Guide to Property Investing

STEPS FOR PROPERTY INVESTING

Step 1. Review your Personal Cash Flow and Budgets

An important step is understanding how much cash you have to invest in property and whether you can afford the cash flow impact on owning an investment property.  This can be as simple as listing all your assets including incomes and working out your expenses.  Work out how much you have as a deposit (making sure you don’t over commit), or how much you will need to save for a deposit. Normally a lender likes you to have 20% deposit.

Step 2. Set Your Goals

What are your goals? What are you looking to achieve?  It is important to be clear about these and talk to experts such as your accountant and financial advisor.  You need to consider your short and long term goals.  For example, if you are looking to retire in 10 years, perhaps start with a 10 year plan then break it down to 5 yearly, yearly, bi-annual, monthly and weekly timelines.  This will help clarify what you need to achieve through your investments.

Step 3. Talk to your accountant

You need to understand the tax implications of buying an investment property and your accountant is the best person to talk to about this.  Ask them to clarify the following:

Negative gearing implications and depreciation allowances on new buildings.  They will be able to advise if you are better off buying in a new or old building.

If you are buying a property with someone else ask whose name should be on the contract as this may have impacts on any future tax benefits, land tax and stamp duty. How much they believe you can afford to spend each week on an investment mortgage and the tax impact on this amount.

Step 4. Create a Property Evaluation Model

By now you have clarity around how much money your lender will give you, your accountant has verified your budgets and you have the legal support team ready to go…but you don’t know exactly the type of property you are after.  

This step is all about creating a property evaluation model – to identify what criteria in an investment property is important to you.  To do this you need to rank your key investment criteria such as the location – does it need to be near public transport, schools, shops, work and what is the walk score?  What do you value as important for the exterior and interior of the investment?  Such as type of building, size of complex, parking, number of bedrooms and bathrooms, flooring, the properties aspect, quality of kitchen, backyard and outdoor entertaining and whether you want to renovate or not.

Step 5. Searching for a Property

Doing your own research is important, after all it is your money and knowing about the specific market you are investing in is a good idea.  Talk to a Wright Place agent and find out about the local market you are considering buying in, what are properties selling for, how long are they on the market etc, gather information on the demographics of the suburb, its location to important amenities such as transport, shops, universities and schools and information on the recent sales and history of the area.

Plus keep an eye on the real estate portals such as realestate.com.au, domain.com.au and wrightplace.com.au to see what properties are for sale.  But make sure you don’t become emotionally attached to the property, it’s an investment, and your focus should be on maximising capital and rental.

Step 6. Engage a Property Manager

After purchasing your investment property, the next key decision you will need to make is whether you will employ a property manager to help you, or whether you’ll manage it yourself.

Although many investors are financially-savvy, when it comes to finding tenants, dealing with day-to-day property issues or legal jargon they are left in the dark.  The Wright Place Property Management team of experienced property managers can help make sure you receive a reliable income stream, excellent capital growth and the best returns possible – as well as a guarantee of exceptional customer service.  You will receive regular and thorough property inspection reports, copies of all important documents and regularly review rent rates and the local market to help you achieve the best outcome.

A property manager costs approximately 8-13% of your total rental income, however the services and expertise offered by a good property manager is worth much much more than this fee, plus in many cases the agents service fee is tax deductable.

THE ROLE OF A PROPERTY MANAGER

After purchasing your investment property, the next key decision you will need to make is whether you will employ a property manager to help you, or whether you’ll manage it yourself.

When it comes to finding tenants, dealing with day-to-day property issues or legal jargon they are left in the dark.  Experienced property managers can help make sure you receive a reliable income stream, excellent capital growth and the best returns possible – as well as a guarantee of exceptional customer service.

  • Advertising your property for rent
  • Open your rental property for viewings
  • Screening tenants including reference checks, rental history review
  • Manage the condition report process
  • Manage the tenancy agreement signing process and handling questions
  • Manage your financial accounts for the investment property and provide regular reports
  • Inspect the property on a regular basis
  • Organise tradespeople for repairs and maintenance

Manage Property Investment Compliance and Accounting

Hopefully your investment property is being managed and you have reliable tenants paying their weekly rent.  Now you need to revisit your accountant and provide detail of the rent you receive, the interest you pay the bank and any depreciation benefits so they can lodge a PAYG variation.  This will hopefully translate into a little extra in your pay packet.

Your property manager will keep a record of your monthly income and expenses and be able to provide you with a report for your end of year accounting.   There are a few other accounting implications and requirements so make sure you discuss this with your accountant.

Make sure you seek professional advice to determine whether property investing is a good idea for you and your individual needs.

