The rise of accidental investors has far-reaching flow on effects politically and economically – and for property markets overall.
Of course, the realisation that you are about to become a landlord presents some challenges for those who’ve never previously considered property as an investment vehicle or wealth building strategy, with one in five investors accidentally entering the market.
If you do find yourself in the position of becoming a landlord, there are steps you can take to make the transition smoother and build upon your accidental status to become a fully-fledged active investor.
There’s a wealth of resources available about property investment – and much of it is online and free.
Study the forums and postings. Subscribe to newsletters. Seek out literature and read, read, read! A broad education on how to effectively invest in property helps define how to best utilise your ‘accidental’ investment.
Also, if opportunity presents, talk to other investors about how they’re building their portfolios and what they hope to achieve. Draw on the experience around you and learn from other’s successes and mistakes.
Ensure you have independent advisers who can answer your queries right from the get go.
This should include an accountant and solicitor in the initial stages as there’ll be questions around tax and ownership structures that need to be taken into account.
Your team should also include a mortgage broker with experience in the property investment field, as investment is very much a game of managing your finance requirements.
The decision to take on an investment requires careful, unemotional analysis of your financial situation both now and going forward.
Purposeful investors do their household budgets – factoring in the rental returns from their holding, as well as all associated holding costs.
Ongoing maintenance and repairs, rates and even loan servicing can have a dramatic effect on your home budget. Ensure you are prepared to make allowances for how the asset will play out financially.
Seek the services of a property manager as soon as possible to look after your investment.
First time landlords should rarely try and tackle the legalities and practicalities of leasing and tenant requirements. Even experienced investors shy away from this field of expertise.
In fact, being an accidental investor provides you an advantage in some respects. Most investors ‘inherit’ a property manager when they buy an existing investment.
As an accidental investor, you get the opportunity to shop around for a property manager without feeling beholden to one that’s already in place.
In conjunction with your accountant’s advice, look to have an experienced quantity surveyor prepare a tax depreciation schedule for your asset. A schedule can provide exceptional tax advantages come the end of each financial year.
In many instances, the cost of the schedule is returned within the first year as a boost to your annual refund.
As an active investor, it pays to become involved in your market of interest. Watch the progress of new listing and sales within your investment suburb. This will help you keep reasonable track of your investment’s market value – handy information when it comes time to invest again in the future.
Also important is to study the rental market. See what comparable properties are achieving and check on the levels of tenant demand in your area.
You’re now among the large cohort of investors that hold just one asset in their portfolio – but that presents an opportunity.
If you’ve managed to get your structures and financials correct, there could be opportunity to take advantage down the track and re-invest equity gained via your holding.
Don’t skimp on setting long-term goals and looking at way to achieve them – making sure you understand how your ‘accidental investment’ works within your overall plan for the future.