Find out why maintaining your rental property should be an integral part of your investment planning.
Many investors purchase a housing asset, find tenants (on their own or 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 ‘flog’ it, 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, and then allow its value to slowly deteriorate?
Yet that is what property managers often see a large number of their investor clients do.
Many don’t intend to be ‘that’ investor when starting out. On the contrary, they mean to keep their tenants happy and paying up each week.
But the financial realities of maintaining residential real state commodities can become quite burdensome, if not 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 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 a realistic insight into what type of investment you can afford and importantly, the best type of asset suited to your present and potential future circumstances.
Within this planning, maintenance for your property portfolio and perhaps the occasional large-scale 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 is 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.
What do you plan for?
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, including 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, such as roof repairs following storm damage.
These fees can vary greatly, depending on numerous factors, but should be fairly reflective of the type of maintenance buffer investors should prepare for, relative to the size and type of dwelling you own.
The odd emergency for one!
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, and 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.
You want at least this much money accessible in a maintenance fund, which may or may not be attached to your overcall cashflow buffer.
More regular maintenance items should 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…presentable enough to remain employed essentially!
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.
If you happen to find long term tenants who are exceptionally good at keeping the interior clean and tidy and paying their rent on time, but lack the inclination to tend to the extensive grounds of your rental, why not hire a gardener?
Think about how you can help to keep your investment presentable and inviting, because first impressions count in real estate. Not only will you attract and retain better tenants, you’ll maximise returns and find most of the money you put in, comes back to you with dividends.