With the interest rate so low and the property market booming, it’s no wonder investing in rental properties is steadily increasing. Here are some quick tips to keep in mind when investing in rental properties.
1. Make sure you have great professionals around you – Having a great accountant, conveyancer and finance broker through the investment process is crucial. From initial decision making of what structure to purchase the investment in such as your own name, trust or SMSF, right through to settlement and your tax return after you purchased your property. Your professional team can help you avoid tax, legal and financing pitfalls. Also remember professional fees are deductible depending on the situation.
2. Don’t over commit – Before going any further, you really need to consider if investing is right for you. Take a good hard look at your financial position and assets and make sure you can comfortably invest without any issues. A great way to do this is to sit down with us and discuss your current financial position.
3. Do your research on your mortgage or home loan – If you’re getting a mortgage or a home loan in order to get funds for your investment, it’s important to do your research. Look around at banks, large ones and smaller ones, and select the one that gives you the best mortgage or loan depending on your needs. Also consider if you prefer a fixed or variable rate. You should be looking at an interest rate between 4.5% to 6%. Fortis Accounting Partners can help you with this. With a range of banking and financial contacts, we can help you get in touch with the right people.
4. Know your budget – It’s important you stay realistic and don’t get carried away. Establish a budget before looking for properties and look for properties within the budget. Don’t go over your budget and if you must exceed it, discuss this with your accountant first.
5. Know your tax deductions – There are a range of tax deductions you can claim on rental properties such as bank charges, borrowing expenses, cleaning, council rates, decline of value of depreciating assets, legal expenses and property agent fees. These deductions can potentially save you a lot of money in taxes. For more information check out our previous Deductions for Rental Properties blog.
6. Select a good location – Having a rental property and having a profitable rental property are two different things. Rental properties are about all growth so really look at what areas are growing and will increase in value in the future. Many areas are affordable to enter the market now but in a few years’ time will be booming. Do your research about the area and find out what you need to know such as any future investments in the area such as schools, public transport, demographics, crime statistics etc.
7. Get a building inspection – This is one of the most important things to do. Often if something sounds like it’s too good to be true, it probably is. Get an inspection on the building before signing anything to avoid costly repairs later on.
8. Negative gearing – If the cost of acquiring your property costs more than the income it produced (rent) then your property will be negatively geared. This does have its tax benefits, however, you are only eligible for a tax benefit if you earn other taxable income. The loss you are making can be used to reduce the level of tax you pay on your other earnings such as income. This can be very stressful though so make sure you budget carefully.
9. Put some effort into making your property a good choice for renters – The main aim of the game is to get a tenant into your property. Spend some time and money on making sure your property gets rented at the price you want it to be. This may include doing some cleaning, decorating or hiring someone to rent it out for you.
10. Keep all records and receipts – When it comes to tax time, it’s very important that you keep all records and information about your investment in order to get tax deductions. Keep all your documents together so your accountant has easy access to them.
If you think it’s time to enter into the property market and start investing, there’s no better time than the present. To speak with a knowledgeable and experienced accountant or financial planner – please don’t hesitate to get in touch with the team here at Fortis Accounting Partners.
