Buying your first investment property is often one of life’s most exciting milestones. But once the initial exhilaration subsides, it’s time for your new purchase to start working for you, and that means getting tenants in. Sadly, it can be the point where the dream starts to unravel. However, with just a little planning and careful decision-making, this can be avoided. In fact, a well-chosen and well managed investment property can and should be an excellent decision. WhiteStar’s expert Property Management team have provided their seven top tips to help your investment property bring you happiness and healthy returns.
1. Engage a good property manager: Experienced, hard-working property managers are experts in ensuring you get the best out of your investment and your tenants. From managing all the details of listing and marketing your property, to conducting inspections, vetting and reference-checking prospective tenants, organising leases, bond and rental payments, providing guidance on insurance matters, co-ordinating maintenance and repairs, conducting routine inspections, understanding the minefield of tenancy laws, and even representing you if things go wrong. A good property manager is worth their weight in gold – not only when you’re starting out but also as you build your portfolio. Quite simply, they take on all the jobs most landlords really don’t want to think about.
2. Get proper insurance: Knowing what insurance to get, how much cover you need, and what key inclusions should be in the policy can be bewildering for first-time investors. Your property manager can guide you, but at minimum, you should have landlords’ insurance to cover against damage, public liability, non-payment of rent, and repair or replacement of fixtures and fittings. Stand-alone residences should also have building insurance. If you have bought into an apartment complex, ask the body corporate for a copy of their strata insurance. It should cover items such as external walls and the actual structure of your apartment, but it won’t cover anything inside it – which is why landlords’ insurance is important.
3. Understand duty of care: By law – both legislation and common law – you have a duty to your tenants (and their visitors etc) to provide a home that’s safe, suitable and habitable. Your property manager should provide you with a guide on your responsibilities and duties. It must also be remembered that, even though special conditions might be written into a lease agreement that aim to release a landlord from certain duties, a court may deem those conditions invalid.
Of course, tenants also have duties of care, such as to keep the premises in good condition, report any issues in a timely fashion, and respect the peace and privacy of the neighbours.
4. Keep up repairs and maintenance: A major legal requirement of landlords is to keep up the proper repair and maintenance of the property, and act swiftly on any major issues. Even if you’re between tenants (and this is actually a good time to address non-urgent repairs), it’s important to still keep an eye on maintenance matters, and even do a complete check of the property and utilities. In most states, regular smoke detector, gas and electricity checks are required by law.
5. Collect a bond: While a bond won’t guarantee that all the rent will be paid or that all costs to repair damage by the tenant will be covered, it is important that landlords can fall back on the bond to recover legitimate costs or rental arrears. In Victoria, if a residential lease agreement requires a bond, it must be paid to the Residential Tenancies Bond Authority, who hold it until the end of the tenancy, at which point the tenant and the landlord agree on how much bond is returned, or if there is a dispute, a decision is made by VCAT on how the bond money should be split.
6. Know your tax obligations: The rent you receive is counted as income for tax purposes, so you may be required to pay tax on it. That said, there are numerous expenses and deductions you can legitimately claim if those expenses arise in the course of renting your property. These can include landlords’ insurance premiums, the costs of compulsory inspections, accounting and property management fees (if they haven’t already been deducted from your rental income), body corporate fees, the cost of necessary repairs and maintenance etc. Be careful though. Some costs might seem to be genuine expenses related to your property, but the ATO doesn’t deem them to be. Therefore, it’s recommended that new property investors seek professional tax advice before trying to claim tax deductions for their rental properties.
7. Know each party’s rights and responsibilities: Understanding your rights and the rights of your tenants, can be vital in maintaining good relations with your tenants. The rental agreement, as well as various guides from Consumer Affairs Victoria and other organisations, will outline the rights and obligations of each party. Unfortunately, these can be quite technical in their wording, so it’s always smart to have a chat with your property manager about the key obligations of the landlord and the tenant.