O'meara Property

Reports this morning from ‘Australian Property Monitors’ predict a more than ten percent rise in rents in Sydney throughout 2010. In short, it appears that the Tomaree peninsula will see similar increases as stock levels fall and costs for investor to hold properties increase.

The interest rate rises of late 2009 and the predicted rises through 2010 means that investors will be very keen to maximise the rent they achieve throughout 2010. Falling stock levels of properties to rent, particularly family homes has increased competition considerably and will ultimately lead to increases in rent prices. We’ve included below a few tips for investors to maximise their returns this year.

• Ensure your property is attractive to great tenants – if the property needs repainting or recarpeting, do it;
• Adopt the attitude that saving money by not maintaining the property costs you much more in the long term;
• Speak with your accountant or tax adviser about whether there are tax advantages to renovating your property; the answer to this question will depend on your overall financial position and requires specialist advice;
• Have all expenses ie. council, insurance, repairs paid from your funds by your managing agent so that everything shows on your statements and nothing is forgotten at tax time;
• Ensure your property is professionally managed; do they conduct regular routine inspections and provide a written report with pictures? do they assess the rent regularly?;
• Take your agent’s advice on the rent to ask for a vacant property. If you don’t trust their advice they shouldn’t be managing the property for you and getting a tenant today at 5% under what you’d ‘like’ normally beats getting a tenant in a months time.

For professional property management advice please feel free to contact me on 02 4980 4400 or email jane@omeara.com.au

Many new investors make the decision to ‘save money’ by managing their own investment property. They work on the assumption that once they have selected and installed a tenant the only real work is done. Do they, in fact, ‘save money’ as they intended?

Once they start looking after the property on a day-to-day basis, most investors realise they don’t have the level of expertise required to maximise income and minimise expenses. They realise that they cannot do the work cost-effectively, and that tenancy legislation is best left to the experts. Most novices need to spend a disproportionate amount of time making sure they get it right. Even then they worry that they haven’t thought of everything. Most find it an enormous relief to hand over to an expert who has the up-to-date legal knowledge to prevent problems developing. Most investors report an increase in their net income as well as in their leisure time.

Happily, most people hand over to an agent before things go wrong. They realise that staying up-to-date with week-to-week fluctuations in the rental market is difficult for those not in the business. It takes a lot longer for trends to become apparent to people who are looking after just one or two properties. Do-it-yourself investors do all the work themselves and it may still cost them money in higher vacancies. It’s also very hard to keep a distance from demanding tenants when there is no third party to liaise.

Communication and arbitration is also an area where the objectivity of a third party is essential. Dialogue via a disinterested third party minimises income-reducing anger and personality conflicts. Even negotiating rent is difficult for a landlord, firstly because of the emotional involvement and secondly because of lack of experience.

What is a reasonable rent to set? What are fair and reasonable repairs? How can I make sure the lease covers every contingency?

The answers? Do your homework, find out who are the most professional managing agents in your area and ask them to manage your precious investments.

Property investment owners sometimes get impatient. They think the market is going up too slowly, or the rent isn’t as high as it should be or the the current tenants are not as good as the last ones.

In most areas there has been a rush on dwellings that fall into the first home buyer category now that governments are offering grants to help first home buyers get into the market. As a result, many investment property owners are thinking of putting their properties on the market for sale while the chances of a high price are looking good.

Is this the best way for them to go?

In fact, selling too soon often delivers the opposite of what investors are hoping for. Every real esate sale incurs costs which eat into the profits, so selling too soon often reduces the overall gain especially if they sell before they have held the property long enough to see serious capital appreciation.

It seems that investors who get itchy feet have lost the sense of deferred gratification that led them to invest in property in the first place. They are tired of making sacrifices to pay the extra mortgage and they expect too much too soon. Maybe they have forgotten that the most effective way to enjoy their increasing wealth is to let capital appreciation and rent increases do their job over time. Holding investment properties long-term means greater wealth when it is needed (usually on retirement when income from work ceases.)

Instead of selling, investors who really want to improve their long-term wealth would be better off increasing their loan and buying a second investment property (provided they bought sensibly in the first place of course!) Astute investors keep buying more properties as their borrowing power increases with the rise in equity that accrues with capital appreciation.

