MANAGEMENT GUIDE

CONTENTS # 4 #6 #8 # 9 INTRODUCTION WHY INVEST IN DO YOUR SUMS ARRANGING PROPERTY? A NEW HOME LOAN? #10 # 1 2 # 1 3 # 1 4 USING HOME PROPERTY CHOOSING WHO MANAGES EQUITY INVESTMENT BENEFITS AN INVESTMENT THE PROPERTY? PROPERTY # 1 6 # 1 8 #19 # 2 0 WHAT COSTS HOW MUCH SHOULD YOUR PROPERTY WILL I HAVE I RENT THE PROPERTY ON SHOW TO MEET? FOR? # 2 1 # 2 2 # 2 4 # 2 6 MARKETING THE TENANT THE ROLE OF THE LEGISLATION YOUR PROPERTY # 2 8 # 2 9 # 3 0 # 3 2 PROPERTY LANDLORD AND LANDLORD AND WHAT YOUR FIRST MANAGEMENT TENANT AGREEMENTS AGENT NATIONAL REAL ESTATE BUDGET AGREEMENTS PROPERTY MANAGER CAN DO FOR YOU #34 GLOSSARY OF TERMS

IMPORTANT NOTICE: The information contained within this book is designed Published by First National Group to provide an overview of the considerations required for ownership of an of Independent Real Estate Agents investment property. Readers are advised to obtain independent advice Limited. before investing in any specific property. To the extent permitted by law, First National Group of Independent Real Estate Agents Limited disclaims any A.C.N. 005 942 192 liability for loss which may arise from reliance upon this booklet.

2 GUIDE PROPERTY MANAGEMENT GUIDE 3 INTRODUCTION

PROPERTY REPRESENTS A SECURE, LONG TERM FORM OF WEALTH CREATION. AS SUCH, AUSTRALIANS ARE INCREASINGLY TURNING TO PROPERTY INVESTMENT TO SECURE THEIR FUTURE.

A well-managed investment property can offer distinct advantages, including income and capital growth. Many investors are able to use their investment property to reduce the tax payable on their assessable income. Property is also an important component of an entire investment portfolio, particularly, for people who do not need immediate access to their money and wish to protect themselves against inflation over the long term.

It is important to be aware, however, of the responsibilities of managing an investment property and assuring its proper care. As considerable sums of money are involved, you should take the time to develop a comprehensive understanding before you act. This booklet is the first step in the process and is designed to provide an overview of the considerations required for any owner of an investment property.

Remember, consideration of any financial investment presents wide and varied alternatives and there are always plenty of experts ready to share their opinion. It is wise, therefore, to always seek appropriate advice from a qualified financial adviser or accountant.

4 PROPERTY MANAGEMENT GUIDE PROPERTY MANAGEMENT GUIDE 5 WHY INVEST IN PROPERTY?

THERE ARE SOME GOOD REASONS TO INVEST IN PROPERTY: TIPS • Property is a solid, long-term investment

• Property investment can reasonably be expected to provide capital growth in the long term

• Property market information is easily accessible and easily understood

• Property is tangible - you can actually see and monitor your Some people choose an investment Talk to an accountant or financial investment 1.property by assessing whether 2.adviser before beginning your they would be happy to live there property search. It’s important to fully themselves. Think with your head and understand what type of investment not with your heart when it comes property is most likely to serve to choosing the right investment your financial goals appropriately. property. For it to properly serve Investment may be your needs, it must be capable of purchased using many different appealing to the widest possible financial methods, all of which have market of potential tenants. differing tax implications and long- term impacts.

