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HOW TO CREATE EQUITY FROM SIMPLE RENOVATIONS

Whether you are thinking about listing your property on the market or simply looking to add value to an existing investment property, renovating can be an effective way to create instant equity.

Property owners eager to lift the value of their homes often ask the question, how can I ensure maximum value from a simple renovation?

Before jumping straight into a renovation, it is essential to carefully plan and budget for any upgrades you are considering. The key is to make sure you know what adds value, without over-capitalising.

Here are a few recommendations:

  1. It is always important to consider your renovations with rental yields in mind. As with investment property selection and purchase, a renovation is all about attracting the best rental yields or bottom-line profits. It is important to keep the prospective tenant’s needs at the forefront of any renovation. For example, consider what upgrades would appeal to a tenant. A simple re-carpeting job can cost as little as $3000 while adding as much as $10,000-$20,000 to a property’s value, and undertaking a complete refurbishment for $50,000 may add $100,000 to its value.
  2. Know how to add value with little outlay. If you are looking to sell your home or investment property, but do not have the budget for a large-scale renovation, there are several small-scale improvements you can do yourself to instantly lift it’s value. A fresh coat of paint can make a world of difference to worn-out interiors, and it is impressive how much a decent scrub and clean can increase the appeal of a home. Backyard gardens can be improved with a selection of new plants, bark and the grass areas fertilised. Re-grouting of wet area tiles, replacement of old appliances and fresh window coverings can transform the appeal of a property.
  3. Light it up. One of the things that buyers subconsciously notice is light within a property. Despite whatever amazing features the property might have, if it is not naturally well-lit, it can impact the feel of a property. If your property is dimly lit, consider replacing old light fittings, switches and sockets with more efficient ones.

If you are in a house, semi or townhouse, a skylight could also uplift living areas, kitchens or bathrooms with poor natural light. Removing clutter and opening blinds/curtains are other easy ways to enhance your property’s appeal and demonstrate an abundance of natural light.

  1. Hire an independent property valuer. Many inexperienced buyers risk over-capitalising or making upgrades that don’t impact the value of the property. Even before beginning the simplest of renovations, it’s worth hiring an independent property valuer, as they can advise you on how much value a renovation has the potential to add. A valuer can guide you if spending $30,000 on a kitchen renovation will add more than $30,000 to your home’s overall value, for instance. They will also be aware of circumstantial factors, such as the average value threshold of properties in your street.
  2. It doesn’t have to be perfect. Don’t worry if not everything about the property is pristine. A place that is liveable to rent out straight away is often the most realistic and affordable option for investors. If you have an eye for improvements, investing in a place that needs a simple renovation presents a real opportunity for equity. However, if you are purchasing a property to ‘flip’, beginners should start off with small improvements rather than a complete renovation. That way, not only can you take your time saving and planning for a complete renovation, but seeing the difference between the property’s actual worth and what you can make it worth enables you envision its’ full potential.

Regardless of whether you are considering minor upgrades or large-scale renovations, renovating a property has the potential to significantly increase your home’s overall value, even in a flat market. To receive maximum return from renovations, always remember to consult the experts and stick to your budget.

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ATO TAX DEDUCTIONS CHECKLIST

More than one million Australians claim deductions on rental properties each year. There are many possible expenses that property investors can potentially claim against income generated from leasing out the property. It is important to remember that deductions can only be claimed for times when the property is rented or genuinely available for rent (otherwise expenses may need to be apportioned).

Expenses you may be entitled to claim as an immediate deduction:
 Advertising for tenants
 Body corporate fees and charges
 Council rates
 Water charges
 Land tax
 Cleaning
 Gardening and lawn mowing
 Pest control
 Insurance (building, contents, public liability)
 Interest expenses
 Property agent’s fees and commission
 Repairs and maintenance
 Some legal expenses
 Travel to inspect the property, to collect the rent or for maintenance

Borrowing expenses you may be entitled to over time:
 Depreciation
 Capital works expenditure
 Stamp duty charged on the mortgage
 Loan establishment fees
 Title search fees charged by your lender
 Costs (incl. solicitors’ fees) for preparing/filing mortgage documents
 Mortgage broker fees
 Fees for a valuation required for loan approval
 Lender’s mortgage insurance

Get prepared now to make sure that you have all your invoices and paperwork ready for tax time. We always recommend that you speak with your accountant to ensure that you are maximising your tax return.

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10 BULLET PROOF WAYS TO SELECT THE RIGHT INVESTMENT PROPERTY

Assessing whether a property is better than another requires a big picture point of view, expert assistance and clarity around indicators for growth that will help build your portfolio. When purchasing your next investment property consider the following 10 top tips:

1. The investment property is suitable for the local demographic

Know the demographics of the area and purchase a property that will be in high demand. If the area predominately has families and you purchase a 2-bedroom unit, you may experience an extended vacancy period.

