Property investment

I know this is more a family and conceiving forum. But you guys are so smart and knowledgable, I thought I may as well ask here.

Dh and I have put a deposit down on an investment property in inner Melbourne. It is an apartment building that is due for completion later this year. Other than our house, we have never invested a big amount of money into anything. So we are paying 20% deposit on it, out of our own money and the rest will be on mortgage.

What I'm wanting to know is;
1) if there are other bbers who have investment properties, and have any tips for newbie investors.
2) have you found it difficult to keep up repayments on the mortgage of your investment property, or has rental flow been relatively good and kept you under control?
3) what kinds of things do we have to consider before having tenants? I know we need to organise window furnishings and insurance, but is there anything else?

We don't currently have a mortgage on our home, we are lucky enough to be in a situation where it was paid off. But with number 2 on the way we have been considering upsizing. But we are terrified that we will get in over our heads, with the investment property not yet complete we have no idea on outgoings or rental return and me about to be on maternity leave. We were looking at starting small, purchasing a block of land for $150,000-170,000 and building on it later (like in 2-3 years time). We would be able to afford 20% deposit on this land so wouldn't have to purchase mortgagee insurance. But this would put us with very little savings. I guess we're just terrified that we will struggle to get tenants and then basically have a mortgage of around $400,000 to pay off with one income. What are people's thoughts?

Sorry, I hope this doesn't come across as a brag. It's just we aren't talking to anyone irl about our investment property, but I seem to be constantly having new questions.

Are you buying the investment property through an agent, or just independently?

We have spoken to an investment agency who were able to give us info on how our income matched up with the expenses needed. We also talked to a mortgage broker when we were considering buying another property and owner building while still owning this place (during the changeover). She was able to go through all different options of how this could be possible. Definitely worth getting professional advice on the big decisions.

We are purchasing investment property through an investment property managing company. They will organise the paperwork and getting a tenant, plus they have given us a estimate of return etc. We are just worried I guess, that we will be unlucky.

Do a budget of expected income & outgoings. You should be able to find out how much rent you should get by searching for similar properties yourself or asking an agent. Outgoings are usually pretty consistant. Rates, water, Body Corporate (strata fees in some states), interest, repairs - allow two weeks rent for repairs, smoke alarm inspections, landlords insurance, agents fees. You should be able to find out about all these expenses based on similar properties in the area. Surely the builder should have provided projections for body corporate :dunno: but I'm not sure as I have never purchased off the plan. I would imagine that a brand new property would be fairly easy to rent but you can find out vacancy rates from local real estate agents. Allow for 2 weeks vacancy. That should give you some idea of what your outlay will be. If you need to reduce costs, you could consider fixing your interest rate as fixed rates are lower ATM or changing to interest only payments. Well done on paying off your mortgage!

To answer your questions:
1) we have an investment property. I would recommend meeting 2 or 3 agents and talking to them about the service they provide, how often they do inspections, how they select & screen potential tenants, what their policies are regarding repairs and so on. Don't be afraid to change agents if you are not happy with the service provided. We had a great agent at first but the woman who was in charge left. After a few not so great replacements, we finally had another who was great. She ended up leaving as well. (All in a very short space of time). We rented privately for a while to DH's sister and after she moved out, we went to a different agent. We were considering changing again as they weren't living up to their promises and had a few staff changes but so far there latest manager is proving more competent. We'll see. I would not recommend going without an agent especially given your lack of experience in investing.
2) No. We have an interest only loan fixed at 5.39%. Our rent more than covers the repayments. We've had the mortgage since 2007 and the rent has increased regularly since then. It costs us about $1000 a year to cover all expenses. We haven't had a vacancy for more than 2 weeks and our tenants have all been long term and great payers. At first, it was costing a lot more but as the rent has increased it has become easier.
3) Our property wasn't brand new so I'm not sure. I would think that every property will be different. Talk to your agent about whether there are any council or legal regulations.

I have no idea about building your own property as I have never built before but I'm sure others will have answers for you. Good luck!

We have a detailed record of how much money we spend on different aspects of life and expenses going back three years, and when we bought an investment property recently, we added up the numbers for if we do have a tenant, paying X amount, and found that we could afford it comfortably without a change in lifestyle. We then added up the numbers for if we DON'T have a tenant, and found that we would have to cut corners, with a definite drop in our lifestyle, but that we would still be able to afford it. I would not have gone ahead if this had not been the case.

We haven't gone through tax time as investment property owners, but I gather there is some clause that says that you have to share tax deductions and expenses etc if it is in both of your names, and since I don't work, it may not be as cost efficient as if we had bought in DPs name only. You might want to ask about this, as if you don't earn enough to pay tax, there might not be many tax benefits for your share.

:

---

We are purchasing investment property through an investment property managing company. They will organise the paperwork and getting a tenant, plus they have given us a estimate of return etc. We are just worried I guess, that we will be unlucky.

