When you first purchase an investment property it’s a great achievement to celebrate. But the hard work isn’t over yet. After buying a rental property there are plenty of hurdles to overcome and additional challenges. To keep your rental property profitable you need to be committed and attentive.
There are many things to look out for when you first start renting out an investment property. Don’t approach your investment property as a business and you may lose sight of the bigger picture. After all, you purchased a rental property in the first place to make money right? So you should always consider how best you can make a profit out of your rental.
The way you approach your investment property can have a massive effect on how profitable it is. It’s also good to play a more active role in the maintenance of it. Always consider regular check-ins with your property manager to make sure everything is running smoothly. It’s also good to check in with your property manager to ensure they’re giving your property the attention it deserves.
It’s also a good idea to dedicate some time to property market research. With a little extra research, you may discover you can charge more for your rent. It’s little things like this which can add more value to your investment property. Neglecting your duties as a landlord can drastically decrease the value of your investment.
To help you get the most out of your investment property we’re counting down the top 10 mistakes that new landlords make with investment property. Avoid these mistakes and you’ll be better prepared for the challenges that come with owning an investment property.
Not seeing your property as a business opportunity
One of the biggest mistakes that landlords make is not treating their property like a business. Any business owner would put a lot of time and effort into a business venture if they invested over $600,000. So why aren’t you doing the same?
Too many people don’t take the right approach when they buy an investment property. After purchasing a property and getting a tenant there’s still more work to do. It’s important to have a business plan and goal in mind. With a set goal in place, you’ll start making a better decision about what you’re doing with your investment property.
Getting to know your tenants
Meeting your tenants can help reassure you that your rental property is in safe hands. Having a relationship with them it can be rewarding. On the other hand, it can also make it harder to make a business decision on your investment property. Putting faces to the family you’re about to kick out of your property can make it a more difficult decision.
Having a relationship with your tenants may also encourage them to take advantage of the situation. For example, if a tenant knows you personally they may think it’s okay to get away with making a late rent payment. If you don’t have the will to separate your business relationship from your personal one, you’ll find it harder to do normal things like asking for rent increases and bond claims.
Treating your investment property like home
By treating your investment property like a home you get tunnel vision. You start seeing all the things that you want in a home and don’t realise what other people find appealing about it. You may not think your apartment is appealing because it doesn’t have parking. In the eyes of a student, it may be perfect because it’s close to a university campus.
Interior features like the bright paint colours or kitchen space may seem really appealing to you but that’s not the case for everyone. So think about the features that other people may like. The requirements of a working couple may be completely different from a full family or group of students.
Not maintaining your property
Just because your rental property has a tenant doesn’t mean your house is looked after. Over time your property may have structural issues and general wear and tear that need to be fixed. It’s very important to take a fast approach when it comes to repairing issues. A leaking roof or cracked wall may not seem important now but they can quickly escalate and grow into more serious issues that become very costly.
Repairs also need to be done to a professional standard. A band-aid fix for an issue will be cheap but it could end up costing you more money in the long run. If you have to fix the same thing multiple times is it really worth it? For example, a professional plumber will do a good job the first time and alleviate the need to repair something for years to come.
Ignoring a depreciation schedule
A depreciation schedule is essentially a group of items that can be depreciated at a certain rate over time. These items enable property owners to claim a tax deduction on their taxable income. A rental property is one of those items that can depreciate over time.
By using your house to claim a tax deduction on your taxable income you can save thousands of dollars for that financial year. This is especially relevant to those who buy an older property.
Not increasing your property’s rent
When you own rental property, it’s very important to do regular market research such as a rental appraisal. You should always pay attention to what the average rental rates are in your rental property’s area. As rental rates start to rise you are well within your right to match those rates with your own rental property.
When you raise the rent, try not to do it infrequently. For example, if you increased the rate by an extra $10 a week every year it may not seem like a big jump. If you decide to raise the rent by an extra $30 a week in one year it may come as a massive shock to your tenants. This could instantly put your tenants off and inspire them to leave.
Not planning for the future
Buying a rental property isn’t a spur of the moment thing. It helps to have a long-term plan for what you want to achieve with it. You may have revenue goals or future plans to enhance the property and make it even more profitable in the future. If you plan on using the equity from your rental property to build wealth then start thinking about the bigger picture.
Remember that the higher in value your property is, the more equity you will be able to leverage in your property portfolio. To establish the value of your rental property it’s best to get it valued on a regular basis. Prove to your bank that your house is worth more and you’ll be able to build on your property portfolio with higher rental returns and more equity.
Paying down your tax-deductible debt
Ask any experienced property investor and they’ll tell you that it can be more tax effective to pay down your non-tax-deductible debt before it’s tax-deductible. A perfect example of this is your home. More savvy property investors will continue to keep their rental properties on an interest-only arrangement until they can eliminate their non-deductible debt.
Not using the right accountant
It really pays to have an accountant who knows what they’re doing. When you approach an accountant for their services, make sure they’re someone who specialises in real estate. An accountant with experience in property investment and portfolios will be able to give you sound advice on what to do with your rental property.
Not hiring an experienced property manager
The experience and professionalism of your property manager can be the difference between your investment property being a success or failure. Property managers are relatively inexpensive. However, if they are not attentive, it’s likely your property will suffer for it. If issues aren’t fixed straight away, they can become bigger and more expensive problems later on.
If your property manager fails to get back to your tenants, they can jeopardise the working relationship with them. Unhappy tenants can leave sooner than you expected. With tenants vacating your property on a regular basis, you could stand to lose thousands in revenue from your rental property.