incentives to property investors to switch and to enter into new loan terms. This is a great opportunity to fix your loan at a historically low rate.

Resolution number three: Review whether you need to update any fixtures and fittings to enhance the rental and capital value of the property. Now is the perfect time to plan this value-enhancing exercise. Firstly we are entering into the final six months of the financial year so such works are advantageous from a taxation perspective. Secondly, undertaking improvements be it installing a built in robe, or new blinds, even new tap fittings is often enough to show your tenant that the property is definitely worth staying in for the long term.

Article and research on behalf of LPMA (Leading Property Managers Australia)

The highest rent is not always the best option

Our role as your property manager is to maximise the rental return on your investment property – however, obtaining the best rent per week is just one component of ensuring that your investment delivers the expected returns.

The term “best rent” refers to the optimum rent that your property can achieve without causing your tenants to vacate the property due to the rent being above market or; if vacant – the rent is above market, which in turn creates extended days of vacancy and lost income.

A consistent income stream is vital to ensuring the financial success of your investment property.

We have found that properties that have a rent slightly below market levels have a higher occupancy rate which means lower vacancy and fewer nil income days.

Another important factor that is often overlooked by investors is that, each time a tenant vacates and another moves in, there will be inevitable wear and tear on the property, which again adds to the financial burden of a vacancy.

When we suggest a rent increase or suggest that the rent remains the same, both due to market conditions, we make the recommendation on the above grounds to maximise the financial return on your investment.

While it is often tempting to squeeze an additional few dollars per week from your tenant, it is important to remember that today, tenants are far better educated due to the growing ease of access to information of all properties on the rental market. In attempting this squeeze, many property investors are causing increased vacancy and loss of rental income – all for the perceived benefit of achieving above market rent.

To discuss achieving the “best rent” for your investment property, please contact M Residential.

(Article and information thanks to LPMA)

Fear wear and tear

A final inspection is done at the end of the tenancy to determine the final condition of the property and bond refund. When damage has occurred it could be as a result of ‘malicious damage’ or ‘accidental damage’ both of which are the responsibility of the tenant and the third is ‘fair wear and tear”.

‘Fair wear and tear’ is something that occurs through normal use or normal changes that take place with the ageing of the property. It is a broad term and can be open to interpretation. So where is the line drawn? What is a tenant responsible for and what is a landlord responsible for?

If a bond refund was to be determined by the tribunal/court, they would consider the following;

  • How long have the tenants resided in the property? How many tenants have resided in the property previously?
  • Age of the property, fixtures & fittings (i.e. age of the carpets or last date the property was painted, etc)
  • Current depreciation status of the items in dispute
  • How was the property presented to the tenant at the commencement of the tenancy?

Some grey areas that can be open to interpretation could include:

  • Marks on walls, carpets, curtains, etc
  • Holes in window and door screens
  • Cleanliness (i.e. oven, stove, windows, light fittings, light switches, skirting boards, exhaust fans, etc).

By being prepared you can help to determine the best outcome. Send the tenant a Final Inspection cleaning guide. Highlight important areas that need to be addressed prior to the tenant vacating. Use it to set an expectation in relation to what needs to be cleaned and any repairs that the tenant may need to conduct or organise. A pre-final inspection can help in this regard.

Ensure that ongoing inspections are thorough and have supporting photographs so a direct comparison can be made should a dispute arise.

Audit Protection

With the Australian Taxation Office (ATO) crakcing down on investors, an insurance expert has suggested property managers could help landlords by paying property-related expenses such as rates and repairs directly.

RentCover landlord insurance general manager Sharon Fox-Slater said it was important for investors to make sure their affairs were in order given the highly complex tax rules around investment properties.

“Prevention is better than a cure when it comes to tax – investors need to keep accurate records and carefully research the deductions they are entitled to claim,” she said.

“If they do that, then audit should be quite straight forward.”

Ms Fox-Slater also suggested that property managers could help by encouraging landlords to allow them to pay property-related expenses such as rates and repairs directly.

“This can be a tremendous help when the landlord is preparing their tax, since it gives them an annual expense statement with most of the potential deductions recorded in one place,” she said.

Ms Fox-Slater said that investors with a number of investment properties, or those using unusual ownership structures, could consider taking out extra audit insurance.

Areas where the property investors can go wrong when it comes to tax time include confusing “repairs” with “improvements”, capital gains tax, combining travel to inspect properties with holidays, and claiming interest deductions for periods when the property is not available for rent, so it’s important to get advice from a taxation specialist, according to RentCover.

