Real estate is a tricky business and there’s a lot of articles out there telling you what you should and shouldn’t do. Some of them though, are fake news. Or at least news without the research to back up what they’re saying. Luckily for our customers, we know a few things about real estate and what myths you need to stop believing.
You can get rich quick
This only happens on reality television and those shows are giving new investors/aspiring renovators the wrong idea. Renovation and auction TV shows are highly publicised and the faces in the crowd are there for window dressing.
In reality, property investment, no matter your strategy, requires patience. If flipping houses is your game, the process is likely to take months instead of weeks. Real estate is about making calculated moves, not doing a rush job and slapping an expensive price tag on what you fixed up.
Agents are only interested in commission
It only takes a few bad experiences to spoil the reputation of a lot of good real estate agents. They aren’t just interested in their commission; they’re interested in helping you sell your house. They go to work every day because they love their job. The agents who drive shiny cars and wear nice suits have had a lot of experience and worked their way up the ladder.
Any property manager will do
This one will get a round of horrified looks. A good property manager isn’t easy to find. So don’t look at listings on Gumtree. Ask around and get recommendations. Other property investors are willing to tell you about good service when they experience it.
Inspections can be passed or failed
Not so. It’s an inspector’s job to go through the property and mark what’s good and what needs improving. If there are more crosses than ticks, you have a reason to be nervous.
Renovation before selling equals bigger profit
Age doesn’t justify total replacement unless your appliances are old and busted. Sometimes a coat of paint and new carpet is all you need. Real estate is more than a pretty facade; you must consider location and lifestyle as well.
CBD is the place to invest
This depends on who your ideal tenant is. People ideally want to live close to work, especially when the office is in the CBD. But will a family be looking for an inner-city apartment? Not likely. Will a mechanic set up shop in the city? Also not likely.
You must also think about rent. Prices are soaring, leaving office spaces and apartments empty. This burns a hole in property investor’s wallets. Regroup and rethink your strategy.
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After a severe bout of comparison-itis, you realize your investment isn’t performing as well as the others in the area. But you hesitate at the thought of shelling out more money for the sake of a new carpet. You should focus on improving your investment property if you ever want results like the ones below.
You’ll get a better yield
In Real Estate’s invest section, there are two columns; growth and yield. This is a sensible first place to check when you’re scoping out a suburb’s earning potential.
To get the yield of your investment property, make this calculation: (weekly rent) X 52 weeks / (property value) x 100. This is gross yield before you pay any expenses. Net yield is what you earn after the fact.
You probably have a low yield because the property is dated and sitting empty. It’s hard to generate income with both of those speedbumps giving you trouble.
Your tenants are going to be happy
Tenants are picky people and for a good reason. They’re choosing a place to live/work, hopefully for a long time. If your office block or residence is dated, it’s time to spruce the place up. Fresh coats of paint, carpeting, and amenities like a dishwasher and aircon are all little changes that make a big difference.
Need inspiration? Check this out; https://www.homestolove.com.au/belle
Making improvements like these in your investment property will increase your chances of finding a tenant if you don’t have one. If you’re finding it difficult despite making improvements, think about the rules. It’s difficult, for example, for pet owners to find a home that accommodates animals. Consider making changes in the conditions and you’ll attract appreciative prospects.
They think of it as home, so put the effort in!
It helps your depreciation report
Plant and equipment, aka easily removable features, like furniture, fixtures, and appliances cannot be claimed unless you installed them yourself. This means you miss out on lots of earning potential. After renovations on your investment property, call the quantity surveyor for another inspection.
The property can finally compete
Hamptons, modular, Scandi-style; there are so many home trends to keep on top of. But by at least renovating the house or office will be on par with the others on the market.
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Investing in property isn’t necessarily a hobby, though some see it way. Regardless of whether a person is in the sector to earn a little extra money or making a career out of it, there are things to love – and hate – about owning a portfolio.
Your homes and commercial blocks will always be there unless something extreme happens. Investing in property is often seen as a long-term, reliable investment, particularly when you have tenants.
Property investors have their ears to the ground, and emails in their inboxes, about the latest commercial and residential pickings up for sale. Quality within the building itself is a must; the structure being up to code, curb appeal and a recent update to the capital works are signs of a good investment.
The home itself is one part; the neighbourhood is the other. Tenants, whether they’re a family wanting to put down roots or a business looking to set up shop, will look at the neighbourhood dynamic before deciding to sign anything. Access to public transport, shops, and air conditioning are only a few of the items on their checklist.
Turns negative to positive
You won’t make money straight away, but delayed gratification is a given when you’re investing in property. Negative gearing is when you’re spending more money on your portfolio than there are returns.
When you keep working on it though, the negative gearing will turn into positive cash flow. This happens in a number of ways; lowering interest rates, raising the rent, changing property managers and reducing certain expenses.
