There are a couple of things that can turn a great investment into one that is a drain on your time and bank account
Adopting the ‘SET AND FORGET’ approach
Many investors think that once their purchase of a property has gone through and a lease has been signed they can kick back and let things take care of themselves. But if you don’t keep a close eye on the local market, you could lose a lot of rent compared to surrounding properties.
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 upkeep and stop paying rent on time.
A tenant who feels they have been short-changed during their tenancy won’t put in the effort to clean up your property when they vacate and claiming costs from bonds can be a nightmare from someone like this.
CHOOSING A BAD LOAN
Many investors choose a standard principal + interest loan but paying back principal on an investment can strain cash flow that could be used to buy other properties or pay back personal debt. Interest only loans are the best option for investment properties because they maximise your tax benefit with negative gearing.
And avoid locking in a fixed rate for long periods because sometimes it is not always possible to know if you will need to sell. Break costs on fixed interest loans can be expensive.
It can be a good idea to get a loan on an investment property with a different bank than your own home. If things get difficult in the future the bank can ask you to sell your own home rather than the investment property because it may have more equity or because they think it is more attractive to the market so will sell quicker.
And don’t be tempted to ‘cross securitize’ your loans. That is when your bank wants to note its interest on all of your properties. This linking can result in the same scenario as mentioned above; when the bank has a hold on all your properties they can again demand the family home go on the market. Let each property stand on its own with a separate loan.
If you want advice about managing property or getting a loan then contact us on 8186 2777.