It is true that some short-term self-sacrifice is involved in this strategy. Investors buying their first property are usually stretching themselves just to get a foot on the investment ladder and there is little money left over for luxuries. It is not until their portfolio grows in size that they will be less stretched and more able to increase their lifestyle spending without selling a property to do it.

The best strategy for most investors is to embark on a program of planned property investment at their earliest financial convenience – usually when the equity in their family home reaches a fairly high level and after consulting their accountant.

Then they simply keep adding to their portfolio until they increase their assets to the level that suits their aims and aspirations.

Long term successful investors employ pro-active property managers rather than just any property manager so that long term and short-term goals are merged into an overall strategy. What does this mean?

It’s understandable that an investor’s most immediate need is maximise income and minimise expenses. Most investors are borrowing money and they and their managers become obsessed with immediate return because it’s often crucial to the ongoing survival of the investment. The worst case scenario, stated simply is: no rent = no income = no loan re-payments = no investment.

For experienced investors, however, income is one part of an overall strategy. Most have three main aims: optimum income, optimum expenses and a focus on capital appreciation. They choose an agent who will optimise their income-to-expenses ratio over the long term and who has expertise to look after the big picture.

For example, when the floor coverings in an investment property need replacing, buying the cheapest carpet will certainly minimise expenses at the time of expenditure; however, if the carpet doesn’t wear well the saving may turn out to be less cost-effective in the long term than a carpet that was a bit more expensive but lasted twice as long.

Capital growth is usually the most important of the investor’s three aims and it is often overlooked by property managers with a narrow focus on management rather than investment. If investors hold their property for any length of time (which most successful investors do) capital growth becomes the most wealth-producing part of the overall investment strategy. Only a good property manager will keep the big picture in view and advise the investor about events impacting on the growth of their investment. When selecting an agent to manage their property, investors should assess whether the agent is qualified to give this kind or advice and make sure the management programme includes regular inspections and written reports (with photos & advice).

With the interest rates low and the property market showing signs of picking up it may be a good time to consider purchasing either another or your first investment property.  One important item to keep in mind when purchasing an investment property is to get a rental appraisal from a well experienced Property Manager (not a salesperson)!

If you are looking at an investment property the sales consultant would normally provide you with a set of rental figures, whether it is for permanent, holiday or commercial property.  This may be either verbally or in writing.  If there is a current tenant in the property it may be a copy of the existing tenancy agreement.  Sometimes the current market rent can be totally different.

If a salesperson has given you the figures they could be slightly inflated or the rent may have not been fixed to market rent at the commencement of the tenancy agreement.  It could also be due to the person providing the appraisal being inexperienced either in the field or the area.  Whatever the case, because these things happen it is a great idea to obtain an independent rental appraisal prior to exchange.  It is a normal occurrence to arrange a pest and building inspection, why not get an independent rental appraisal at the same time (from an experience property manager).

Verbal estimates of salespeople can be misleading.  This may be because salespeople vary considerably in their property management expertise and they also won’t have a general awareness of rental values at certain times. 

If there is a current lease on a permanent/commercial rental or forward bookings for a holiday property you should definitely look at the current rent that is being charged.  However, this may only give you a historical figure.  As such, it may not truly reflect the current market value.

The next item to consider when looking at prospective investment properties is how easy will the property be to lease?  What is the likelihood of actually getting quality tenants in the properties current condition and at that particular time to the year?  How easily a property will lease is affected by numerous factors. Some of these include the condition, age and location of the property, amount of similar rental properties in the area and the style of tenants in the area. 

The last item and one that is often not considered is to take into account tenant turnover.  A home suited to a family will often have fewer turnovers than an apartment in a large block.  This is due to the fact that if a family settles in a home they are more likely to stay for a number of years, rather than uproot the family and move on at the end of the fixed term.  Compare a home to an apartment and the style of tenant changes to a single person or a couple.  These type of tenancies are normally shorter and the tenants would more often move as either their situation may change or they find something newer or in a better position that they extend their budget to afford.

If you are looking at purchasing an investment property in the area please give me a call.  I have been a Property Manager in the area for over 12 years and can certainly give you an honest, obligation free appraisal in writing.  This appraisal will be based on my experience, recent rental figures and also the time of year.