Once you have secured your next property, the hard work isn't over - and you need to make sure you don't take your eye off the prize.
Blogger: Gavin Smith, director & general manager, State Custodians
You may have assumed that finding the right investment property and securing a tenant means the hardest part is behind you.
However, just like any type of investment, it is important to keep an eye on the property and regularly check in to ensure you don’t make the common financial mistakes many investors make. Listed below are just a few financial traps investors often fall into and how you can avoid them.
Charging the wrong amount for rent
You have probably heard it all before - ‘don’t charge too much, but don’t charge too less’. But how do you know what is the right amount?
Setting the rent too high may mean there is less interest from potential tenants and your property could remain vacant for an extended period, putting more financial strain on you. However, setting the rent too low may also result in financial strain as it will limit your rental return.
So, before buying a property, you need to research what the ideal rental price will be for you and the renters living in the property. Research other properties in the area which have similar features to your property and you can get an estimate of what you should be charging. Also, if you have a property manager, they can also give you inside information on what an appropriate rental amount could be.
Not keeping track of rent payments
Trusting that your tenants will pay the rent on time every month should not be your only strategy. If tenants start to fall behind or miss months altogether, it can be a long and costly process to try and reclaim the money.
So, to avoid this, set preventative measures beforehand. Set reminders for when the rent is due and check your account on that day to see if the money has been transferred. If they have not paid the rent within the requirements of the contract, then you can send out a notice to them.
By showing them that you are on the ball and regularly checking payments, they may be more likely to meet deadlines and will help avoid issues down the track.
Trying to self-manage
Self-managing a property requires a significant amount of commitment, time and resources and many landlords don’t realise this when they decide to take on the responsibility themselves.
Although self-managing can save you a portion of money, often the benefits of using a property manager can outweigh the costs. Do you have time to regularly inspect the property, find and screen potential tenants or know the legislation involved if disputes were to come up? A property manager would have knowledge in all of these areas.
Self-management can work out for landlords, you just need to realise the commitment and responsibility that is involved.
If you have been notified of maintenance issues on the property, you (or your property manager) are responsible for organising the repairs as quickly as possible. If you do not make these repairs in a timely manner, you could be liable if the tenant injures themselves due to this problem.
There are a lot of risks involved with investment properties and not having insurance could mean you are jumping without a parachute.
Landlord insurance can protect you from a number of risks involved with rental properties including if the tenant damages the property or defaults on their rental payments. Some see insurance as an optional extra, but it should be considered a necessity for investors.