There are lots of things to remember when you’re a property investor. From interest rate changes to the ups and downs of property prices, it’s important for you to remember a few key things to maximise the value you get from your investment properties. In this article, we share a few of the common mistakes you should avoid when it comes to property investment.
Not prioritising your debt
There are some types of debt you should pay off as quickly as possible, such as credit card debt. Other types of debt may provide you with a tax deduction, such as loans taken out to repair or improve your investment property. It’s wise to pay down any debt that won’t contribute to a larger tax return quickly. You can then start paying off tax-deductible debt when you can. Make sure you speak to a financial adviser so they can assess your unique situation and help you decide the best order to pay down your debt.
Forgetting to claim depreciation
A common area where property investors fall short at tax time is maximising their depreciation deductions. When done properly, maximising your depreciation claims can add thousands to your tax return. If you don’t have one already, make sure you get a depreciation schedule drawn up for your property to maximise your deductions.
Not increasing rents
Many property investors fall into the trap of not increasing the rental price when renewing a tenant’s lease, I have done this myself, but not anymore!. If you do this, you can end up in a situation where you need to increase your rent by at least $50 to catch up on past stagnant rent prices. When your leases come due for renewal, consider increasing the rent by $10 or $20. These small increases are easier for your tenants to budget for, and your rent will grow in line with market growth.
Leaving your property vacant due to high rent
Just a week of vacancy can undo any of the gains you might have seen through a lofty increase in your rental prices. Be smart about the prices you set for your rental properties and talk to your property manager for their recommendation. You’d rather have a tenant locked in quickly than have your property sit vacantly and lose money.
We see this often, let’s do the sums… if a property is listed for rent at $730pw and it really should have been listed at a market rent of $700pw:
It won’t rent in the first few weeks, there’s $1,400 lost income.
If the landlord continues to try and achieve $730pw for the next 2 weeks, there’s $2,800 lost income.
Holding out for an additional $30pw equates to an additional $720 on a six-month lease or $1,560 on a twelve-month lease.
But! the landlord has lost a minimum of $2,800 rental income during the four-week period, or $2,920 if we consider the rent at $730pw.
And! if it takes another 1-2 weeks to rent the property after a rental decrease to $700pw that could potentially mean a loss of up to $4,200 in rental income!!
I am sure you will agree in the above scenario that the opportunity to rent the property within the first week, and to a great tenant, outweighs the cost of leaving it on the market for 4 or more weeks to achieve an additional $30pw.
Managing your own property
It can be tempting to think you can manage your investment property yourself. However, there are professional expertise and market experience as well as hundreds of detailed tasks and processes that go into efficiently managing a rental property. Leave the management of your property with a professional who will look after it like their own, so you can focus on your investment strategy.
With so much to think about as an investor, it can be difficult to see where you may be making some common investing mistakes. Being mindful of the pitfalls above can help you become a better investor and make sure you’re always prepared to capitalise on new market opportunities.
Remember, this article does not constitute financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.