Category Archives: Property Management
Many may consider landlord insurance unnecessary, confident that only the best tenants will emerge from a stringent selection process to lease their property.
And with good tenants, what could possibly go wrong with your investment – right?
Time to take a cold shower and consider this carefully. Or how about take a refreshing bath?
A very good tenant, in an apartment building, fell asleep while pouring a bath. The water not only flooded their unit, but seeped through the floor, damaging the ceiling, carpets and electrical appliances in the apartment below. Because the owner of the apartment took out the right landlords’ insurance, he was able to quickly repair the damage to his own unit. He was also able to claim the excess payable as a tax deduction. The owner of the unit below had no insurance, leaving their only course of action to sue the tenants upstairs, seeking to recoup costs for repairs.
Whether it be a house, unit or townhouse, an investment property is often among the most valuable assets anyone will own.
The importance of taking out landlords’ insurance was borne out by a recent survey which revealed that two out of five landlords had experienced tenants damaging property or defaulting on rent in excess of the value of the bond (Source: Home Insurance Comparison).
While standard house and contents insurance will cover such events as theft, fire or various natural occurrences, landlord’s insurance is specifically designed to protect the landlords’ investment.
For example, landlord insurance can cover you for:
- Malicious or accidental damage by tenants or their guests
- Damage caused by structural alterations to the building without your consent
- Theft by tenants or their guests
- Legal action if taking action against a tenant
- Liability for a claim made against you
- Loss of rent if the tenant defaults on their payments or leaves early.
The same applies to investment properties that are units or townhouses, although existing body corporate insurance may already cover you for building and legal liability for public areas. Check with your body corporate to find out what existing insurance policies cover.
As with all types of insurances, the cost and conditions of different landlords’ insurance policies on the market differs greatly, so take the time to talk with your Harcourts Property Manager about finding an insurance policy that suits your specific property.
It is important to buy an insurance based on its suitability rather than price, and to clearly understand which is included and what is not.
For example, some policies will cover only “malicious” damage made by tenants and not “accidental”. Often there are strict conditions that apply to covering default rent payments.
If you rent out a fully or partly furnished property, you may also need to add contents insurance to cover items such as whitegoods, furniture or appliances. There are many other factors to consider.
The good news is, insurance premiums and any excess payments are tax deductible.
Yes, landlord insurance will cost you a small amount each year, but it will save you from sleepless nights wondering what will happen if the unexpected becomes reality.
You may be one of many around the world who are considering buying a property with a home and income or granny flat.
If so, it could be for a host of purposes, and despite the name, it could be for a reason other than accommodating an elderly parent. You may have one or more “boomerang children” in tow – adult children who have returned temporarily to enjoy the multiple benefits of living at home. Or, you may be seeking additional income from renting your granny flat or need an office for your home business. Whatever your reason, the advantages of owning a property with a second living space on the same block of land are obvious and many.
With residential space in cities becoming rarer and properties owners looking for creative ways to maximise their income, granny flats are becoming the new black in real estate. Granny flats can either be attached or unattached to the main residence, but in all cases, smaller. They are often self-contained with kitchen, bathroom and living areas. In many countries – if the self contained unit is bigger than 60 square metres they cease to be a granny flat, and are then classified as another primary dwelling. Buyers need to be aware that when it comes to granny flats (or secondary dwellings as they are commonly called in the legal sense), there are different laws for each country and local councils applying to their building and renting. Different laws apply to the size of a block of land where a secondary dwelling can be built, the type of access, and in some cases, even the legality of collecting rent. So when buying a property with a granny flat, besides familiarising yourself with the appropriate laws at a local level, your first priority should be finding out if the dwelling is legal with all appropriate compliance paperwork in place. Should I buy a house with a granny flat? So what are the benefits and risks of buying a property with a granny flat?
The benefits of a Home and Income
Accommodating family members There is no doubt that part of the reason behind the exploding popularity of granny flats is the win-win solutions they provide for extended families. An elderly parent can live affordably onsite, while fulfilling the role of a handy babysitter. By paying mates-rates rent, an adult child can quickly save up for a deposit for their own house or an overseas odyssey. Extra rental income With new accommodation websites such as Airbnb or flatmates.com the possibilities of marketing an additional living space are now limitless. Granny flats can become handy earners.
Spreading your risk If you have only one investment property, an extended vacancy can be cruel, but with the addition of a granny flat, you immediately have another rental income. The likelihood of two vacancies at the same time is highly unlikely. More tax depreciation If the granny flat is new, and is being rented, then the owner has the opportunity to claim depreciation. Before making a decision based on depreciation, you should first talk with a professional who can advise you on depreciation schedules.
The risks involved with a Home and Income or Granny Flat
Increased property management costs An extra dwelling brings extra responsibilities and maintenance costs, particularly if there’s plumbing. It may be vacant The original purpose for your buying a property with a granny flat may change. The boomerang child may move out or you may no longer need a home office. If the granny flat is vacant for an extended period, maintenance will still be needed. Often, a vacant dwelling deteriorates more quickly than one that is occupied, and the last thing you need is a backyard eyesore. You may reduce your rental market or resale potential
When it comes to reselling, the presence of a granny flat will reduce the size of your pool of potential buyers, and therefore may lead to a lower price than otherwise possible in a tight market. Subdividing possibility on a bigger block, the granny flat could effectively stop you from subdividing into two titles.
