Monthly Archives: October 2015
If You’re A Property Investor, You Are A Small Business Owner
If you own property from which you receive rental income, you should be thinking of yourself as a small business owner.
That rule doesn’t just apply to property investors who run a large portfolio as a full-time source of income. The scale might be different but it still applies if you’ve just inherited nana’s bungalow and have decided to rent it out instead of selling. You are now a property investor and you need to start thinking in terms of income vs outgoings.
Too many people think of rental, particularly from a single property, as passive income, when in fact it takes more work than a lot of investments. But don’t let that scare you off – all it takes is a little planning.
KNOW YOUR NUMBERS
Write a business plan. Look at the average market rents in the area utilising tools such as the internet, newspapers and New Zealand Tenancy Services who have a market rent calculator .
However engaging an expert such as a property manager, who has the expertise and knowledge, to conduct a professional rental appraisal on your property is the best way to gain an accurate indication of your property’s rental worth. Consider what you want your return to be, ensuring you factor in costs such as foreseen and unforeseen maintenance, rates and insurance. Is your desired return achievable? If not, you may need to alter your expectations or consider selling.
THINK ABOUT TAX
In your business plan allow for the fact that income, whether it’s from rental or from the capital gain of the property, will impact your tax status. Exactly how will depend on your existing sources of income. And it’s not all bad news. It’s not just about how much tax you will need to pay, but also what costs you can deduct from your tax payments. The New Zealand IRD has useful guides on tax for property investors.
HERE ARE SOME KEY POINTS:
• Rental income must be taxed in the same year you receive it.
• There are some expenses related to maintaining and renting your property that you can claim for.
• There is no GST on residential rental property. However, if you own an investment apartment with a management or service agreement in place, there may be GST implications to consider.
• If you switch between renting out property and property dealing, you may be liable for tax when you sell. You may also think it worthwhile paying an accountant to manage your taxes for you, just as any small business owner would pay a professional to fill gaps in their own knowledge. Just remember to include this as another cost against your desired return.
CALCULATE THE VALUE OF YOUR TIME
Just as any small business owner would hire professional to manage things such as accounts and tax payments, it’s worth considering the benefits of hiring a property manager to take care of the day-to-day running of the property. Too many property investors, especially if they have only one rental property, underestimate the drain on their own time of the day-to-day management of the property. And they don’t think of that time as having a dollar value.
Any time spent on a rental property is time away from your regular source of income, your family or your own home. Then you need to consider the potential for costs incurred due to a lack of legal knowledge or maintenance skills.
A PROPERTY MANAGER CAN SAVE YOU TIME AND MONEY BY:
• strong relationships with maintenance and repair providers who can offer services at a reduced rate for continued business.
• handling rent and debt collection; they can also handle the arrears process if rent is late, ensuring you don’t miss out on income and can avoid the costs of an external debt collection agency.
• minimising the risk of bad tenants with vetting and screening processes
• advising on how to maximise the return on your property portfolio. How should you optimise the return on your investment? What strategies are there to minimise vacancies? How can you negotiate the best rental rate for your property?
Running your rental property as though it’s a small business means you are much more likely to reduce the time and stress it generates. Some planning and good management also ensures better income, and make it seem much more like that passive income everybody wants!
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A Guide to Buying Property Overseas
Regardless of why you are interested in buying property overseas, the following sections offer helpful suggestions that can make your purchase more successful.
Overseas travellers often feel the temptation to buy property in the foreign countries they visit, and it is no coincidence that many real estate agents have offices close to tourist attractions in order to market property to prospective clients.
Furthermore, the motivations for buying overseas property can vary considerably, although one common reason is that real estate could seem undervalued and therefore likely to appreciate in future. For example, if your local exchange rate is particularly strong relative to that of a foreign country, the cost of buying overseas property can be especially affordable, and could present a lucrative real estate investment opportunity over the long term.
In addition, some travellers attracted to a foreign country might want to spend more time there, and so they might consider purchasing a second home to facilitate an extended stay or regular visits. Australian residents are frequently interested in buying overseas property in nearby New Zealand, or even in more distant English speaking countries like the United Kingdom and the United States.