---

It is always possible to be unlucky but there's no point worrying about it. I believe the vast majority of people are honest and pay their rent on time. If your property manager does their job, they won't be letting your property to someone with a history of non-payment or of trashing places. Insurance should cover you if they do turn out to be dodgy tenants. Rental properties would not be such a popular investment if the horror stories happened all the time. You only hear about the worst ones.

We have a rental, the rent covers the mortgage but not other expenses like insurance, rates and any repairs. Dh does what he can but we did have to repair the roof. Our loan is interest only too. It's in my name only as we run a business and wanted to keep them separated. We are only doing our tax now but because we made a loss due to the expenses it is negatively geared and the loss comes off my taxable incomes for the year. Make sure the property manager does inspections every 6 months and keeps us informed of how the property is looking.

:

---

Do a budget of expected income & outgoings. You should be able to find out how much rent you should get by searching for similar properties yourself or asking an agent. Outgoings are usually pretty consistant. Rates, water, Body Corporate (strata fees in some states), interest, repairs - allow two weeks rent for repairs, smoke alarm inspections, landlords insurance, agents fees. You should be able to find out about all these expenses based on similar properties in the area. Surely the builder should have provided projections for body corporate :dunno: but I'm not sure as I have never purchased off the plan. I would imagine that a brand new property would be fairly easy to rent but you can find out vacancy rates from local real estate agents. Allow for 2 weeks vacancy. That should give you some idea of what your outlay will be. If you need to reduce costs, you could consider fixing your interest rate as fixed rates are lower ATM or changing to interest only payments. Well done on paying off your mortgage!

To answer your questions:
1) we have an investment property. I would recommend meeting 2 or 3 agents and talking to them about the service they provide, how often they do inspections, how they select & screen potential tenants, what their policies are regarding repairs and so on. Don't be afraid to change agents if you are not happy with the service provided. We had a great agent at first but the woman who was in charge left. After a few not so great replacements, we finally had another who was great. She ended up leaving as well. (All in a very short space of time). We rented privately for a while to DH's sister and after she moved out, we went to a different agent. We were considering changing again as they weren't living up to their promises and had a few staff changes but so far there latest manager is proving more competent. We'll see. I would not recommend going without an agent especially given your lack of experience in investing.
2) No. We have an interest only loan fixed at 5.39%. Our rent more than covers the repayments. We've had the mortgage since 2007 and the rent has increased regularly since then. It costs us about $1000 a year to cover all expenses. We haven't had a vacancy for more than 2 weeks and our tenants have all been long term and great payers. At first, it was costing a lot more but as the rent has increased it has become easier.

---

We do have a book of projections, but we put deposit down almost 2 years ago, and have since not looked at them. So I will grab them out and go over them along with our budgets.

Hearing of your small vacancy rates makes me a lot more optimistic. I feel that as long as the rental charge isn't too high, we shouldn't have too much problem with finding a tenant.

We went with off the plan, thinking a brand new property would require less maintenance costs. But yes still have to make allowances for the jic. Then body corporate, insurance, agent fees and rates should cover most everything else. As a landlord would we be expected to pay sewerage charges or do you think that would be included in body corporate fees?

I will be on maternity leave end of August, with investment property due to complete December. I would be looking at eventually going back to work and I also have my own small business underway. Our names are already both on contract so unless we can do loan under just dh name, I can't see how we can change things for tax purposes.

I have projection here for first year roughly costing us $10,000 out of pocket before tax refund. Does this seen about right?

:

---

We have a rental, the rent covers the mortgage but not other expenses like insurance, rates and any repairs. Dh does what he can but we did have to repair the roof. Our loan is interest only too. It's in my name only as we run a business and wanted to keep them separated. We are only doing our tax now but because we made a loss due to the expenses it is negatively geared and the loss comes off my taxable incomes for the year. Make sure the property manager does inspections every 6 months and keeps us informed of how the property is looking.

---

It's our plan to do interest only loan, with long term goal of having more equity in property rather than paying it off outright. Then if all goes well, considering using equity to purchase further investment properties. So increasing our portfolio. Seeing as it seems its more cost effective having a mortgage that is paid off with rent, and being able to negative gear. With no thoughts of selling for a while due to huge taxes involved.

I believe sewerage is included in the rates/water rates. If your property is seperately metered for water, you can pass on excess water costs. Ours isn't so we have to wear that ourselves. I don't think you can pass on sewerage but I really don't know for sure. We are in qld so it could be different where you are.

When we first rented our unit it cost us about $5k a year with a mortgage about half yours (it's a tiny one bedder). So it sounds about right to me based solely on that. Every property is different though. We looked at one unit that had body corporate fees over $5K more than ours for the privilege of having a gym, lift and pool in the building. That would significantly affect your hip pocket.