6 PROPERTY MANAGEMENT GUIDE PROPERTY MANAGEMENT GUIDE 7 DO YOUR ARRANGING SUMS A NEW HOME LOAN?

“BORROWING Your borrowing power is determined property owner to consider a 5 per by your current income and financial cent deposit in some circumstances, POWER” IS A TERM commitments as well as your savings so don’t be afraid to ask your agent YOU’LL OFTEN HEAR and credit history. You should if your funds are stretched. carefully consider your current and USED TO DESCRIBE future living expenses so you’ll be In addition to the purchase price of THE AMOUNT YOU assured you can repay your loan your new property, you will need to CAN COMFORTABLY and maintain the quality of lifestyle pay for things like Stamp Duty (on the you’ll require. purchase price and the loan amount BORROW TO FINANCE borrowed), fees and YOUR PROPERTY One of the biggest initial outlays possibly . Stamp PURCHASE. you’ll face is, of course, the deposit. duty scales vary from state to state This is usually 10 per cent of the but your First National agent will purchase price but don’t forget happily explain what is applicable that the deposit, like many elements in your home state. Check if you’re of a property purchase, can be eligible for the First Home Owner’s negotiated. It’s not uncommon for a Grant by visiting firsthome.gov.au

TIPS CHOOSING THE RIGHT HOME LOAN FROM THE MANY PRODUCTS AVAILABLE CAN BE DAUNTING. IT’S IMPORTANT TO UNDERSTAND THE ALTERNATIVES BEFORE MAKING YOUR CHOICE.

The starting point is saving towards Get professional advice. Sit down Be flexible with your expectations. Talking to several brokers as well 1.a deposit but it’s important to 2.with a range of lending institutions to 3.Units and townhouses are available in as a financial adviser will help understand all the costs associated fully learn about and understand the many areas at lower prices and could you understand the most suitable with home ownership, such as options and possibilities. Even if provide a feasible market entry point. mortgage product to help you mortgage insurance, taxes and legal you don’t act, you will properly The key is to get into the market, pay make the transition from your costs. Starting a rigorous savings plan understand where you are at and down your mortgage and establish existing home to your next. and doing all the sums can help you what you need to do. equity in the home as a basis for see what the hurdles are and how future financial options and flexibility. Ask your local First National Real you can best plan to tick them off. Then you are able to think about Estate member about the range an up-grade or a move to a suburb of mortgage brokers available you’ve always wanted to live in. to you.

8 PROPERTY MANAGEMENT GUIDE PROPERTY MANAGEMENT GUIDE 9 USING HOME EQUITY

IF YOU DO NOT A may be used taxpayer, you may not have to to cover your deposit as well as wait for the tax adjustments as you HAVE, OR PREFER other costs of purchasing such may be eligible for a tax reduction. NOT TO USE CASH as stamp duty, legal fees etc. Nonetheless, negative gearing is not for everyone because there are FOR A DEPOSIT, NEGATIVE GEARING risks. Property values may decline YOU CAN BORROW from time to time, the flow of rental AGAINST THE EQUITY Negative gearing is a common income may be interrupted, interest term associated with property rates may rise or your ability to IN YOUR HOME. investment. Put simply, it refers to finance the cost of borrowings may the situation where your outgoings suffer. Investors need to take into may, particularly in the early stages, account their ability or willingness to exceed the incoming rent on the deal with these risks and discuss them property. Where this occurs, there with their adviser before negatively may be the opportunity to gain gearing an investment property. tax advantages. If you are a PAYE

TIPS

If you already partially own your If your home was valued at $700,000 Affordability should be your main 1.home, or have paid off your 2.and you owed $350,000 on your 3.consideration. If you have any mortgage fully, tapping into your mortgage, you might consider doubts, consider the advantages of equity provides a viable method investing 10 per cent of the equity (or pooling resources with people you for launching yourself into property $35,000) into another property. You know in order to get into the property investment. could do so provided that you can market. There are a myriad of home comfortably afford the repayments. loan options that cater to multiple ownership arrangements.

