Of course we always recommend consulting with your accountant for the best way to manage your investment property: income; expenses and tax returns.
However there are some common practices that we know can assist in having a smooth-sailing property investment as opposed to facing unforeseen expense blow-outs and disruptions to your tenants that can affect your rental income!
It makes perfect sense but it’s common to see landlords not budgeting for continual maintenance expenses such as appliances and fixtures that will need to be repaired or replaced over time. Rates and body corporate levies also inevitably increase and landlords must also consider that their property may not be occupied 100% of the time.
Such costs as these should be factored into a financial plan for your investment property and we know it can be extremely helpful to set aside some money each month for what we call the ‘sinking fund bank account’ to cover such contingencies. We often see landlord clients facing a shortfall when having to fund unexpected repairs. As a result it also upsets the tenant and can even lead to them vacating or making a claim for compensation. Having an investment property sinking fund in place can prevent such scenarios as this.
The benefit of being proactive with undertaking preventative repairs and maintenance to your property will not only improve the amenity of the property but also maximise the tax deductions that you can achieve in that financial year. We stress that it is unwise to over capitalise on your investment property by installing top of the range products. This is a mistake that many investors make. Top of the range products not only cost more, but do not necessarily add rental value to the property.
Be careful when considering renovations and take the advice of your property manager as to what type of renovations will increase the rental value and what tenants actually desire in their search for a rental property.
By knowing what tenants are looking for and tailoring your renovations to market expectations, you are spending your time and investment dollars towards deriving additional income and not simply towards improving your property.
Remember to retain all records and invoices. It is important to note that the cost of renovations for an investment property are deducted off capital gains tax, not deducted off your income tax. Speak to your accountant regarding the tax implications of any renovation work that you undertake and also consider obtaining a tax depreciation report so your renovations can be depreciated for tax purposes.