Puzzle Finance Blog

Top 10 mistakes of new landlords

Successful long-term investors in both camps argue that their preferred strategy works best, but many believe a blend of both approaches is the safe and sure way to build wealth.

Successful property investors have practices that maximise their ability to secure properties with the greatest capital growth and strongest rental return. Dealing with thousands of investors throughout Australia over the years has also highlighted the repeated mistakes that many people make. Generally, these owners think that property investment is too hard, risky or time consuming, but with the correct strategies you can avoid their pitfalls.

Treating property investing as a hobby

Most people who bought a business worth $500,000 would treat it very seriously and have the resources and systems in place to get the best results. Unfortunately, too many people buy a property and then treat it like a hobby and don't achieve its maximum potential.

As in most business ventures, 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.

Forming a direct relationship with the tenant

Dealing directly with the tenant can be rewarding but it can also 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.

You would need to be 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.

Thinking of a property as their 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 whatever you do appeals to the widest range of tenants.

Not keeping the property in good condition or not doing repairs quickly

One of the things I love most about property investing is that you can 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. In addition, the rental yield can be increased substantially by repairs and improvements for which the tenants will pay extra rent.

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 to a professional standard, even if they are minor.

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 quantity 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.

Failing to increase rents regularly

All landlords should regularly review rents to ensure they are at market rates. A small, regular review is much better than a large, infrequent change that shocks the tenant so much they move out. As a new landlord, it might feel daunting to increase the rent for the first time fearing that your tenant may move out. In reality, as long as the increase is reasonable you should have no problems with your tenant.

It is useful to compare your property with others which are similar in the area. Go to open for inspections in neighbourhood to check market rents. It is also advisable to do a gross yield calculation and compare it with the rental yield table at the back of some property investment magazines. Multiplying the rental yield by the estimated value of your property will guide to the annual rent you should be achieving.

Losing sight of the bigger picture

If you are serious about property investing and truly want to create a better financial future for yourself and your family you need to remain focused on building a portfolio. To do this you need to be able to leverage the equity in your properties. The greater your equity and rental returns, generally the more you can borrow.

To establish the value of your portfolio you bank will use an independent valuer to establish the value of your property. it is crucial you understand what value they have put on the property and compare this with what you think. If the property has been undervalued, follow up this with your bank. Prepare a list of comparable sales, talk these through with your bank and don't feel you have to accept their valuation. If you have a valid argument they will often listen to you.

I find when people buy their first property they get caught up in all the details they get caught up in all the details and sometimes lose focus of the bigger picture of building a portfolio. Set yourself some objectives around your property investing so you can stay on the track to your personal goals.

Paying down the wrong type of debt first

Most experience investors know that it can be tax effective to pay down non-tax deductible debt (such as loan on your home) before tax deductible investment debt. Most investors have their investment properties in interest only loans until they have eliminated non-tax deductable debt.

Too often I speak with people who are not maximising their personal tax benefits. The professionals working with them have not helped them to structure their portfolio effectively.

Using the wrong accountant

It is very important to have a business plan and build a good team of people who can help to make the right decisions. A good accountant that truly understands property is worth their weight in gold. I always encourage people to ask their accountants whether they invest in property and how many properties they have.

It is important to consider what tax issues you may be facing during the different stages of your life and to structure your portfolio around your plans.

Failing to use experience property manager

One of the most important traits of a successful business person is the ability to delegate and use the expertise of others. This is true of working with a professional property manager. Use of a property manager is inexpensive and tax deductible. For a couple of dollars a day a property manager can save thousand by ensuring your vacancy rate is low and your property obtains the highest possible rent. They also pay the bills and prepare end of month and financial year accounts so your accountant can prepare your tax return efficiently.

I encourage all investors to use a property manager so their time can be spent finding good property deals. This is particularly true for new landlords who can get lots of support and expert advice from their property manager. Using a property manager is particularly important if you are considering renting your property to a friend or family member.

A property manager can remain independent of the personal relationship and ensure the property is managed professionally and fairly.

Posted by Rob Farmer - CEO Run Property - Bigpond Money on 17th April, 2012 | Comments | Trackbacks

Bookmark and Share

The trackback URL for this page is http://www.puzzlefinance.com.au/trackback?post=25903225


There are no trackbacks for this post


There are no comments for this post

Post a Comment

HTML is not allowed in comments, http://... will be automatically linked.

Name (required):

Email Address (not displayed):

Comment (required):

To help prevent spam, please enter the word fade here:

Puzzle Finance Blog

About Puzzle Finance


September 2017
August 2017
July 2017
June 2017
May 2017
March 2017
February 2017
January 2017
December 2016
November 2016
October 2016
July 2016
June 2016
May 2016
April 2016
March 2016
February 2016
January 2016
December 2015
November 2015
October 2015
September 2015
August 2015
July 2015
June 2015
May 2015
April 2015
March 2015
February 2015
January 2015
December 2014
November 2014
October 2014
September 2014
August 2014
July 2014
June 2014
May 2014
April 2014
March 2014
February 2014
January 2014
December 2013
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012
October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012
January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011
March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010


Purchase or Rent (1)
The Age (1)