Research the Market Thoroughly
Just as with any substantial long-term investment, you should research a foreign real estate market thoroughly before buying a property in that locale.
Different property markets can be in different stages of the property price cycle, so you should find out how prices have behaved over the last five to ten years. For example, a trend of rising property prices in Australia does not mean that real estate values are also trending higher in the UK.
Furthermore, some legal restrictions may apply to your ownership of foreign property. Accordingly, in order to avoid fraudulent or disappointing deals, you will need to make sure that you can hold title in a way that makes you feel secure before you hand over any funds.
Retain an Independent Lawyer to Represent Your Best Interests
While most local real estate transactions do not involve a lawyer, it can really make sense to hire an experienced, professional and independent legal representative to look out for your interests when buying overseas property.
Also, make sure that you clearly understand all legal documents pertaining to the transaction before you sign them. You might also need to hire a translator if such documents are written in a language you do not thoroughly understand.
Buy Through a Reputable Real Estate Agent or Developer When Buying Property Overseas
You might be able to make a successful foreign real estate purchase directly from an owner. Nevertheless, if you do not understand the overseas market thoroughly, it would make sense to buy property only via a real estate agent or developer with a good reputation and references.
They can often help you avoid costly pitfalls and are typically motivated to facilitate the transaction to your satisfaction.
Save Money on Mortgage Payments and Currency Transfers
Those who do eventually decide to buy overseas property will need to make appropriate arrangements for paying for it in the relevant foreign currency.
Whether this payment will be done in a large lump sum, or in a succession of regular mortgage payments, the purchase will very likely involve some form of foreign exchange transaction.
A better solution than approaching local banks — which often provide meagre foreign exchange services and charge very wide dealing spreads — would be to exchange your funds using a regular payments service, like those offered by OzForex.
This article is brought to you by OzForex Foreign Exchange Services. For more information on using a regular payments service visit: OzForex FX Products.
Should You Buy Or Sell Your House First?
When looking to change homes, one of the big questions is should you buy or sell your house first?
So you’re ready to look for your next home, now comes the all-important question of which comes first? Do you buy the new home first, or sell your current property?
A lot depends on your own circumstances and the current property market, for example whether you are buying or selling in the same area, or whether you are moving to a new location. So to help you make your final decision, consider the following factors carefully and how they affect your specific situation:
How easy is your present home going to be sell?
The average sale time varies from city to city and from month to month. Your sales consultant can advise you about current market conditions, recent comparable sales in your area and the possible demand for your home to help make the decision clearer.
Do you know what your home is worth?
Until you have an approximate value it will be difficult to establish an accurate picture of what you can afford to spend on your next property. Your sales consultant can show you a Comparative Market Analysis of what similar properties have sold for in your area in recent times to help you gain an understanding of the potential worth of your property.
What if you sell and don’t find a new home?
If you choose to sell first, you will instantly become a cash buyer and be in a far stronger position to purchase as soon as you see what you like. And if you have already done your homework and know the market that you are looking to buy in, you will be ready to confidently take that next step.
What if you haven’t sold and have found your dream home?
The best way to avoid the pressure of confirming the contract on the home you want to purchase and taking the risk your own home will sell in time is to talk to the experts first.
Obtaining quality advice on your own particular situation from your sales consultant will enable you to confidently make any final decisions.
What if house prices are rising?
If you’re in a rising market, it could make sense to buy your new home first at its current market value, negotiate a longer settlement, and have your current property potentially rise in value at the same time. In this scenario, you could earn more from selling your existing property after the purchase of your new property.
What if house prices are falling?
Falling house prices may work in your favour as well if you can attract an interested buyer before prices dip lower, leaving you free to purchase your new home at the lower end of the market. However, falling house prices is also an indication of a slower market, meaning it could take you longer to sell your existing home, and you’ll be committed to a new property.
At the end of the day, your local real estate professional is going to be equipped with the information you need to make an informed decision. So do your homework and then enlist the help of a sales consultant to give you their opinion on your property, your area and the local market.
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