“If the Australian Taxation Office comes calling on one of your landlords, it is worth reminding them to check their landlord insurance – some quality policies include cover for professional fees to help prepare for tax audit,” it said.

Selection the right tradeperson

It seems to be accepted that when appointing a contractor to do work on an investment property that the cheapest quote is always the best. This accepted rule of thumb couldn’t be further from the truth.

We have found that the cheapest quote is not necessarily the best quote at all.

When appointing a contractor to do work on your investment property we take into consideration a host of factors determining contractor’s suitability to do the work.

Other than price the following must also be taken into consideration:

– Is the contractor licensed to complete work for that trade?

– Is the contractor insured? If the contractor is not insured you carry the risk.

– Can the contractor provide references for similar work that he has completed?

– On work such as refurbishments, have you been given a start and completion timetable?

– Is the contractor going to complete the work himself, sub contact the job or oversee other employees to complete the work?

– Have you confirmed the materials used and any warranty periods applicable?

The above may seem a little over the top, but all too often we have seen investors appoint a contractor on price alone and ignore the host of variables to be taken into consideration when appointing a contractor most suitably qualified to do the work.

We always suggest to investors to take the time and care in appointing a contractor as you would appointing a contractor in your own home.

Although we may present a quote to you for work that may seem a little high in comparison to some, the above must be taken into account in order to protect your interests, the dollars invested and your property.

At M Residential, we ensure we have quality list of trades people covering all possibly works required. To find out more, contact Laura Levisohn at M Residential.

Consider your tenant as well as your income

Your property manager understands that a secure tenant equals a secure income. If your tenant is on a fixed term lease, they will feel secure and that feeling will often translate into a renewed lease when it comes time to extend that invitation.

Many people may never own their own home, either by choice or by circumstance, but feeling like the house that they rent is home will reward you, the landlord in two ways.

Firstly and most obviously with a regular rental income and secondly; a good and happy tenant will take good care of the property because it is their ‘home’.

If you have a good tenant, you might fall into the trap of allowing the lease to remain open ended after the fixed term expires because you don’t want to ‘confront’ a good tenant with a new lease to sign. The fact of the matter is, the new lease will provide your tenant with the peace of mind of knowing that they will have somewhere to call home until that lease expires.

Should you wish to enter into a new lease with your current tenant, we will ensure that the tenant is listened to and feels happy upon the signing of the new lease agreement and understands that by entering into a new fixed term lease we can guarantee them security of tenure for that term.

Keep in mind that renewing the lease with your current tenant will save you fees and expenses as well as wear and tear that occurs when tenants vacate and move in to your investment property.

If you would like to discuss keeping your tenant on a fixed term lease or having M Residential manage your investments, contact Laura Levisohn.

Top tips when choosing a property manager

Once you have found the investment property that you intend to purchase, there are many things that should be top of mind for every property investor.

When thinking of appointing a property manager to manage your property, many property investors initially thinks that fee is the first and main thing to take into consideration.

Of course, we are all price conscious these days and it would be unwise not to take your property manager’s fees into consideration. However, when viewed in the context of the dollar value of the management fee annually compared with the sale value and capital appreciation of your property, a capable and professional property managers fees are a modest tax-deductible expense.

All too often, property investors fall into the trap of appointing a low fee property manager with the thought that this is a saving. In fact it is false economy as there are a myriad of factors that must be considered when appointing a property manager. A low fee property manager may, at the end of the day cost you money through extended vacancy, the inability to train and be aware of industry trends and legalities and being unaware of how their actions impact your bottom line.

Before appointing a property manager, ensure these questions are answered:

  • Are they aware of prevailing market conditions and tailor lease terms to meet the peaks in the leasing cycle? A standard lease term my cost you dollars by ending at the bottom of the leasing cycle.
  • Has the property manager asked about your investment goals and expectations? A good property manager should be aware of your needs and expectations in your investment to reach its full potential for you.
  • What advice have you been given about compliance and legalities that are imposed upon property investors before they lease a property? Not being aware of your obligations can expose you to legal action and compensation.
  • How have they determined a market rent and how often are rents reviewed?
  • Have you been informed what may need to be done to the property so you can realise its full income earning potential?

When appointing a property manager, don’t dwell on fees. Look and ask questions about how the property manager can maximise your income and minimise the expenses of your investment property.

If you are looking for the right property manager to manage your investment property/s, make sure you contact Laura Levisohn from M Residential.