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CT Real Estate
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Calculating The Costs Of Renting Out Your Property


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. 

Multiple Tenants and Sub-letting

While many landlords prefer to deal with just one tenant, in some cases having multiple tenants or co-tenants can be financially advantageous. There’s also the case of tenants requesting to sublet and the rules around that.

As a landlord, it’s important that you understand how these arrangements work and what to consider so that you make informed decisions about your property. 

Let’s explore the idea of co-tenancy first. 

Co-tenancy

A co-tenancy is when there are two or more tenants listed on the original tenancy agreement with the landlord. In effect, all parties are equally liable in that agreement. Often this arrangement means the property is divided up between the tenants and you can expect the total rent to be higher. 

So how many co-tenants can you have? While there aren’t clear cut rules around the number of people you can have in a property, here are some guidelines. 

1. One couple per room

The general idea is that there should be no more than one couple per room. That is to say that in a house of 3 rooms, there shouldn’t be more than 6 people on the tenancy agreement. The rationale for this is to avoid overcrowding and to ensure that everyone has a safe and comfortable amount of living space.There is an exception when it comes to children as often, more of them can fit into the one room. 

Also, take into consideration the type of property it is ie. apartments have a restriction on the number of people due to it being a hazard in a fire or emergency. 

2. More people, more work

The more people you have using your property, the higher the risk of wear and tear. Fixed items like your carpets, flooring, stoves will be getting more use for sure. So while it may be tempting to accommodate a higher number of tenants to fetch better rent, you will need to factor in the maintenance issues that will be incurred as a result.

It’s also true that the more people on the agreement, the more work you will have to do. There will be more people to manage when it comes to rental, bills and general upkeep of the home. 

3. Chances of disputes

In a co-tenancy agreement, each tenant is equally responsible for the property. This includes ensuring that rent is paid up on time and that the unit is well looked after. While it all looks fine on paper, there is a chance of disputes between the tenants. In some cases, this could result in late rent, unruly behaviour and neglect of the property. 


Sub-letting

There’s also the case of sub-letting. What is the difference and what are the rules around this arrangement?

Sub-letting happens when the main tenant on the tenancy agreement rents out part of the property to one or more persons. This is different from a co-tenancy or a multiple tenancy agreement as the newer occupant will not have their name on the original agreement. This means that the main tenant continues to take full legal responsibility. 

Here are some terms around sub-letting in Victoria. 

1. Requires landlord’s permission

While the head tenant may have found someone to take over part or all of their lease, they are still required to get permission from the landlord. Landlords should not withhold consent if the request is reasonable. However, there may be some cases in which it may be wise to refuse consent. This includes for reasons such as overcrowding, or if the new tenant has a bad rental history.

Be advised that your tenant may still be able to apply to your state civil and administrative tribunal for an order to approve the sub-letting arrangement. Also, should tenants sublet without permission, landlords may give a 14 day Notice to Vacate and apply to have the tenants evicted. 

2. Record of agreement

It’s also worthwhile requiring that the head and sub-tenants draft out an agreement in black and white. Do include their share of the rent, duties and responsibilities. Having some rules in place will ensure clarity and help prevent disputes. 

3. Lodge Bond

Once the landlord has approved, the bond needs to be lodged reflecting the new arrangement. In Victoria, the head tenant is responsible and will need to notify Residential Tenancy Bond Authority (RTBA) of the changes. 

These are some general guidelines when it comes to understanding how co-tenancy and subletting works. As mentioned, it’s essential for landlords to know the benefits, risks, rights and responsibilities involved so that they can make the right decision for their property. 

However, if you’d like to know more, especially with regards to your specific situation, do speak to one of our agents today. 

What Property Managers Do

 

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.