Making a start in property investment is incredibly exciting. There’s nothing quite like the thrill of making that first purchase – the first step in a long and rewarding financial journey. Part of being a property investor is, of course, being a landlord, and though this responsibility may seem like a minor element of the investment process, there is quite a lot to get your head around.
As with every other stage of your property investment journey – researching, buying, diversifying, selling – you will work closely with your team in the management of your portfolio and the properties within to ensure it is sustainable and, most importantly, geared towards capital growth. Here are a few things every new landlord needs to keep in mind.
Property is a business investment and the way you approach managing your portfolio should reflect this. Strategic planning, deliberation and careful consideration of facts, figures and historical data should be at the core of how you select your properties. This leaves little room for emotional decision-making – think with your head, not with your heart!
An experienced property manager will ensure your peace of mind when it comes to the actual day-to-day management of your property portfolio. They essentially look after the tenancy of your properties and everything that goes with it: rent, accounts, leases, inspections, disputes, issues and paperwork. Good asset management is essential to maximising rental returns.
If you develop a solid relationship with a great property manager, you can have them manage your portfolio as it grows too; having all your property managed under one roof can be very helpful.
When the cost of owning an investment property exceeds the income received from it, the ATO allows investors to offset the loss against their personal income. This is what is known as negative gearing, and it’s a draw for many to invest in property in Australia. This may affect how you approach the management of your assets.
Many investors restrict themselves to the benefits of negative gearing while disregarding positive cash flow returns, which can in turn maximise the risk of owning an investment by eliminating one of the two major sources of income from the property.
At Optimal, we are always looking to find properties that can generate free cash flow as soon as possible for our clients to create tangible wealth, not just minimise tax. However, if you have the capital to weather fluctuations in the market, negative gearing may quite lucrative. Be sure to discuss tax thoroughly with your financial planner or accountant, and your property strategist. You can read all about negative gearing here.
An accountant is key when it comes to handling the finances within your portfolio and they are an important asset from the get-go. When it comes to tax, a proactive accountant is crucial for minimising costs and depreciation, negotiating income splitting and ensuring the maximum return on your investments.
Your accountant will have a deep understanding of tax law and can use this legislation to your benefit; they will also analyse your cash flow and advise you on how to structure yourself financially.
Working alongside your accountant and property manager to continually seek ways to maximise cash flow is an important part of being a landlord in property investment. Keeping an eye on renal yields and the market, and opportunities to increase rent is essential throughout every stage of your portfolio – from the acquisition of new properties to maximising returns prior to retirement or downsizing.
A huge part of being a landlord is the responsibility for the upkeep of your property. All landlords have a legal obligation to keep their property safe and well maintained. Ensuring that your tenants are content can help minimise the chance of a loss of income in the transition phase if they choose not to continue their lease. Also (importantly!) ensuring that you are proactive with maintenance will ensure your property retains its market value over time, and minimise the chance of more serious, not to mention expensive, issues in the long run.
Purchasing your first property can be very exciting, and there is a lot to think about during the entire process. Your investment team should be there helping you every step of the way, working towards your financial goals.
If you have any questions regarding management of your assets or investing in property Australia, please feel free to get in touch! We’d be more than happy to help.