How to shift from a residential to commercial portfolio
Many things feel uncertain in the world at the moment, but one thing’s for sure, commercial property is producing some...
Aussies have been urged to think of their investment properties as a small business, as a means to ensure they gain positive returns.
According to Raine & Horne business support manager (property management) Maria Milillo, investors should treat their investment properties like a small business.
“Actively managing your investment portfolio is vital to the success of positive investment returns. However, this may not be as simple as it sounds, and the best way to approach your investment is to treat it like a business,” Ms Milillo said.
“Like an SME owner, investors must understand the supply and demand issues relating to their rental property, income and expenses, and the business and legislative environments such as residential tenancy act and strata issues.
“Also like a business, your property needs to remain competitive to attract customers (we call them tenants).”
There are several action points investors can take to ensure they’re taking the right approach, according to Ms Milillo.
1. Conduct market research often
“Review the rent regularly, say every six or 12 months and with every change in tenancy, to ensure it remains competitive against the market,” she advised.
2. If your property is vacant, attend as many inspections as possible
“Try and get to as many of these property inspections in person as you can to give yourself a better understanding of how the investment is presenting,” Ms Milillo said.
3. Understand the value of rental reviews
“Rental reviews are crucial as they can help determine the rental yields you’re achieving,” Ms Milillo said.
“Knowing the rental returns is critical to understanding how your asset is performing.”
4. Remember taxable deductions
“Don’t forget that investors can claim as tax deductions ongoing repairs and maintenance,” Ms Milillo noted.
“Maintenance work involves services such as gardening, plumbing or pest control that protect against the deterioration of the home and help maintain its presentation standards.
“Meanwhile, repairs are any works carried out to restore part of the property to its original state of function.
“Keeping tabs on these expenses is another way you can take a leaf out of a small-business owner’s handbook and keep your accountant and the taxman off your back. Likewise, make sure you are claiming the maximum depreciation from your property.”
5. Take a good look into your insurance
“Depreciation is the wear and tear to your property and fittings and is best measured by getting a depreciation schedule from the likes of BMT Tax Depreciation. Better still, a depreciation schedule can be claimed as a tax deduction,” Ms Milillo said.
“Business owners must choose from myriad insurances such as public liability, professional indemnity and worker’s compensation, to name a few.
“Primarily, investors should consider landlord insurance to protect their assets, while strata insurance generally covers a strata building such as a block of apartments and townhouses and the common property and contents. Strata insurance is organised by the body corporate.”
6. Build a buffer
“Recognise that like a business, the income and expenses from your investment property can change each month,” Ms Milillo said.
“It’s therefore essential to build a buffer to offset costs such as quarterly council rates, unexpected maintenance, and even special levies. Perhaps you could build a buffer by paying more off the mortgage than you need to cover for any unforeseen expenses.
“That said, getting the help of your accountant to help review your investment and repayment strategy is usually a sensible course of action.
“Just like a business plan, the key is to review and maximise the investment strategy for your rental property regularly.”
Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.