10 PROPERTY MANAGEMENT GUIDE PROPERTY MANAGEMENT GUIDE 11 PROPERTY CHOOSING INVESTMENT AN INVESTMENT BENEFITS PROPERTY

MOST FIRST TIME a property that you will be living in so and as low-maintenance as possible. always look at the property through As a general rule with INVESTORS CHOOSE TO the eyes of a potential tenant. A investment, modern buildings require INVEST IN RESIDENTIAL property located close to transport, less upkeep and are usually more schools, places of work, shops desirable to tenants. However, PROPERTY. IT IS MORE and recreational facilities will be in concierges, excessive numbers of FAMILIAR AND, greater demand and command a lifts, pools and gymnasiums all add THEREFORE, EASIER TO higher rent. significantly to strata maintenance levies and these can heavily erode UNDERSTAND THAN THE The property needs to be desirable bottom line investment returns. SHARE MARKET. and of a size that suits the area’s average family. If located in a First National Real Estate agents are We all expect our investment family area and near schools, experienced in investment property property to grow in value. Therefore, a three or four bedroom advice. You’ll find them happy to a choice needs to be made on or apartment may be more in discuss your goals and assist you to two important criteria: location and demand than a smaller property. find the right solutions. quality. Keep in mind that this is not The property should be attractive

A WELL-CHOSEN The income from good, reliable To be successful in property tenants will assist you to increase investment, your goal should be PROPERTY CAN equity in your property. to increase the property’s value PROVIDE A GOOD, and rental return in the long term. With the assistance of a good real Investment in property, for many, STEADY RETURN ON estate agent, the management of is not ideal in the short term, even INVESTMENT WHICH, the investment from the landlord’s though it sometimes can provide a OVER TIME, IMPROVES point of view is relatively easy and benefit. ALONG WITH THE little time is required. PROPERTY’S VALUE.

12 PROPERTY MANAGEMENT GUIDE PROPERTY MANAGEMENT GUIDE 13 ALL PROPERTY must be prepared to look after their • Be available to arrange urgent or record keeping, receipts, access own repairs, do their own cleaning, essential repairs or reimburse the notices for inspections, inspection REQUIRES ONGOING collection of rent, preparation of tenant for same. sheets, Tribunal hearings, bond WHO MANAGES MAINTENANCE /Tenancy Agreements etc. lodgement/refunds. It is vital that all who AND DAY TO DAY In addition, they are required to: manage their own property are Landlords who engage an agent MANAGEMENT. • Ensure the premises are clean/ completely familiar with the to professionally manage their THE PROPERTY? secure and fit for occupation at legislation in their state that governs investment are not required to There are landlords who take the beginning of the tenancy residential or commercial tenancy. stay abreast of changes to Acts of an active, hands-on role in the • Ensure that all repairs are Parliament – this responsibility passes management of their property and completed by licensed tradesmen Frequent changes to Acts of to the agent. there are those who prefer to have to appropriate standards Parliament in each state mean an agent professionally manage • Ensure all appliances and facilities changes to the way the property their investment. Obviously, those are in good working order and must be managed. Many changes who manage their own property safe, and affect administrative duties like

14 PROPERTY MANAGEMENT GUIDE PROPERTY MANAGEMENT GUIDE 15 LANDLORD INSURANCE

NOT ALL TENANTS ARE BAD, BUT YOU DO NEED TO MAKE SURE YOU ARE COVERED SHOULD SOMETHING GO WRONG.

While most tenants take good care of the property they are leasing, those that don’t may intentionally cause extensive damage. Intentional damage is not covered by many standard policies nor is the failure to pay rent.

The valuable common features of a Landlord Insurance policy include: • Malicious or intentional damage to the property by the tenant or their guests • Theft by the tenant or their guests • Loss of rent if the tenant defaults on their payments • Liability, including for a claim against you by the tenant, and • Legal expenses incurred in taking action against a tenant.

It’s important to remember that not all landlord protection policies are the same. Some, for instance, are designed to be implemented in addition to a typical home and contents or strata title policy while others are more comprehensive. Some policies allow cover for the contents of the property. This is particularly important if you rent a partially or fully furnished property. Speak to your First National Property Manager and they will be able to help you find the right policy.

16 PROPERTY MANAGEMENT GUIDE PROPERTY MANAGEMENT GUIDE 17 HOW MUCH SHOULD I RENT THE PROPERTY FOR?

WHAT COSTS WILL I HAVE TO MEET?