2. The investment property has ‘several’ standout features

The more features your investment property has, the more attractive it will be to potential tenants and therefore, likely to command a higher rent. Look for features such as: newly renovated, parking, security, lawn & pool maintenance included, NBN, additional appliances, ready to move in with minimal maintenance required, across the road from a school, around the corner from a shopping centre or a railway station.

3. Seek out a property on a manageable block size

When you purchase a standalone house, ensure that the block size is not too large for a tenant to care for, otherwise you may find it harder to rent. Most tenants don’t like to look after yards, so make the choice easy and find a land size that’s small enough for them to manage.

4. Choose a location where government spending is happening

It can be risky to invest in areas with an intended growth forecast as governments can change their minds. Instead, look towards areas where millions (or sometimes billions) are already being spent, which is an indicator for capital growth. This includes construction of airports, schools, railway stations, hospitals, health hubs and major arterial road upgrades, which can lead to thousands of jobs and future population growth.

5. Strong capital growth potential

It is not always easy to predict this without expert help and research, but ‘capital growth potential’ increases property values, providing you with greater equity to purchase future investment properties.

6. Select an area where employment opportunities are high

Most people like to live close to where they work, so consider buying an investment property close to an employment hub to maximise the chances of a strong on-going tenancy.

7. Future development opportunities

When purchasing an investment, consider how its’ future development can strengthen your portfolio. E.g. Through subdivision or adding a duplex.

8. The investment property is in a good condition

It is a must that you carry out a building and pest report to identify any costly issues that cannot be seen by the eye.

9. Avoid areas with an oversupply of rental properties

Research the area to find out if there are new developments or housing estates that may cause an oversupply of rental properties in the future. Tenants generally prefer to rent new properties. If you buy an older property in an area affected by new developments or an oversupply, you may have to drop your rent significantly to secure a tenancy.

10. Buy a low-maintenance investment property

Look at the long-term requirements for maintenance and how old the property is. A low-maintenance property will save you money and ensure a happy relationship with the tenants.

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HOW TAX DEPRECIATION CAN MAXIMISE CASH FLOW

Tax time is fast approaching and claiming depreciation expenses can put a lot of money back in your pocket.

Investment property tax depreciation allows you to claim a tax deduction for the wear and tear of the structural elements (the actual building) and the plant and equipment (fixtures and fittings) of an investment property.

By claiming depreciation as a tax deduction, you can lower your taxable income. This in turn reduces the amount of income tax you need to pay, leaving more cash in your pocket each year. You can use this increased cash flow to pay down debt, create new investments or simply enjoy more disposable income.

You can maximise investment property tax deductions by considering the following:

Engage a registered Quantity Surveyor

To maximise investment property tax deductions, you need a detailed tax depreciation schedule. A tax depreciation schedule summarises the tax deductions you can claim on your investment property each year for up to 40 years. ATO rules insist that a tax depreciation schedule be compiled by a registered Quantity Surveyor, who will inspect your property and ensure that every depreciable item is identified and evaluated.

Claim small items immediately

To offset the usually higher cost of an investment property in the early years, claim small items as soon as possible. Items under $301 dollars can be written off immediately.

Furnish your investment property

Furnishing a property can often help achieve a higher rental return. Furniture in an investment property is depreciable and you can claim a large rebate back in the first year. This option will depend on the demand for furnished properties and the potential of an increased rental return.

Claim scrapping value when upgrading or renovating

Scrapping, or residual value, is a depreciable element that many property investors overlook. You can claim a tax deduction for fixtures and fittings that are replaced during an upgrade or renovation. Have a Quantity Surveyor review your renovation plans and estimate what you will ‘lose’ when throwing out old carpets, kitchen cabinets or other fittings. This ‘scrapping’ amount can be claimed as a tax deduction.

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How to reduce the risk of vacancy

No one wants their rental property to sit vacant. Top tips to avoid rental vacancy include maintaining your property in good condition and taking a strategic approach to advertising and leasing.

Meet the market on price

“A property simply won’t appeal to tenants if it’s priced too high,” says Tegan Murphy, residential property manager at Melbourne’s Wilson Agents.

“Even reducing the rent by just $5 per week can be the difference between letting your property and having it sit vacant.”

“Five dollars per week won’t make much of a dent in the overall annual cost of owning a rental property; yet, if the property sits vacant, the cost to the landlord can be significant because each week that passes is another week in lost rental income.”

Maintain your property in reasonable condition

“Try to view your property through the eyes of a prospective tenant. Having blinds replaced or having the interior painted can make a huge difference, and this kind of improvement isn’t expensive.”

Murphy says a fresh coat of white paint is always her top recommendation to landlords because it makes any interior look bright and inviting. She also says replacing carpets is a good way to appeal to prospective tenants.

