Common financial mistakes property investors make
With house prices continuing to rise in the major cities around the country, many Australians are turning to property investment as a way of getting a good return on their money.
Whether you are investing in one property or several through your SMSF or privately, understanding how to protect yourself from common financial pitfalls is key when you become a landlord, according to Carolyn Parrella of Terri Sheer Insurance.
1. Setting the rent too low or too high.
There is skill in getting the rental price right. Too high and you could run the risk of your property remaining empty for an extended period of time. If you make it too low, you could find yourself under financial pressure, especially if interest rates rise.
If you are going to be managing the property yourself, Carolyn advises you to "look on real estate websites and through newspaper classified to find listing with similar features to your property, as this will give you a guide on the rental market in that area."
2. Failing to monitor arrears
It can be a costly process to resolve if your tenant falls behind in their rent. Get familiar with your local tenancy laws as these differ state to state. Find out what the number of days is before you can send a termination notice and request vacation of the property.
"Regularly monitoring arrears and issuing tenants with appropriate notices promptly may help resolve issues sooner and mitigate any financial loss," Ms Parrella says.
3. Self-managing a property
Unless you have a lot of time and resources available to commit to managing your investment property yourself, the benefits of appointing a property manager often outweighs the costs savings of doing-it-yourself.
4. Neglecting maintenance
Don't have a set and forget attitude towards your investment. Acting on small issues now, often saves you time and money in the future. If you've been alerted to maintenance issues by your tenant, it's your responsibility to act on these says Ms Parella, otherwise if you could be held liable if your tenant injures themselves.
And don't cut corners with maintenance, ensure that all maintenance is completed properly and up to appropriate safety standards.
5. Inadequate Insurance.
When insuring your property, be sure to compare the cost of standard building and contents insurance cover with specialist landlord insurance options that are designed to protect investors from the risks involved with owning a property.