AS YOU’D EXPECT, When you buy a property, there AS WITH SELLING Similar properties and their weekly aware of the local rental market, are government charges such as rents should be carefully compared. they will be able to set a rent which THERE ARE VARIOUS stamp duty and registration fees on A HOME, YOUR This may be difficult to do, given that will help your property to be rented COSTS ASSOCIATED the transfer of title and mortgage. PROPERTY MUST MEET you may not know the condition of at the earliest possible opportunity, There are also solicitor’s fees and real the competing property and internal whilst ensuring you get the best WITH PROPERTY estate agent’s fees for managing THE MARKET AND BE improvements. An experienced return for your investment. INVESTMENT IN your property (and selling it if you COMPETITIVE WITH property manager can provide a ADDITION TO THE decide to do so in due course). OTHER PROPERTIES market analysis. They can inspect Your can assist you your property and compare with COSTS OF PROPERTY in the calculation of these costs. BEING OFFERED other similar properties under their MAINTENANCE. FOR RENT. management. Because they are

18 PROPERTY MANAGEMENT GUIDE PROPERTY MANAGEMENT GUIDE 19 YOUR PROPERTY ON SHOW

PRIOR TO YOUR PROPERTY, YOU SHOULD CONSIDER ANY IMPROVEMENTS OR MARKETING MAINTENANCE THAT MIGHT BE REQUIRED. YOUR PROPERTY TIP The better your property is presented, the easier it will be to rent and the more likely you are to attract better quality tenants. MARKETING The rent being asked, location, attributes of the property and Make sure: YOUR PROPERTY community facilities are all elements • The garden is well presented IS SOMETHING that prospective tenants will take into and tidy account when considering which • Appliances are in safe THAT NEEDS property they’ll choose. A real estate working order CONSIDERATION. office attracts a steady stream of rental • Minor repairs have been made HIGHLIGHTING YOUR inquiries from prospective tenants. to windows, taps, toilets and The agent will consult their tenant sticking doors PROPERTY AMONGST database to establish whether your Nine out of ten people start their • Property has been THE MYRIAD OF property is suitable for any prospective 1.search for property online, regardless professionally cleaned OTHER VACANT tenants on their system. In addition, of whether they’re looking to buy or • Carpets have been their expertise in marketing your vacant rent. Make sure that the agent who professionally cleaned PROPERTIES BEING property can make the process far will market your vacant property has • Cracked, chipped or peeling ADVERTISED CAN BE more effective than a landlord could an attractive, informative website paint repaired CHALLENGING. ever achieve themselves. that is easy to use.

20 PROPERTY MANAGEMENT GUIDE PROPERTY MANAGEMENT GUIDE 21 THE TENANT

SELECTING A SUITABLE TENANT FOR YOUR PROPERTY IS EXTREMELY IMPORTANT.

You need to select someone who you believe will look after your investment and be in a position to pay the rent reliably. Remember, you will use rental income to offset your investment loan. Privacy legislation prevents you from gaining credit checks, however real estate agents have additional processes in place that make them expert in guiding your decision.

When tenants default on their rental payments, it’s important to understand that a managing real estate agent must follow a legislated process and corrective action can take time. Unfortunately, your financial obligations continue and investment property owners must be prepared to meet their ongoing commitments.

If you choose to self-manage, you may need to perform the following tasks: • Repairs and maintenance • Arrears control • Inspections of the property for prospective tenants • Legislation may require the provision of a trust account for the safe keeping of the rental bond, or lodgement of the bond with an independent authority such as a rental bond board • Condition/inspection reports • Rent collection • Payment of rates and other ongoing costs • Attendance at statutory tribunals where required • Prepare applications and arrange for the serving of notices, in compliance with relevant legislation or tenancy agreements