Rentvesting = flexibility. You want to live in your dream suburb however, housing prices are on the expensive side. But you can still rent. You have flexibility instead of another mortgage but the luxury of living in a nice suburb.
People don’t want to make a career out of investing in property but they genuinely love the market and browsing homes. Instead of investing some people will buy homes, renovate them and sell for a profit.
No difference between work and play
Now, where there’s a good property, there’s going to be five investors wanting it. Bidding wars happen and people miss out. This is why it’s better to be a strategist, not a romantic who buys with their heart.
Property investors aren’t afraid to share stories about the horror tenants they’ve had over the years. Wild parties, drugs and extreme disrespect of the property e.g. cleanliness are some of the tamer complaints.
Problem tenants are easily weeded out by an experienced property manager. It saves the investors time and heartache (don’t be friends with your tenants).
That being said, however, for every good property manager there’s plenty of bad ones. What does a sketchy property manager look like? Well, they advertise their services in an unpaid ad on Gumtree for one. They also don’t keep a regular inspection schedule or return your calls for days. Good management firms are often recommended by other investors. They will keep you updated and return your calls as soon as they can. Plus, all levels of staff in the office look happy to be at their job.
Capital gains tax
Ah yes, you can’t make a profit without conditions attached. If you sell your property for a profit, then you must pay CGT. It’s unavoidable, but certain conditions and discounts are available to lessen the sting.
Not quite liquid
Investing in property isn’t easy money. You won’t sell it for a quick profit. Good homes can spend days to months on the market. So dress it up nicely and make it a place where people want to live.
No such thing as easy money in the property market
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Property investment is a business, it’s something people make a career out of. And they’re successful because they worked on a strategy. If your own isn’t generating some sort of flow, then it’s probably because you’ve made one or more of the below mistakes.
You haven’t educated yourself
Property investment strategies aren’t basic. They can be explained in simple terms but implementing them is anything but.Understand this: you can’t live off the income of one property alone. It won’t generate the income you desire. But a diverse portfolio of three or more will get you closer. Look at the different strategies out there and ask yourself a few questions, such as:
What is your risk tolerance?
Are you buying commercial, residential, or want a portfolio of mixed property types?
Is your aim for long-term growth or short-term return?
You’re buying with your emotions
Remember, you’re buying properties for tenants, not your future family. Emotional investment leads to burnout and feeling jilted because you didn’t get that property you loved so much.
Find a mentor and start networking with the community. People in the industry are only too happy to share advice about a property investment strategy that’s worked for them. Ask them how they detached themselves from the homes or office blocks they were inspecting.
Another solution is to put yourself in a business person’s mindset. You’re running an enterprise, building your portfolio. If you act the part, everything else comes naturally.
There’s no team backing you
This is a big mistake new investors make. Creating an effective property investment strategy is NOT a DIY-type of project.
Successful investors have a team of professionals behind them not only to keep them grounded but also to keep them from losing all their hard work on a bad investment. You’ll need a savvy accountant to incorporate your strategy into your annual returns, a financial advisor to monitor your investments, a depreciation specialist to create a tax schedule and a property manager to handle general tasks around your portfolio. Asking for help isn’t a punch to your pride, it’s good sense.
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Those who foray into the commercial investment property sphere know the benefits it can bring. Longer tenancy agreements, high rental returns, and fewer expenses, as opposed to residential investments, are among some of the benefits. But if you’re interested in boosting the perceived value of your space to tenants, consider these.
This is a first-world problem that wastes worker’s time in the morning when all they want to do is get to the office on time.
Websites like Parkhound enable landlords to hire out car spaces. Undercover, on the street, and on a monthly basis. Including this in the rent will attract tenants looking for value and convenience.
Restaurants do it, offices do it, and you can do it as well. Nothing brings a smile to someone first thing in the morning and seeing the floors are freshly vacuumed and new trash bags in the bin.
When you’re doing up a contract with a cleaning company, make a list of items that need to be checked off with every visit. It can be something as simple as wiping down the desks or more detailed tasks like cleaning the fridge/microwave.
If your commercial investment property is a cafe/restaurant space, adding high-end appliances will kill two birds with one stone. You’ll attract tenants who want the amenities, and you’ll get more from your tax depreciation schedule. Good quality appliances such as microwaves, ovens, espresso machines, and fridges will cost you a bit, but they’ll result in a nice tax return.
Nobody works in shoe boxes or cubicles anymore. If you’re a landlord for a commercial office, highlight the open-plan space, including floor-to-ceiling windows. They don’t need to be that big, but easy access to natural light and placing desks near them will have the employees competing for ‘the best desk in the house’. Humans instinctively seek out nature, like sunlight. It’s known to boost employee well-being and all around satisfaction during the day.
