As the investment property market continues to rise, more and more people are scrambling to buy their own properties with the intention of turning it into an investment. However, property investment does not always guarantee success. Being a landlord can have its challenges and like all investments there are risks associated.
Landlords are prone to disastrous mistakes especially when they are new to the industry. If you are an aspiring landlord, here are 5 typical reasons to note why new landlords fail:
#1 Being Emotionally Attached to the Property
Landlords often confuse themselves into thinking that their investment property is their own home. New landlords have the tendency to make the mistake of basing their ‘buying’ decision on whether they can or cannot live in a certain property. For instance, you can’t picture yourself living in an apartment that’s further away from the CBD so you assume that this is not a good investment strategy. But have you thought about its other advantages? What if it’s near a university or conveniently close to a bus stop? Lots of prospective tenants would still find it desirable.
Also, should you decide to renovate your property before renting out, keep it as neutral as possible. Choose decors that can be appealing to the largest possible audience.
Treat property investing as a business and engage a professional property manager to handle the management on your behalf so that you are not emotionally involved.
#2 Forming Personal Relationships With Tenants
Being friendly with your tenants has its advantages indeed. it’s important that you learn how to draw the line between business and personal associations. It is part of the legislation that all maintenance be put in writing. A professional property manager will ensure all correspondence is in writing and strict record keeping is essential if there is ever a dispute and a matter escalates to the tribunal in the future. It is best to remember that you pay a property manager to manage the tenancy and it is best to allow the professionals to handle any tenancy matters on your behalf.
#3 Not Charging Market Rent
Always make sure you are up to date with the latest market rents. It’s best that you increase rent bit by bit. Why? Because if you declare a rental increase in just one sudden blow, your tenants are most likely to get stunned and maybe even upset. If the rental market will allow a rental increase it is a good idea to ensure that the rent is increased.
Do your homework. Find out the latest trends in the rental market. Your professional property manager should be providing you with a Current Market Appraisal prior to the end of each lease renewal so that you are aware of where your property is sitting in the market and if a rental increase is warranted.
#4 Not having a Depreciation Schedule
Having a depreciation schedule can offer a lot of tax advantages. A depreciation schedule it is the schedule of items that can be depreciated at a certain rate, allowing property owners to claim tax deduction from their taxable income.
The bottom line is that a depreciation schedule can save you thousands of dollars in taxes for your investments even if they are only worth a few hundred. That is something you should not ignore.
#5 Not Maintaining your Investment Property
A common mistake that new landlords make is treating their investment property as more of a hobby than a business. It is important to assess your investment strategy on a regular basis and ensure you are maximising the rental return. Having a maintenance schedule in place such as repainting, replacing carpet, updating bathrooms etc will ensure that your investment is working for you.
By allowing your property to run down you will not attract the best quality tenants and you will not achieve the optimum rent. A professional property manager can discuss ways to maximise your rental return and provide suggestions at routine inspections so that you can budget for upgrades.