Some questions to ask yourself about a potential manager…

How focused is the agency on property management (as opposed to sales)? Are the managers licensed real estate agents who are dedicated to the rental business?

How good is their knowledge of local rental conditions (rates and vacancy levels)?

Do they seem to have thorough systems in place for screening new tenants, dealing with repairs and maintenance, and regular inspections?

Do they appear knowledgeable about the Residential Tenancies Act, and capable of dealing with bond authorities, corporate/strata bodies and difficult tenants?

You’ve decided on a property strategy, and you’re ready to invest. Here are a few tips to help make it smooth sailing.

Do your sums

Set yourself up to analyse the revenue and expenses from properties you are considering. Take into account:

  • Buying costs – stamp duty, conveyancing fees, legal costs, strata search fees and/or pest and building reports.
  • Running costs – council rates, water rates, insurance (consider landlord insurance as well as building insurance), strata/body corporate fees, land tax, property management fees (around 8 or 9% including gst), repairs and maintenance costs.
  • Investment costs – loan interest and income tax.
  • Selling costs – agent’s fees, advertising costs and legal fees, plus capital gains tax when you sell (assuming you make a gain).

Stress test your investment. See what would happen to your net cash flows:

  • with tenant turnover, taking into account agency fees for re-letting (assume a weeks rent plus say $150 for advertising), and assuming the property falls vacant for a few weeks,
  • if interest rates rose,
  • assuming an unexpected repair is needed, if the oven needs replacing, for example.
Line up the finance

Talk to a number of lenders. Make sure you know your borrowing capacity and arrange pre-approved finance (which may be subject to a property valuation), so you know exactly how much you can bid for a property. This is always important but particularly vital if you plan to bid at auction – remember, the sale is final when the hammer goes down.

Know the market

Use your knowledge of your local area (or of a regional or tourism area you are familiar with). Research recent sale prices to give you an idea of what you can expect to pay. Ideally, before you are ready to invest, personally inspect properties that are for sale then track what price they sell for.

Look for properties with strong tenant appeal, perhaps because they are close to public transport, schools, shops or a hospital, or lifestyle attractions like parks, beaches, cinemas or restaurants. Find out about the vacancy rate in the area. High vacancies may make it harder to rent the property and more difficult to sell in the future.

Assess the potential for price growth. Does demand exceed supply, or are developers regularly adding to supply in the area. Are neighbouring suburbs experiencing good capital growth? Are developments planned that may have a positive impact on prices?

Consider accessing historical property price data. Some data providers include: residex.com.aupropertydata.com.aupropertyvalue.com.au, and apmpropertydata.com.au.

Most importantly, think twice about investing in a property market you are not familiar with.

Check and double check

Before you buy a house, engage a professional building inspector to conduct a thorough inspection of the property to find any potential problems. For apartments, have a strata search done. Very often problems with the building, or even with the individual apartment you are considering, will show up in the strata records.

If problems are only cosmetic, you may have the opportunity to increase the rent (and ultimately the property value) by spending a little extra money on presentation.

Visit the local council and make sure you know about any development approvals, and local, state or federal government plans that may affect the area.

What are your thoughts?

Are you thinking of buying an investment property? Is there more you’d like to know about property investment? Join the conversation — leave a comment below and let us know what you’re thoughts are.

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Yellow Brick Road Financial Guru

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