Other cost-effective improvements include replacing kitchen cupboard doors, installing a new shower curtain or replacing worn out lino.

Let it fast

Murphy says properties that don’t let within the first two weeks are at risk of sitting vacant for longer periods.

“Interest in a property peaks within the first day or two of it being listed. That’s when you get the most enquiries and you really want to see the property let within the first fortnight.”

“As time goes by, a property listing slips further and further down the search results on real estate websites, as newer properties come onto the market,” explains Murphy.

“As your property moves down the list, prospective tenants assume there’s something wrong with it and no one wants to live in it. Many people won’t even see the listing, as lots of tenants don’t search past the third or fourth page of online results.”

Don’t advertise too early

While it may be tempting to advertise your property for lease as soon as the current tenant gives notice, Murphy says this is a mistake.

“Don’t advertise the property until you can legally gain access to it, you’ve organised a mutually convenient inspection time with the outgoing tenant and you know that it’s clean and tidy.”

“As soon as people see it advertised, they want to view it. They don’t want to wait. Ideally, you get a good number of people through in the first couple of opens, and sign up a new tenant to move in the day after the previous person moves out.”

Timing is everything

Murphy says December is often a quiet time for the rental property market.

“When we let properties in December, we sign the tenant up to a 13-month lease, so if they vacate at the end of the lease, it’s in January, which is much busier.”

“You don’t want to fall into a cycle of having to find a new tenant every December because you run the risk of it being vacant over the very quiet weeks around Christmas.”

Make it easy

If your rental property has a garden, you can attract and retain a tenant by including basic gardening as part of the rent.

“If you pay for someone to come and mow the lawn, you keep your tenant happy and the win for you is that the garden doesn’t end up an overgrown eyesore that’s costly to bring back under control.”

Keep a good tenant

A sure-fire way to avoid rental vacancy is to hang onto your tenant. Murphy says it’s worth trying to keep a good tenant, even if it means forgoing a rental increase.

“The cost of re-letting a property can quickly soak up the increased income generated by a small rent rise. If you have a good tenant in place, consider keeping the rent at the same level in the hope that they will stay.”

Full article can be found at domain.com.au

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FIVE COMMON PROPERTY INVESTING MISTAKES

Property investing has long been a mainstream investment strategy for both novices and experts alike. Yet, as rewarding and effective as property can be as an investment, there are some pitfalls that are unfortunately all too common. These can render investments potentially ineffective, if not costly. Here are a few key areas to consider before buying a property, making offers or signing on the dotted line.

Poor financial structures

With property being a major purchase and one that attracts considerable costs in addition to the purchase price, such as stamp duty and legal fees, it is important to consider the ‘how’ of buying just as much as the ‘what’. Other than buying the investment in your own name, you might want to set up a family trust or use your superannuation fund and turn it into a Self-Managed Super Fund (SMSF), to undertake the purchase. Changing the ownership of the property later is going to be a costly exercise, so it is worth considering the options before you decide to buy the right property. Likewise, with the many loans and mortgage products out there, it is good to consider the options before you pursue the right property. Getting the right advice from suitable professionals with experience in structuring investment portfolios is highly recommended.

Lack of solid research and due diligence

Researching the market, looking at competitive pricing, rentability, vacancy rates, and proximity to employment centres, education, transport and shopping should all be part of your due diligence process for sourcing a suitable investment property/location. This should happen well before you even think about buying a property, which many investors overlook. In addition, undertaking research into infrastructure, both current and future, should be a priority as these can have a major bearing on the performance of your investment over time.

Using emotions to make decisions

The most important thing to remember is that you are not buying a home – you are buying an investment. All too often people make investment decisions based on emotion rather than looking at the figures that should be the basis of any investment decision.

 

Over-borrowing without a safety buffer

Interest rates are the lowest they have been and now is the time to buy. However, always allow yourself a buffer in case there is a shortfall in rent; the property requires unexpected repairs or maintenance, or the interest rate goes up.

All these factors can easily occur and you should never leave yourself in a vulnerable situation causing unnecessary stress or potentially even jeopardising your investment. A rule of thumb is to allow for at least 3 months of costs as a buffer as well a having all relevant insurances in place to minimise risk and protect your investment and your capital.

Lack of strategic planning

Fail to plan then plan to fail. It is important to have an investment plan. Know how you need to finance the property and how it will build your wealth. Know your short and long-term goals. Will it reduce your tax bill (negative gearing), add extra income or are you looking at buying with a view of renovating/redeveloping it later?

Property investing is a great wealth creation strategy. To avoid unnecessary risks and mistakes, it is always wise to seek advice from people that are experienced. Seek out qualified experts who hold their own successful property portfolios.

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Top 5 tips for landlords

Property investment is a long-term game. Finding and financing a good property are just the initial steps. To succeed, you need to plan for all possible contingencies.

Here are five tips on how to protect and grow your investments:

Read more here

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