After spending much time and money finding an attractive property in a thriving suburb, you make the buy. It’s your first purchase and a huge wave of relief washes over you.
But, contrary to what many rookie investors think, it doesn’t end there.
“There are a couple of key things that can turn a great investment into one that is a drain on your time and bank account,” says Owen Davis of DFG Property Services.
Adopting the ‘set and forget’ approach
Many investors think it’s time to put their feet up once they have a tenant in and the lease signed. But if you don’t keep a close eye on the local market, you could lose a lot of rent compared to surrounding properties, says Davis.
He also argues that you shouldn’t assume that just because you have a property manager, your property is being managed.
“Properties obviously experience wear and tear, and it’s important not to be lazy or stingy about making repairs. This can signal to your tenants that it’s ok to be lazy with their maintenance and paying rent on time,” he says.
He says properties should be inspected every 3-6 months and you should ask for evidence (such as reports and photos) that the inspection has been carried out.
Choosing a bad loan
Many investors choose to pay loans with principal + interest loans. However, paying back principal on an investment can strain cash flow that could be used to buy other properties or pay back personal debt earlier, says Davis.
“Interest only loans are a smarter option for investment properties because they also maximise your tax benefit. This is part of the negative gearing concept.”
Investors should avoid locking in a fixed rate for a 2, 3 or 5 year period, if they think they might sell before then, adds Davis.
“Break costs on fixed interest loans can be hefty and end up costing you more than if you’d gone with the variable rate.”
Loan security is also an area where a good deal for your bank may not be a good deal for you.”
Lenders often prefer to take security against all property in your portfolio, so if they need to recover money, they can sell whichever property is most attractive. Often that’s your family home.”
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