COST OF INVESTING IN PROPERTY

As with owning any property, there are costs associated with investment properties.  Making sure you understand these is important as they will have a direct effect on your budget and your overall net profit.  While some of these expenses can be claimed not all of them can, so discuss each of them with your accountant or financial advisor.

PROPERTY PURCHASE COSTS

This is the most obvious of all costs, but make sure when you are setting your budget you don’t spend all your budget on the property purchase as there are many other hidden costs you need to be aware of.

INTEREST

As you have likely taken out a loan to purchase your investment property, you are going to be charged interest on that loan.  Talk to your lender to work out what this is and the best option for you.

MORTGAGE FEES

There are a number of charges associated with taking out finance.  For instance, if you are borrowing more than 80% of the home’s value you may be asked to pay extra charges such as lenders mortgage insurance – this is normally a one-off payment at the commencement of your mortgage. The cost of LMI will vary depending on how much you borrow and the type of loan you select but it will be approximately $10,000.  Talk to your lender about any other charges they have.

BANK FEES

A lot of lenders charge an annual fee.  This is an ongoing expense that you need to take into account.  It normally isn’t a lot of money but still important to know exactly what you are up for.

STAMP DUTY

Stamp duty is a charge that is applied to the sale of residential property by state governments. It is not a fixed cost across the country – it differs in each state and territory and to find out the costs where you are read our state and territory specific articles.

The cost is usually calculated based on the price of the home you purchase, but each state has its own system.

The rate often differs depending on several factors:

  • Whether you are purchasing vacant land or a brand new house.
  • If you are using the home as your main place of residence.

It can be complicated to work out stamp duty on your own, as there are many rates that apply to different house prices. Consult an online calculator to help you determine the cost.

PEST, BUILDING AND STRATA REPORTS

While not compulsory, it is recommended that you get these professional inspections done before you undertake any negotiations, as knowing exactly what you’re getting into could give you additional bargaining power. The general cost is between $400 and $600 for a pest and building report and approximately $200 for a strata report.

LEGAL COSTS

Buying an investment property s fundamentally a legal process so the help of legal experts, namely conveyancers and solicitors is critical. They will be an invaluable part of property negotiations and can help you through the paperwork.  However, remember they will charge a fee so make sure you factor this in.  Some conveyancers will charge a flat fee while others will charge a sliding fee based on the properties sale price.  Make sure you discuss fees and charges before you engage their services.

STRATA FEES

Once a seller hands their property over, you immediately inherit all of the attached council and strata fees.

While both owners of houses and units are obliged to pay council rates, it is only owners of units or apartments that will have to incur strata fees.

Strata fees cover the property’s grouped maintenance and building insurance fees and are collected by the building’s owners’ or manager. These fees are ongoing costs that will continue to absorb your finances, generally quarterly, even after your initial property purchase payment, so it’s important to incorporate these into your ongoing budget.

The scope of strata fees will vary considerably depending on the age of the building, facilities, and location but you should expect to pay around $70 to $80 for the lodgement of application.

PROPERTY MANAGEMENT FEES

A property manager costs approximately 7-10% of your total rental income, however the services and expertise offered by a good property manager is worth much much more than this fee, plus in many cases the agents service fee is tax deductable.

ADVERTISING FOR TENANTS

You need to spend money to reach your future tenants.  Your property manager will be able to advise you on how much this will cost but expect to pay approximately $600 to promote your rental property on top real estate portals and in the local newspapers.

GENERAL PROPERTY MAINTENANCE

This is hard to guestimate as each property is different, but as a rule a property owner should allocate 2% of the property value annually for maintenance.  Therefore, if you a property is worth $400,000 the landlord should save a minimum $8000 for maintenance costs.  Anything that ensures the property is liveable for tenants is considered a maintenance cost.

COUNCIL RATES

No matter where you are in Australia you are going to have pay council rates to make sure the council can service you.  These vary depending on the area so it’s a good idea to find out what they are. They are usually paid quarterly.

INSURANCE

It is recommended that you take out landlord insurance to protect you from things like malicious damage caused by the tenants, a lack of rental income from tenants who have damaged the property or failed to pay rent etc.  Terri Scheer insurance are experts in landlord insurance and can will provide a quote however expect to pay approximately $1500 annually for insurance.

ACCOUNTANCY FEES

Your accountant will help you complete your tax returns and the end of the year, assess things like depreciation, rental income and expenses.  They are a valuable resource in working out what you can and cannot claim.  They will pull all of this together and help you lodge your tax return.  Make sure you find out how much they will charge to manage your property investment accounting needs.

SUNSHINE COAST

Different types of property investment in Queensland

Because Queensland investment property is about getting the right financial returns, you need to be certain that you’re selecting real estate to suit your strategy. Whether it’s ongoing positive cashflow or negative gearing with a view to long term capital gains, the home you buy must fit this direction.