22 PROPERTY MANAGEMENT GUIDE PROPERTY MANAGEMENT GUIDE 23 THE ROLE OF THE PROPERTY MANAGER

TIPS

MOST REAL ESTATE Different agencies specialise in • Organisation of repairs/ different styles of rental property. maintenance AGENTS HAVE • Provision of regular payments A PROPERTY Primarily, your real estate property and statements Keep up appearances. Before Finding the appropriate tenant When deciding what you will MANAGEMENT management services will include: • Payment of accounts 1.offering your property for rent, a 2.can be more difficult than it seems. 3.charge for rent, it is important that • Establishment of an appropriate rent • Initial, final and routine inspections property manager will recommend You will need to decide on an you find the right balance between DEPARTMENT WHICH • Marketing of the rental property of property your property must be clean and advertising strategy after listening what you would like to be receiving IS SOLELY ESTABLISHED • Showing prospective tenants • Organisation of and representation secure, and that all appliances to the advice of your property and what the market will deliver. FOR MANAGING through the property at tribunal hearings and facilities are in safe, working manager. Your property manager Your property manager will make • Receipt of applications and • Bond collection and the first order. Once your tenant moves in, will arrange and conduct open a recommendation. Alternatively, INVESTMENT assessment of appropriate tenants month’s rent in advance prior to your property manager will ensure and/or private inspections. you may prefer to inspect nearby PROPERTIES. • Discussion with Landlord of applicants tenant moving into the property all repairs and routine maintenance vacant properties that are similar • Completion of all relevant • Lodgement of Bond with the tasks are carried out quickly in terms of size, quality and location, documentation required appropriate body and satisfactorily. and get a feel for what other • Receipt of rent monies • Personal service from property landlords are charging. • Follow up of arrears in rental payments management team

24 PROPERTY MANAGEMENT GUIDE PROPERTY MANAGEMENT GUIDE 25 Under many of the Acts governing residential tenancy throughout Australia, tribunals are established LEGISLATION to oversee disputes and the administration of rental bonds.

The outcomes of many hearings relating to residential tenancy disputes are dependent upon the accuracy of records and systems used by the person managing the property.

Selecting an appropriate real estate agent to manage your property. Making sure you have the best real estate agency managing your investment is vitally important. A good real estate agency saves time and takes the hard work out of owning an investment property.

Here is a checklist of some areas you should consider when selecting a real estate agency to manage your property: • Does the company have property managers solely designated to that task? • How will they communicate with you and how often? • Do they have a good knowledge of the local rental market? EACH STATE HAS LEGISLATION GOVERNING • How many properties do they RESIDENTIAL TENANCIES AND IT IS VITAL THAT manage? WHOEVER IS MANAGING THE PROPERTY FULLY • Do they have property management systems in place? UNDERSTANDS THE OBLIGATIONS OF LANDLORDS, • Is their property manager well PROPERTY MANAGERS AND TENANTS. experienced with state legislation? • Do the property management staff attend regular training? • Do they have the support of a larger network? • What is their approach to selecting tenants? • Do they have systems for regularly following up arrears? • What systems do they have for collecting rent and reporting to the landlord? • Can they arrange insurance and payments of all outgoings? • Organisation of and representation at tribunal hearings • Bond collection and the first month’s rent in advance prior to tenant moving into the property • Lodgement of Bond with the appropriate body • Personal service from property management team

26 PROPERTY MANAGEMENT GUIDE PROPERTY MANAGEMENT GUIDE 27 LANDLORD AND TENANT AGREEMENTS

PROPERTY MANAGEMENT BUDGET

THIS FORM WILL Income Rental Income per annum $ HELP YOU ESTIMATE YOUR INCOME AGAINST Expenditure Advertising $ EXPENDITURE ON YOUR Agency Fees $ INVESTMENT PROPERTY. Letting fees $ A /TENANCY This is a legally binding document, The lease has standard and Maintenance/repairs $ enforceable under the relevant state special conditions, as required, AGREEMENT WILL BE legislation. The legislation is designed and will include the following: Loan Repayments $ to protect the consumer and is • Rental payments PREPARED THAT SPECIFIES Insurance $ THE RIGHTS AND open to interpretation and change. • Term of the lease/tenancy It’s therefore important to have a • Requirements of the landlord is Rates and Taxes $ OBLIGATIONS OF THE sound working knowledge of the clearly stated and obligations of LANDLORD, AGENT Act and also to be experienced in the tenant fully outlined Depreciation (if applicable) $ dealing with tribunal in the event of • Details of how vacation notice AND TENANT. Body Corporate fees (if applicable) $ a dispute. Leases can be of varying must be given, either by the terms but are generally set at six landlord or tenant Other $ months or one year. • Rental bonds • Special conditions as presented Balance $ by the landlord/agent and agreed to by the tenant

