It’s an ongoing battle between Property Managers and their property investor clients. It seem that too often property investors ears go deaf when told about maintenance issues that need addressing so the houses they own are kept in good condition with rent being paid? Could it be that when first buying a property investors underestimate the ongoing financial commitment required. In this article the LITTLE REAL ESTATE team sheds some light on the matter.
Many investors purchase a property, find tenants (on their own or with the assistance of a property manager), and then forget about the importance of upkeep.
It’s a bit like buying a highly sought-after, rare vintage car and then parking it outside in the weather to rust so it becomes a wreck and needs to be restored.
Why would you purchase something of value, borrow the money to buy it and then allow it to slowly deteriorate and lose value?
Yet that is what property managers often find a large number of their clients do.
When first buying most property investors don’t intend this to be the case. On the contrary, they originally purchase a rental property with the idea of keeping it fully maintained and their tenants happy and continuing to happily by their rent each week.
However, the financial realities of owning and maintaining residential real estate often becomes a burden.
So how can property investors avoid this happening?
The first step is to consider and factor in the different phases in your life and the financial challenges these might bring.
As a property investor you need to think about where, when and how future cash flow will be coming in and realistically analyse all the expenses associated with holding property investments.
By doing this you will gain a realistic insight about what type of investment you can afford and more importantly, the best type of asset suited to your present and future circumstances.
Within this planning, you need to include maintenance of your property portfolio and an occasional large-scale upgrade might also need to be factored into the equation.
Don’t forget, the reason you claim depreciation on your tax return is because it’s assumed a building will degrade over time and therefore, lose value.
This is particularly true for bricks and mortar dwellings that are left to structurally or cosmetically deteriorate to such a point that is becomes damaging to the market value of the property.
What do you plan for?
If you invest in a residential apartment building, or other multi-title properties like units or townhouses, you’ll generally find a body corporate is in place to oversee upkeep of the building and any communal spaces. Car parks, laundries, garden areas and the like are usually included.
As an owner in the building, you’ll be required to pay a yearly body corporate fee and may be asked to provide additional funds for capital works as necessary, such as roof repairs following storm damage.
These fees can vary greatly, depending on numerous factors, but should be fairly reflective of the type of maintenance buffer investors should prepare for, relative to the size and type of dwelling you own.
Emergency repairs can quickly eat into a cash flow buffer if left unaccounted for in your initial number crunching.
Think about what constitutes an ‘essential item’ in a rental property, according to the regulatory body in your state or territory and then calculate how much it would cost to replace these items, should the need arise.
Things like heating and cooling systems, cooking appliances, plumbing or electrical infrastructure and hot water services.
You’ll need to have money accessible in a maintenance fund, which may or may not be attached to your overall cash flow buffer.
More regular maintenance items should also be factored into the calculations for your property portfolio cash flow forecasting. Think of it like a haircut to keep you looking neat and tidy!
Remember that your rental property is working for you every day, generating an income. As such, you want to make sure it remains productive and viable.
Think about how you can help to keep your investment presentable and inviting, because first impressions count in real estate. Not only will you attract and retain better tenants, you’ll maximise returns and find most of the money you put in, comes back to you with dividends.
Little Real Estate is Australia’s largest independently owned real estate company. We’re dedicated to working with our investors to obtain the best possible return on investment. Contact us today to see what we can do for you and your property portfolio. If you are looking for someone who actually cares and follows up to manage your investment property and want to get your Management Fees FREE for 6 months click here.
General Advice Warning: The advice has been prepared without taking into account your objectives, financial situation or needs. You should therefore consider the appropriateness of the advice, in light of these objectives, financial situation or needs, before following the advice. We recommend that you speak to your accountant and financial adviser to help you determine whether direct property investment is right for you.