Creating wealth through property
It's the investment class that can build and build and buildREAD MORE
Many investors purchase a housing asset, find tenants with the assistance of a property manager and then forget about important upkeep measures to ensure their investment is performing at its maximum potential.
It’s a bit like acquiring a highly sought-after, rare and pristine vintage car only to park it out in the weather and allow rust to start savaging its structural integrity until it becomes another person’s restoration project.
Why purchase something of value, particularly if you need to go into significant debt to do so, only to allow its value to slowly deteriorate?
Yet that is what property managers often see a large number of their investors do.
The financial realities of maintaining residential real estate are a true commitment and need to be properly managed and accounted for at the outset.
The capacity to consider various changes that might occur in one’s life, as we move into different phases, is a beneficial skill when it comes to property investment planning.
You need to think about where, when and how your cashflow will be coming in and realistically analyse expenses associated with holding housing investments, as well as your lifestyle, at various points in time.
This will provide realistic insight into what type of investment you can afford and importantly, the best type of housing asset suited to your present and potential future circumstances.
Within this planning, maintenance for your property portfolio and perhaps the occasional upgrade needs to be factored into the equation. Don’t forget, the reason you claim depreciation on your tax return is because it’s assumed a building will degrade over time and therefore, lose value.
This value sacrifice can be particularly true for bricks and mortar dwellings that are largely left to structurally and/or cosmetically deteriorate to a point where it’s damaging the intrinsic market value.
If you invest in a residential apartment building, or other multi-title properties like units or townhouses, you’ll generally find a body corporate is in place to oversee upkeep of the building and any communal spaces; which includes car parks, laundries, garden areas and the like.
As an owner in the building, you’ll be required to pay a yearly body corporate fee and may be asked to provide additional funds for capital works as necessary. These can include roof repairs following storm damage.
These fees can vary, depending on numerous factors. However, they should be fairly reflective of the type of maintenance buffer investors should prepare for, relative to the size and type of dwelling you own.
Emergency repairs can quickly eat into a cashflow buffer if left unaccounted for in your initial number crunching.
Think about what constitutes an ‘essential item’ in a rental property, according to the regulatory body in your state or territory. You can then calculate how much it would cost to replace these items, should the need arise.
Things like heating and cooling systems, cooking appliances, plumbing or electrical infrastructure and hot water services.
It can be beneficial to have at least this much money accessible in a maintenance fund, which may or may not be attached to your overall cashflow buffer.
More regular maintenance items can also be factored into the calculations for your property portfolio cashflow forecasting. Think of it like a haircut to keep you looking neat and tidy!
Remember that your rental property is working for you every day, generating an income. As such, you want to make sure it remains productive and viable.
Think about how you can help to keep your investment presentable and inviting. First impressions really do count in real estate. Not only could you potentially attract and retain better tenants, you’ll have a better chance to maximise returns and find most of the money you put in, can come back to you with dividends.
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