Positive cashflow property

This refers to when the rental income you’re making from the investment property is higher than the costs of running it, which includes your home loan and maintenance costs. The property will be running at a profit, with a strong rental yield (simply put, the income converted to a percentage of the property’s full value).

Once values rise, however, rental yields contract. This makes it a little more difficult to establish positive cashflow via investment property in Queensland.

Negatively geared property

This term has precisely the opposite meaning of positive cashflow. Your property will be running at a loss, because interest on the home loan is higher than that of the rental income. Such a situation, though, carries benefits in the form of tax deductions. This makes it a popular choice among investors hoping to make the most of capital gains. That’s because it allows them to manage an investment property that may well run at a short-term loss, but this negative is mitigated by the tax breaks. Eventually, it will produce long-term gains.

Such a method of investment is popular in Queensland because values have risen so quickly, especially in Brisbane. Even so, your particular investment strategy largely depends on your personal income.

Financing a Queensland property investment

From here, you need to decide how the property will be bought. Are you going to compare home loans by using a mortgage broker or online tool, or use equity in an existing property if you’re already an owner-occupier? The Australian Investors Association and Australian Taxation Office are handy sources of information on how to do this, as well as the financial benefits and tax deductions that come with property investment.

Additionally, there are home loans specifically for property investment in Queensland, but interest rates tend to be slightly higher than for owner-occupier mortgages. It could end up being a more expensive affair than when you first bought property, so be prepared.

If your finance is organised and your investment strategy is set up, you should be ready to buy! But that isn’t the end of the process.

Finding the right Queensland investment property

The Real Estate Institute of Queensland’s market monitor is a good place to start for gauging the local landscape, with in-depth research on property values and rental yields.

The local division of the Property Council of Australia and CoreLogic RP Data also provide regular research and insight into the market.

Our real estate agents have an unrivalled market knowledge, and we can alert you to investment properties which best fit your profile and financial situation.

By working out areas with good yields and potential for capital growth that are within your means, you can narrow down your investment property search easily. You should also do research into what tenants in your area want from rental property – McCrindle’s Renter of the Future report is a useful start here.

Investment property taxes

When buying for investment in Queensland, there are certain duties and taxes you’ll have to pay.

The most obvious of these is transfer duty, which you can find out more about via Queensland’s Office of State Revenue page. For a house that costs between $540,000 and $1 million, for example, you’ll have to pay $17,325, as well as $4.50 for every $100 over $540,000. Use this handy calculator to find out what you’ll owe.

Land tax is another duty that you’ll have to fork out for. In Queensland, you’ll only owe land tax if your property is worth more than $600,000, which will cost you $500 plus one cent for each dollar more than $600,000. This increases incrementally, right up to the threshold of a $5 million home. Take a look at this useful guide to land tax, which notes several examples.

Additionally, you will also have to cover legal fees, mortgage costs, valuations and inspections, which can often run into the thousands of dollars.

Tax benefits

Many costs incurred through running a Queensland investment property can be limited via tax deductions. There are several that you may be eligible for, such as property management fees, repair costs, legal issues and mortgage fees. The Australian Taxation Office has a complete rundown of the tax deductions that can be obtained when you own rental property.

Managing a Queensland investment property

Do it yourself, or use an agent?
Of course, once you’ve bought your investment property, you’ll now want to see some returns through renting it out. You can do this yourself, or use a property management service such as the one provided by Wright Place.

As a landlord, you’ll get hands-on management of your Queensland investment property which can save you agent fees, but you’ll also have to learn a great deal of the legal side of things. For example, you’ll need to know all about tenancy law, bond lodgement, tenant screening, ongoing repairs and a whole host of other matters. Additionally, you’ll also have to live close by to your Queensland investment property, to attend to any urgent matters.

Why not choose to use a property management? Sure, it will incur service costs, but every single aspect of the investment will be managed by real estate professionals who do this for a living. Wright Place’s property management team has unrivalled experience managing all manner of investment properties the length and breadth of Queensland.

What to ask a property manager

There are several essential questions you must ask a property agent before they take over the running of your rental, as this is your investment and income source Here are a few to think about.

How Experienced are their Managers?
How do they select tenants for a rental property?
How do they manage maintenance and what’s the assessment process when appointing contractors to undertake work at your property?
How are rental arrears resolved?
How much is charged, and what will this cover?
Will you be able to remain in contact with the agent, within reason?

Typically, there is a starter fee of one week’s rent set by the property manager, with an ongoing percentage of monthly rent paid thereafter, falling between 8 to 13 per cent. This should be clarified when you first enter talks with a potential agent.