PROPERTY 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 LANDLORD WHAT COSTS HOW MUCH SHOULD YOUR PROPERTY INSURANCE 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 PROPERTY MANAGER # 2 8 # 2 9 # 3 0 # 3 2 PROPERTY LANDLORD AND LANDLORD AND WHAT YOUR FIRST MANAGEMENT TENANT AGREEMENTS REAL ESTATE 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 PROPERTY MANAGEMENT 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 properties 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), conveyancing fees and YOUR PROPERTY One of the biggest initial outlays possibly mortgage insurance. 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 home equity loan 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 apartment 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 house 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.