28 PROPERTY MANAGEMENT GUIDE PROPERTY MANAGEMENT GUIDE 29 LANDLORD AND REAL ESTATE AGENT AGREEMENTS

LANDLORDS ARE REQUIRED TO COMPLETE A MANAGEMENT AGREEMENT WHICH ENGAGES THE AGENT TO MANAGE THE PROPERTY ON THEIR BEHALF.

The agreement documents all Included in the agreement will be: YOUR GUARANTEE OF SERVICE aspects of management and • Agency fees A progressive real estate agent outlines performance responsibilities • Regularity and reporting of will offer a guarantee of service of the agent. Agreements inspections as an important part of their may be altered or updated as • Details of payment to landlord genuine commitment to meeting circumstances change. • Level of expenditure and process the needs of their client. First National in relation to maintenance/repairs Real Estate was the first network • Notice required for cancellation to introduce a guarantee of of agreement service for its property • Rent reviews management operations.

30 PROPERTY MANAGEMENT GUIDE PROPERTY MANAGEMENT GUIDE 31 WHAT YOUR FIRST NATIONAL REAL ESTATE PROPERTY MANAGER CAN DO FOR YOU

FIRST NATIONAL REAL First National Property Managers are Financial transactions are conducted First National Real Estate can well known for attention to detail. with efficiency and receipts issued for assist in building your property ESTATE OFFICES OFFER For the care of your valuable asset, all monies received on your behalf. You investment portfolio as a secure A COMPLETE PROPERTY First National Property Managers are accounted to regularly and monies means of investment for your future. prepare a written inspection report are paid by cheque or deposited in an Our Property Management Services MANAGEMENT SERVICE with supporting photos at the institution of your choice. cover Residential, Commercial and FOR PROPERTY commencement of each tenancy Industrial property. With around INVESTORS, BACKED and ensure that a rental bond By maintaining your asset in 400 offices in Australasia, First is lodged. An inspection of the good repair and ensuring it is well National Real Estate can offer BY THE MARKETING property when a tenant vacates presented, you will maximise rental services anywhere and attract SERVICES, SYSTEMS is a standard procedure at First income, reduce vacancy periods tenants from far and wide. AND PROFESSIONAL National Real Estate and bonds will and attract a high standard of only be released if the condition of tenant. Vacant properties cost TRAINING OFFERED BY the property is deemed satisfactory. money and are a security risk. A LARGE NATIONALLY Inspections are conducted during RECOGNISED BRAND. the tenancy and important repairs and maintenance will be arranged with your approval.

32 PROPERTY MANAGEMENT GUIDE PROPERTY MANAGEMENT GUIDE 33 GLOSSARY OF TERMS

Lease/tenancy Is an agreement for possession, not ownership, of a property for a set period. agreement

Lessee/tenant One who leases/rents a property from a owner.

Tenancy Agreement Sets out details of the property to be rented and the terms and conditions agreed to document between landlord and the tenant.

Landlord Is the owner of property being rented.

Negative Is where the costs associated with your property investment exceed the income Gearing received over the tax year. This loss can be used to offset other income in that year’s tax return.

Net Yield Is the income on your property less certain expenses such as rates, insurance, maintenance and body corporate levies.

Depreciation Is a non-cash allowance that you may be able to claim on your tax which reflects the limited life of an asset.

Capital Is the tax based on the difference between the purchase and selling price, Gains Tax less inflation, applied upon the sale of an investment property.

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PROPERTY MANAGEMENT GUIDE