Calculating The Costs Of Renting Out Your Property

Posted on June 7, 2021June 8, 2021 by CT Real Estate

Like most investments, owning a rental unit comes with some ongoing costs. And before you start making money on your property, you will need to spend some. A prudent home owner will have to carefully consider what to spend on and how much.

This is important because the higher your expenses, the more money you will need to make to get the return you are aiming for. So for a good estimate of how long it will take you to start seeing your desired returns, you need a clear handle on your total expenses.

Things like insurance, maintenance and council rates can come as a surprise to new landlords so be prepared. Some of these costs are fixed with no way around it, but for others you may choose to opt out. Let’s go through a few of them together.

Landlord insurance

While it isn’t mandatory by law that you purchase landlord insurance, it is highly recommended and for good reason. Landlord insurance covers you for things like damage to your property, theft or burglary and loss of rent among others.

As much as you may trust your tenant, there are events beyond your control- ie. loss of employment could lead to an inability to pay rent. Having insurance is a safeguard against the things you cannot predict will happen and provides peace of mind if they do.

Insurance can cost from as little as $1 a day. But cheap doesn’t always mean best. Look for a plan which gives you the most value and coverage for a reasonable price. Bear in mind that because it is an investment related expense, it is tax deductible so do keep your receipts.

Property management

While a minority manage their own property, about 75% of landlords opt to go with a professional property manager. They cost anywhere from 6%-10% of your rental income and charge about a week’s rent whenever you get a new tenant.

The reason most landlords hire a property manager is because they have the expertise to set you up for success, protect your assets and help you make more in the long run. Their responsibilities include everything from advertising, to screening tenants, to collecting rent and maintenance.

While it may be tempting to do this on your own, it is very time consuming and stressful when you don’t have the same knowledge and connections. Once again, in most cases, agent’s fees are tax deductible.

Strata fees, council rates, water

There are a few fees that landlords have to absorb. The first is council rates. This is a mandatory sum paid to your local council for their services that’s usually paid quarterly. These rates do vary so it’s best to check what they are for your area.

If your property is a townhouse or a unit in an apartment block, you will have to factor in strata fees, also known as body corporate fees. This is used to help maintain the shared spaces including pools, gyms, parking and gardens.

When it comes to water, there isn’t a hard and fast rule. Prior to this, landlords used to cover water rates but that is changing. It depends on your agreement with the tenant and how this affects their rent.

Maintenance

Maintenance will vary depending on the age and make of your property. It’s understood that as the landlord you will have to ensure that your place is in livable condition. This includes fixing broken heaters, leaking roofs or even just giving the place a new coat of paint.

Some people set aside a percentage of their rent for maintenance (about 5%-10%). But honestly, you can’t always predict what will need repairing and maintenance costs are often determined by what needs attention that year.

Tax

Like other streams of incomes, rental is taxable. If you have positive cash flow- your income is higher than your expenses, it’s likely you will be taxed. However in the case where you are negatively geared- expenses are higher than your income, you will likely be entitled to a tax refund.

This depends on the condition of your house and the duration of ownership. Often, initially your total depreciation will be high, but as time goes by, your rental will increase more than the rate of depreciation. You will be making a profit and will be paying tax on it.

Nevertheless, do be aware to keep records of all tax-deductible expenses. This includes maintenance, management, borrowing and depreciation- all to work in your favour during tax time.

Now that you have a better idea of your expenses you can make more confident decisions about your property.

If you do have questions regarding your property, do speak to one of our specialists today. We’re here to help.

Renting Out To Multiple Co-Tenants: What Are The Risks Involved?

Posted on June 7, 2021June 18, 2022 by CT Real Estate

The most common way to rent out your property is to a single tenant but should you also start considering renting out to multiple tenants?

In some cases, having multiple tenants can be financially advantageous but it does not come without risks.

How do you decide? Below we look at some of the risks involved, but first, let’s understand what the different rental arrangements mean.

Types Of Rental Arrangements

There are 2 main ways that you can rent out your property:

1. Rent out the whole unit under one contract

Renting out to a single party involves only one contract, which means it’s fairly straightforward. This is the traditional method of renting out a property, making tenant management a lot easier.

2. Rent out to multiple tenants under multiple contracts

If a property has multiple rooms, there is the option of renting out the individual rooms to different tenants. This method of renting, referred to as rooming, is common in areas close to universities as students are usually not able to afford renting out an entire property on their own.

A rooming house refers to a property where 4 or more people live together in rented rooms. The rooming house is managed by an operator, who also has the authority to decide who lives in the property without consulting residents.

Renting out the rooms individually is an attempt at utilising the property to its full potential. Also, in some cases you could generate higher income from renting out to multiple tenants.

Some Units May Work For Multiple Tenants

Certain properties may be more appropriate for rooming vs. others. Such as, properties that are in close proximity to colleges or universities and have multiple rooms.

Landed properties are typically more suitable for renting out to multiple tenants because there is more space and privacy involved. However, while renting out rooms in apartments to multiple tenants is also an option, this would depend on how much space is available.

Having multiple tenants could mean more income. For example, you may only be able to rent out a whole unit to a family for $1500 but if you were to rent it out to multiple tenants, you could rent it at $600 per tenant. This is because, while $1800 may be too expensive for the family to bear, breaking up the charges between 3 tenants would be more affordable.