Granny flats have outgrown their name. Multipurpose, adaptable, young and hip, these little dwellings can add a valuable punch to any property if handled wisely.
So how often should you inspect investment property? To ensure your investment property retains its value and marketability, you need to make sure your tenants are fulfilling their end of the bargain and looking after your property. On the flipside, you also have obligations when it comes to upkeep of the property.
There are no guarantees. A tenant with the best references, and who appears to tick all the boxes, can still damage a house or apartment, and cost you the landlord thousands of dollars.
Through neglect a garden can die or a lawn can become overgrown. By accident an oven can be caked for weeks with the remnants of an exploding one-pot wonder, or a pet may be leaving hair and odour in your pet-free unit.
Prevention over cure
When it comes to prevention over cure, there is no substitute for making regular property inspections.
Inspections can sometimes become a point of contention between landlords and tenants. Some tenants see them as an intrusion of their privacy, or feel that inspections are unnecessary.
While landlords cannot control the attitude of tenants to inspections, you can conduct inspections in such a manner so they are more likely to be welcomed.
Remind tenants that inspections are mutually beneficial, presenting landlords and tenants an opportunity to discuss ongoing maintenance issues, or other matters relating to the property. Giving tenants ample notice before an inspection will also build goodwill.
An experienced property manager will know how to conduct an inspection quickly, and with as little intrusion as possible. They will also be systematic in capturing evidence and details of any damage or maintenance that needs attention, and then report back with accuracy.
A five-minute inspection by an experienced property manager can often avert major expenses down the track.
Property inspections should be conducted as regularly as allowed under legislation, and be aware that each state is different – see table below:
DIY or property manager
If you own an investment property a few hours travel (or more) from where you live, you can claim travel expenses as a tax deduction. You are allowed a full deduction where the sole purpose of the trip relates to the rental property, however, in other circumstances you may be able to claim a partial deduction. If you wish to claim tax deductions for the inspection your own investment property, ask your accountant for more information.
The most comprehensive property inspection is only as good as the action that follows
That’s where engaging a local property manager, who has ready access to tried-and-tested tradesman ready to respond, presents a more convenient option.
If you inspect your own property, and do not have these qualified, verified, local contacts, you will probably cost yourself more money in the long run. Also, let’s face it, inspecting a tenant’s property is an uncomfortable experience for everyone – everyone except a specialist property manager who does so every week.
* In Victoria, a landlord can enter a property within 24 hours’ notice if they provide a written application, state the reason for entry and either post or personally deliver the application (allowing two days for postal delivery).
* In New Zealand, a landlord can enter a property within 48 hours’ notice if they provide a written application, state the reason for entry and either post or personally deliver the application (allowing two days for postal delivery). They can also inspect the property as regularly as every four weeks should there be reasons for concern.
Regional Australia presents a range of vibrant, eclectic opportunities for active property investors.
Contrary to the images painted in the Academy Award-winning movie Mad Max Fury Road, regional Australia is not a post nuclear holocaust wasteland, but is a property investment goldmine, which only needs a bit of digging to uncover the wealth.
With 6.45 million people living outside of Australia’s 20 largest urban centres, the demand for properties in regional and rural areas is alive and kicking.
The major attraction of investing in regional centres is obviously the lower cost entry point and subsequently lower median sale prices, which overall, can be half of that in cities and major centres. However, surprisingly, rental yields are often equal and sometimes higher.
A quick snapshot example:
Warwick, Qld – median sale price $242,000, median gross yield 5.6%
Glen Innes, NSW – median sale price $189,000, median gross yield 6.3%
Seymour, Vic – median sale price 217,000, median gross yield 6.0%
Corelogic, April 22, 2016
Admittedly, capital growth in regional towns is a rare commodity, mostly due to stagnant or even reducing populations, but the astute investor can uncover opportunities through purposeful research and tenacity.
There are many towns and communities that are unsuitable for investment, but there are many that tick many of the right boxes.
The greatest psychological barrier that many must overcome before investing regionally is the perception of value, distance and risk.
The first response at the mention of regional Australia is a comparison to the city. The towns may not be as attractive and modern as a city or larger centre, have less facilities, older architecture, and not as “hip”. Heck, there may be only one coffee shop in town and no Maccas!
Inspecting prospective properties will probably involve a lot of travel, to and from the region, and conducting exhaustive research can be very time consuming due to the tyranny of distance.
Then we have the hyped-up publicity, which always focuses on the bad news and rarely on the good news. For example, of every region in Australia, a recent report on a long-running current affairs show chose to focus on a mining centre in Queensland where housing prices had plummeted as a result of local mines closing down.
But regardless of potentially poor aesthetics, being a long way from home, and lack of x-factor, the numbers can still stack up.