We live in a connected world and humans are drawn to free wifi as much as natural light! Get several wifi routers, good aircon, a security system, and lots of outlets for future tenants to plug in their devices. Running out of battery is a 21st century nightmare.
Depreciation rules for your rental property | Articles from around the web
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Burnout isn’t fun. It’s a result of investing in everything except yourself. As a property investor, you must be on the top of your game if you want to grow your portfolio and increase chances of financial freedom. Not all of these tips are based on financial success. They’re about investing in yourself and your worth.
The property investor community is full of people boasting about their annual return, how they got a discount on their capital gains tax, adding a family home (not an apartment) to their portfolio, etc.
No two investors are the same, so stop comparing yourself to that person in your head right now. Their strategy works for them and your strategy works for you. A self-described guru might be up until early hours looking at deals. You prefer 8 hours of solid shut-eye and check your emails for alerts the next morning. And that’s okay.
Talk to a professional
Asking for help isn’t a sign of weakness. Confronting problems head-on and admitting what they are is strength itself. People don’t know who to turn to sometimes, especially when it comes to their ‘failures’. Go to your GP for a referral to a psychologist and book an appointment. Mental health is just as vital as physical well-being. That brings us to the next point.
Take a day
Is your property investor role more of a side hustle? A majority of people in the game work full or part-time jobs and devote a small amount of time to the real estate market. Juggling two roles will lead to burnout and that’s why it’s important to take a day off. Don’t be a hero, it’ll result in a meltdown.
Do things that make you smile
You enjoy being a real estate aficionado but it’s a business, not a hobby. What would you say you don’t have time for anymore? Take an hour, half an hour, out of your day and do something that fills up your soul. Exercise, art, reading, swimming, baking are some suggestions to get you started.
Distance yourself emotionally
Emotionally investing in real estate is a recipe for disaster. That’s stress you don’t need in your life on top of work and family.
Detachment and being brutal in your choices will feel uncomfortable at first. But those tenants who keep disrespecting your investment home, for example, aren’t your family. The property manager dragging their feet and not returning your calls isn’t your best friend. Evict, cut the cord, and look for what serves you better. You’re a property investor, a businessperson. And people in business are successful because they make uncomfortable choices.
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Your rental property won’t earn you income straight away, but there’s ways to get to that point a bit faster.
80% of property investors are unaware of the tax benefits they can claim through depreciation. Imagine getting back thousands of dollars every year, on top of your (still meagre) rental income. The value of what you purchased this year won’t have the same value ten years from now.
Book an inspection as soon as you settle the property. The quantity surveyor will write up the report and send it back to you a month after their inspection. Get it to your accountant as soon as possible after that so it’s on hand in time for your annual return.
Increase the rent
As the area’s profile grows, so will demand and rental prices. It’s not unreasonable to change the rent a little. 2 – 3% is enough annually. Link it with new amenities like appliances or a paint job to show the tenants that it’s worth the increase.
Charge for amenities
‘Little luxuries’ can also boost the cash flow for your rental property. Cleaning services, internet connection/wifi, gardening, Foxtel and the like are all extras that can earn you a couple of extra hundred dollars.
Charge for the parking space
Same as renting out the apartment, rent out space in the parking garage (if your property is part of a complex). Inner-city parking is especially coveted. If there’s no parking on-site, look a one of the links below to investigate the possibilities of leasing a space.
Tenants are picky and they’ll choose properties that suit their needs. They’re busy people with kids, pets, and full-time jobs. Their home should be a place to relax and let the dog off the leash. Here’s some of the items on their list;
Location: tenants want a rental property close to work, school and the shops. Public transport right on the doorstep and lifestyle in the neighbourhood is a plus.
Housekeeping: A dishwasher, laundry area with at least a washing machine and a fully equipped kitchen is a big one. Bonus points if the appliances in the rental property are stainless steel!
Nature: Natural light, balconies, and yard areas for pets are also on the list. You might be hesitant to lease to tenants with pets, but more and more people are adding furry friends to their family.
The list goes on, but upgrading the appliances and raising the rent to cover the garden/maintenance fees is a place to start!
Read this before using your investment property as an Airbnb
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Leasing your investment property on Airbnb is a risk. You dream about earning extra income, and it’s wise to find a few extra streams to boost your bank balance. But is it worth the extra work we’re about to remind you of below?
Rules and regulations
And there’s a lot of them. There’s zoning laws, tax income laws (it must be declared; but this is often ignored) and local council approvals to look at. As written by Cortado Lawyers;
An Airbnb host will need Local Council approval (and a licence) as Bed and Breakfast accommodation (B&B) if they provide on a commercial basis: (a) rooms for overnight accommodation; and (b) at least breakfast or common cooking facilities; and (c) more than two or three double rooms for rent (which accommodate more than 6 people). A manager will usually reside in the property. The precise requirements vary between Local Councils.
