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The 7 major mistakes property investors make - and how to avoid them!

 

1. Treating the rental property as purely an investment and not as a business.

Owning a rental investment property is like owning a business. Too often people attend seminars and come away with the feeling that all they have to do is buy an investment property, let it and forget it!

No-one in business does this, so you have to begin to think like a business person.

And the business you are in? You are in the business of providing accommodation. Think of the times you have stayed in a hotel or motel. What do you expect? You expect it to be clean, from top to bottom; you expect everything to be in good working condition and you want to feel you are getting good value for what you are paying.

Owning an investment property is exactly the same thing!

It is not possible to simply buy a property, engage a property manager and forget it! Decisions will need to be made from time to time regarding maintenance and upgrades, rent reviews, new leases etc. Whilst your property manager will do the work, they can only do what is instructed.

2. Trying to do the management of the property yourself and not using a professional manager.

Frankly it is too hard and too complicated! Legislation is complex and demanding. Tenancy Tribunals expect owners and managers to comply with all the regulations exactly to the letter of the law. For a few dollars a week, save yourself the trouble, time and stress!

Further, it is important that you get the correct rents and not fall behind in the returns from the property. Leases have to be written to include rent reviews under the legislative requirements., If it's not in there, you can never raise the rent with an existing tenant.

Our experience also shows that sometimes an owner can get too involved with their tenant and give concessions that are often not needed.

3. Don't have a proper and efficient maintenance schedule in place.

All properties and their fixtures and fittings wear out! Damage does occur. It is important to keep maintenance up and have it done on time.

Yes, you can do it yourself, have your own tradespeople, or use those recommended by your manager. These choices are always yours, but it must be done.

It is also important to consider upgrades like painting, window treatments, floor coverings and landscaping when vacancies occur. These will ensure you continue to attract good quality tenants and maximise your rent returns.

4. Poor cash flow management.

No-one knows your business like you do! There will be ups and downs. Sometimes rental payments may be late. The property may be empty for a short period. Hot water services do need replacing as do air-conditioners, stoves and other expensive items. Provide for contingencies with a buffer of cash in a special account, or consider having a line-of-credit type loan you can draw upon when needed.

5. Not doing regular (at least annually) financial analysis.

Remember, this is a business. All business owners regularly review their financials. We do ours monthly!

Your manager will provide you with monthly and annual statements of receipts and expenditure. Use internet banking facilities to keep watch on your bank accounts. Have a market appraisal done annually to see how the value of the property is going. Sometimes it is strategic to sell off some assets and purchase new ones. Remember in the game of Monopoly, the idea is to buy three green houses and sell them to buy a red hotel!

6. Lack of building inspection at purchase.

Unless you are a qualified builder, most people don't know what to look for when purchasing. We always recommend you engage a professional building inspector prior to purchase. These do not cost a huge amount of money and are very worthwhile. Even if there are no major problems, they will often be able to pick up things that will need attention in the future.

7. No risk management strategy.

We've all seen the horror stories on TV. Fortunately these are few and far between. Accept that problems can occur.

Make provision for these by:

  • Having a good quality Landlord Protection Insurance in place. We recommend Terri Scheer Insurance. You can find them at www.terrischeer.com.au
  • Make sure your property manager takes the full and correct bond in advance. In South Australia this is four weeks rent for properties up to $250 per week and 6 weeks rent for properties of $251 per week and above.
  • Another good reason to use a professional Property Manager who has access to all kinds of tenancy checking to make sure the right tenant is selected for your property. We search the two major tenancy databases, TICA And National Tenancy Database. In addition we check for any court orders, bad debts and bankruptcies.

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