All things considered, there are still risks to renting out to multiple tenants.

What Are The Risks Of Renting To Multiple Co-Tenants?

Shorter Leases

Properties that rent out to multiple tenants tend to attract less reliable tenants which are only able to commit to short term leases.

As we mentioned earlier, some of these tenants are university students that do not have stable incomes and therefore cannot commit to longer leases. Shorter leases would mean less certainty and the need to look for new tenants more frequently.

Higher Maintenance Costs

Home owners are responsible for maintaining common areas such as hallways, courtyards, parking lots etc. This also includes plumbing systems, roofing, heating and cooling systems and other maintenance costs involved in the home.

Having more tenants would mean more wear and tear and may lead to higher maintenance costs. Keep in mind that each tenant may have their partners or friends dropping by and using the house.

All of this can add up quite rapidly, which is why maintaining multiple tenant properties can end up being quite expensive.

Requires A Licence

Another thing you will need to rent out your property under rooming house arrangements is a rooming house operator licence. This falls under Section 16 of the Rooming House Operator Act and will require you to apply for the licence and provide necessary documentation. This will take time and cost you about $240 in fees.

You will also need to register your house under Division 4 of Part 6 of the Public Health and Wellbeing Act 2008. Failure to do so can result in heavy penalties.

Higher Chances Of Vacancy

This relates to our first point where multiple tenant properties typically have shorter leases. In this case, there is a higher chance of a gap in waiting time when one tenant leaves and you’re looking to secure a new one, making it tricky to make full use of the space.

If this happens, it might be more difficult to ensure that income received for renting out the property covers all expenses incurred.

Less Stability

If you’re renting out your property to multiple people, it is unlikely that you will be able to coordinate the lease periods. As such, rental returns may not be as steady.

What Property Managers Do

Posted on June 6, 2021June 8, 2021 by CT Real Estate

A landlord’s goal is to get the highest return on their investment. For some- about 25%, this includes cutting back on agent fees and braving the process independently.

But for the majority, having an agent is absolutely essential. Why is this and how do you decide?

It starts by looking at all the things agents do and asking yourself if you have the expertise and time to manage them.This includes preparing your place for rent, sorting out legalities and finally, managing your property.

Keep in mind that an experienced agent will have the professional experience and insight that the average person will not have.

That said, let’s run through some of these specific responsibilities in detail.

1. Advertising

Agents help with marketing the property for you. While you can do this yourself, an experienced agent will be able to assess the best way to advertise a particular property for your target audience saving you both time and effort. This includes employing the latest methods like 3D tours, professional photography, using social media and producing quality copy.

2. Inspections and screening tenants

Another thing they do is run inspections for potential tenants. This includes assisting you in the process of setting up the rental to be its best before conducting the actual viewings. For one, you won’t have to give up your weekends to do this and it is helpful to have them weigh in on the different applicants in the screening process.

Screening is an important part of the rental process and an insightful property manager will point out things you may have missed. They will also run reference checks and have access to the National Tenancy Database to screen for red flags. All this to ensure you have all the information you need as you decide on your ideal tenant.

3. Property inspections and maintenance

We often think that once a property is rented out, the hard work is done. That’s not completely true. To ensure that your asset is protected and preserved in good condition, your property manager will run timely inspections. At CT Real Estate, our agents are trained to go through the rental with a keen eye to assess if anything needs attention. Your asset is our priority and we believe in taking preventative measures before things get bad.

4. Maintenance

We have heard of scenarios where landlords get calls day and night regarding a plumbing issue that needs fixing. It can be very stressful having to organize maintenance and repair for your unit when you have a busy job and no time to spare.

With an agent, you won’t have to deal with any of this. Tenants will go straight to your agent who has the best contacts for the job anyway and who will then ensure that the job is completed well.

5. Rent collection and tax

Timely rent collection is every landlord’s hope. A conscientious agent will see to it that tenants are paying their rent on time. In the case where rent isn’t forthcoming, your agent will have the strategies to handle the situation including enforcing lease policies if necessary.

But that’s not all. CT Real Estate agents go the extra mile by providing the documents you will need to help when tax time comes. This includes consolidating bills, rental statements, yearly invoices- all for your convenience.

6. Legal matters

When it comes to renting out your property, you want to be clear of the legal terms. A dedicated property manager will carefully explain policies specific to your situation including aspects like subletting and rental rates to empower you to make strong choices regarding your investment.They will also pay careful attention to details like ensuring that the tenancy agreement is completed accurately.

7. Advice

Experienced agents who know their work well will be able to advise you throughout the process. Honestly, some sound advice at critical periods can really affect the outcomes of your investment and your overall rental experience.

From how to price your rental, to choosing your tenants and what kind of repairs to make, an exceptional property manager will have the expertise to help you make better decisions. In the long run, this is reflected in increased financial gain and overall satisfaction.

It’s evident that for many, the benefits of having an agent far outweigh the costs. The gains aren’t just financial- they include having more time for yourself and overall peace of mind.

If you would like to find out more about the services property managers offer, speak to one of our experienced agents at CT Real Estate today. We’d love to help.