So, if you have stared down these obstacles and emerged with a renewed determination to invest in regional Australia, what is your next steps? What are the type of indicators that will point you to a profitable investment?
Federal and State infrastructure
What clouds are to rain, so Federal and State public infrastructure is to population growth. One typically comes before another.
While local government infrastructure typically follows population growth, large scale infrastructure at the Federal and State level, such as new roads, railways defence contracts and the building of transport hubs, often precede population growth.
There are various government websites available that outline future infrastructure plans, complete with timelines and expenditure that has been already committed.
Taking the indicator of current or future population growth a step further, finding median household income and its trends will determine the level of income available for future growth and housing.
Also look at business start-ups, particularly larger brands selling food, clothing or other essentials. Increased business activity means a stronger local economy.
It is important to understand what business drives the economy of a township. Your risk will be reduced by investing in a town where there are more than one dominant industry or business. If one business is the sole reason a township exists, obviously the risk is high.
Also be wary of townships supported mainly by tourism as occupancy can be affected greatly by the inevitable peaks and troughs inherent to the tourism industry.
Overall, when it comes to economic indicators, it is timing that is the most important factor. For this reason, rather than look at statistics in a shapshot of time, it is wise to allow trends over the five to 10 year period to form opinion.
Real estate-specific indicators
The important real estate indicators available online and in local papers will always guide the astute investor, particularly trends over 12 months, five and 10 years.
Auction clearance rates: Calculated by dividing the total number of properties sold at auction for the week (including those sold before or after) from the total number of auctions reported. A figure trending up indicates a strengthening market.
Vendor discounts: Calculated by taking the average of the difference between the original asking price of a property for sale and the eventual sale price. A decreasing rate indicates a strengthening market.
Vacancy rates: Calculated as the percentage of all available rental properties that are vacant or occupied at a particular time. A decreasing rate indicates a stronger rental market.
When compared to city dwellings, property in a lot of regional centres is ridiculously affordable, but it takes a focused mind and often getting your hands dirty to separate the suitable investment property from the unsuitable.
With capital growth a rarity, most will not suit those investors looking for short-to-medium term capital growth, but rather for longer-term investment strategies. Buying property in regional centres also offers the chance of diversification for those who may already have properties in cities.
Leaving decision-making to your “gut feeling” can work in many realms of life, but when it comes to buying investment property, those with a proven strategy are more likely to succeed consistently.
If you are actively in the market for an investment property, you will be met with numerous “opportunities”, but only a few are likely to deliver the growth or return you are seeking.
Successful property investors filter opportunities through a set of predetermined criteria, dividing the suitable from the unsuitable.
While there is no foolproof system, investment property success stories are a product of research and careful consideration rather than chance.
Let’s start with the assumption that you are buying a new or near new property which requires little or no maintenance, and have researched and identified a region or town where you want to buy.
When looking at a specific property, what’s the type of criteria you may use to rule a property in or out of your consideration set?
Here’s a quick summary:
Location, location, location.
It’s the absolute non-negotiable of buying real estate. Location can refer to what is close by in a positive sense, for example waterfront, shopping and public transport. Location can also refer to what is close by in a negative sense. For example, if the property is on a busy highway, close to an industrial area, or an airport (such as in the classic movie The Castle), then the possibility of capital gain and/or strong yield reduces significantly.
When assessing the design of a potential investment property favour functionality and practicality first and foremost. What are the important factors in home design that will encourage long term tenants? Some finishes wear more quickly than others, which will increase maintenance costs. For example, carpeted floors wear more quickly than tiled floors.
Value for money.
Relying on capital growth alone to increase the value of an investment property can be hit and miss. It’s obvious, but the sure-fire method to make money on investment property is to buy under market value.
Trusting the developer.
Particularly with property being sold off-the-plan, the reputation of the developer becomes an important consideration. Before buying, you need to do all in your power to perform a background check on the developer to ensure they are not only reputable, but financially secure. The last think you want is to invest in a property off-the-plan that is subsequently abandoned or postponed.
Consider the typical person who is likely to seek a rental property in your property’s location. Whether you are buying in a suburb known for its families, its working class, its prestige, or a high number of students, you should seek the type of property that matches the needs of a likely tenant.
Considering the likely yield of the property (annual rental income (weekly rental x 52) / property value x 100, is it suitable for rental. If the investment property will not return a yield above 4%, than it may not be suitable.
Ideally, your investment property should remain attractive to the market no matter what the economy is doing. For example, a property in the top 5% price bracket may struggle to attract tenants if the economy slows. Favour properties that will be tenanted no matter what the economy is doing.
At any one time in Australia, there will be individual markets going up, going down, and going nowhere. By investing counter-cyclically, for example, buying when others are selling is more likely to lead to a value-for-money deal.
In a crowded market place, look for a property that has an X-Factor – something that will set it apart from other similar properties in the same area. This could be anything – from a stylish Balinese hut in the backyard, a fireplace or easy access to a local park.
Some of these factors are easily discovered. Others take serious investigation and due diligence, but the time you take to establish a thorough understanding of the property to inform your decision making will be well worth it.