AirBnB has also partially answered the question;
…please review your local laws before listing your space on Airbnb. More information about your city’s laws and regulations may be available on our Responsible Hosting page in the Your City’s Regulations section.
By accepting our Terms of Service and activating a listing, you certify that you will follow your local laws and regulations.
Costs over income
Cleaning fees, gardening, maintenance, and even insurance are only some of the costs you must consider. The latter is especially painful for landlords whose tenants are illegally subletting. Any insurance on the investment property and the tenants living there is made void.
You can charge more ‘rent’ because the cleaning fees are included in the final cost per night. You can also raise the rent as you like when it’s peak season because people will be looking for an alternative to hotels. But don’t expect your investment property to magically attract income within a week of putting it up. Short term rentals equal higher maintenance costs, on top of AirBnB taking their fee.
With regular tenants, you have guaranteed income for the duration of their lease. They could be in your rental property for years.
AirBnB, like hotels, is more seasonal. Holidays, festivals, and other events affect vacancy rates. Can you afford your investment property being empty for weeks at a time?
You’ll pay more than you make if you don’t play smart
Investors leave most of the care duties to their property managers; collecting rent, organising maintenance, and evicting troublesome tenants. But when you own the property, you become your own agent. Hosts with great reviews get more bookings, so you must be prepared to act as a concierge if necessary.
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There’s two main strategies in the investment game: yield vs capital growth. They’re different, but the goal is the same: to make the investor money.
What is yield?
This is complicated for the new players in the investment game. Agents will speak about ‘yield’, the percentage of an asset’s market value. There’s gross yield (before expenses) and net yield (after expenses are deducted). Your Investment Property gives us the formula below:
Weekly rent x 52 / (value) x 100
The result is your annual return, or yield, of that property.
What is capital growth?
One common strategy in property is to buy the house, hold it as an investment for a period of time and then sell it for a higher price. The surplus is called ‘capital growth’. But this strategy isn’t for those looking to ‘get rich quick’. Capital growth occurs over a decade or more. In this time the area demographic changes thanks to developments. This includes land/apartment buildings, schools, and public transport.
As always, with whatever strategy you choose, make sure you listen to your advisors (accountant, property manager etc). They’re the experts for a reason.
Do your research
If you want capital growth, you might choose to buy in a satellite city or an up-and-coming suburb. Research trends in the areas you want to buy. These include:
Retail outlets (cafes and boutiques)
Are there cafe’s in the area you’re house-hunting? What will appeal to potiential tenants?
Positive gearing happens when you receive income from your tenants after paying maintenance fees. This type of investment gives you cash flow but the disadvantage is paying tax and a slow rate of capital growth.
But some investors will snap up positively geared properties to yield the benefits of the income. Because they’re earning money, it makes them more attractive to lenders. They have the potential to buy another home and grow their portfolio in a shorter period of time.
Plug the gaps
After you’ve done your research you’ll know that there’s rules and regulations that other landlords are imposing on tenants. What can you do differently? Your Investment Property did a survey asking tenants what they look for and the results show that:
38% of tenants look for parking
31% want cable internet connections
32% look for pet-friendly properties (dogs are family too!)
25% want a strong mobile connection
22% check for an abundance of powerpoints
So after reading this, what would you do to build a strategy to yield the most from your portfolio? If you want more advice, read these articles:
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Confused about depreciation rules for your rental property? Did you even know there were rules in the first place? Depreciation, tax and claims processes are large and confusing mazes, so we gathered articles from around the web that make things crystal clear.
Investors who hold both commercial and residential properties were thrown for a loop in May 2017. Starting from July, the beginning of the new financial year, the Federal Budget came into effect with new depreciation rules. These rules affect what owners can claim which in turn claims how much they get back over time.
Investopedia is a useful website both novices and experts can refer to. The page linked above goes into the basics of depreciation such as how it’s calculated and when it ‘begins’. Hint: it’s not actually after the settlement date.
Make sure you’re square before the tenants move in
Rental property owners must navigate complicated tax rules. Not navigating them correctly leads to costly penalties. To help the common Australian investor, the ATO made a top 10 list of tax mistakes to avoid. These include what type of expenses to claim, as well as the right portion of costs and how to keep the right records.
If you need a printout to have on your nightstand, there’s a PDF available to download.
This page is a one-stop-shop for investors wanting to know more about the process. There’s an uncomplicated list of depreciation rules, definitions and examples of what assets you can claim.
The page also describes the methods used to calculate depreciation costs, prime cost vs. diminishing value. But the quantity surveyor handles these calculations, not the investor. Once the values are worked out they go into the depreciation report. This crucial investment tool is recommended at the end of the page as the final step of claiming depreciation on an investment property.
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