Owning an investment property has a number of benefits. Real estate has great potential for long term growth, offers security, and if you are renting out your property it gives “passive income”. It does however come with its own costs, from management fees to maintenance, and it can be tempting to try cut corners and costs where possible. Here are some reasons why doing this can cost you more than you think, and why it is wise to “invest in your investment”
- Management Fees
One of the first decisions when you get your investment property is choosing and agent, and if to use one at all.
Employing a property manager gives you access to expertise which can help immensely in regards to marketing, tenant selection, and understanding the rules and regulations governing leasing your property. The right agent will also reduce a lot of the stresses that can come with your investment and your tenants.
When choosing between agencies you will find management fees will vary, so it is important to investigate what is covered in this and why the fee is higher/lower than others. Is the fee all inclusive, or is it lower as there will be additional small costs through the year? It is also good to look at how the agency is run, are the staff long term, indicating a positive environment and experienced team members, or do they rotate junior staff frequently? What systems are used, modern computing software can steamline processes and gives staff time to be more thorough and attentive to your property. Ask what process the company uses to advertise your property and then how do they select and vet potential tenants? How regularly are property inspections carried out and are these done by your property manager, or outsourced to a third party? How many properties does each staff member look after? If your PM has 180 properties, can they look after yours as well as if it is one of only 80?
A good property manager is one of the greatest assets you can employ for your investment, and a poor one can be one of the greatest costs.
Through the life of any home, there is upkeep. In the case of a rental the cost of this falls upon the owner. This includes such items as gutter cleaning, smoke alarm checks, deck upkeep and painting. Damage on the part of the tenant does not fall into this category. It is worth considering when arranging this maintenance the quality/standard of which to do this to- is it worth putting in quality carpet, using a more expensive paint or paying a professional to do works over giving it a go yourself, in something that is “just” a rental? The answer to this is yes.
By using quality paint, the walls will have less wear and tear and help keep the home looking pristine, and by repainting earlier rather than putting it off and advertising your vacant property with damaged or marked walls, you are more likely to get a better rental rate by presenting a home which is looked after. Similarly, quality carpet wears less easily and greatly affect how a property presents to potential tenants. By being proactive with regular maintenance such as gutter cleaning, you may save yourself from the more expensive damage of water damage should they overflow.
- Home décor
In the case of fully furnished and equipped properties, there is a balance to be had when it comes to the items in the home. Irreplaceable items, such always been replaced with other items. However, cheaply furnishing a home also shows, and may affect the quality of tenant interested in your home. This is a balancing act, we advise to fill the home with quality, contemporary items that will give longevity and present nicely – but that can be replaced if needed. We also suggest uniformity when it comes to items such as linens, and minimising unnecessary “stuff” in the property as it is easier to keep track of through multiple tenancies, gives a more polished look to a home and allows a tenant to see their own life in the home over giving the feeling of living in someone home amongst your memorabilia.
- Rushed Applications
Ensure you, or your agent take their time to fully research applications received over rushing to secure ‘just any’ tenant. Ensure reference checks are completed and explanations given for gaps in rental or employment history. It can be better to wait the extra few weeks without rental income for the right person, than accept a poor application in a rush.
A good tenant is an asset, they treat your home well and keep regular payments coming in through rent. A poor tenant on the other hand can quickly cause more damage to a home than a bond may cover, cost time chasing rental payments and potentially incur fees should the matter escalate to court.
- Looking for the big fish
By this I mean do your math.
When considering two offers, is the higher rent on a shorter term necessarily best when you consider the turnaround time between tenancies when no income is received and any changeover costs, such as advertising, reletting fees and final inspection costs?
Is it worth giving the great tenant a small rent reduction/holding their rate to keep them, despite the market climbing over going “fishing” for a better rate?
This also applies if a property is sitting vacant; would lowering the advertised rent in order to secure an application be more financially viable than holding out for what you perceive is the “correct” rent, with no income? Lean on the experience of your property manager in regard to this.
Investing in your property has long term benefits- and it does show. By ensuring your home is well presented and that you are working with the best agency, you attract a better clientele and rental rate.
They say “You’ll attract more bees with honey than vinegar” and this applies to good tenants, quality attracts quality and if you have pride in and take care of your property, you will find tenants who do likewise.