Landlords' Newsletter February 2013

In this edition: How long will it take for your property to rent? Five Biggest Mistakes Landlords Make 10 Things You MUST Know Before Refinancing…

February 2013

The Musts of Maintenance to Pro-tect Tenants and Your Investment… Act Now to Save Thousands! A Selection of Properties Recently Leased Quote Calendar of Events

Have you checked your insurance policies?

Wow, what a month! Busy

does not begin to describe

us. Heaps of properties let,

lots of storm damage to at-

tend to and it's busy busy

busy all the way. As such

there's no time for long dia-

logue this month but I do

need you to check one thing

for me PLEASE. Can you

please check your insurance

policies?

Have you got:

1. Home and contents in-

surance (contents only if

body corporate holds

insurance)

2. Landlord protection insur-

ance and here's the big-

gie... ARE THEY CUR-

RENT???

We have seen too many ex-

amples recently where either

or all of these haven't been

covered, leaving the owners

significantly out of pocket,

and we very much hope that

this will never be the case for

you!

Hope you have a great

month and, like us, are ap-

preciating the blessing of

sunshine after all the rain.

Wishing you wealth, health

and prosperity

Christina

www.propertyrentalsbrisbane.com FREE Information Guide For Landlords & Tenants

How long will it take for your property to rent? That of course depends on the time of the year so here are the latest statistics for December. For RE/MAX Profile, our average days vacant were 12.8

BRISBANE STATISTICS The Market

Source: rentfind.com.au

Brisbane, QLD December 2012 Annual Change

Median Weekly Rent - House $395 1.3%

Median Weekly Rent - Unit/Apartment

$380 2.7%

Days on Market (Avg) 27.8 1.5

Days Vacant (Avg) 16.5 1.2

Five Biggest Mistakes

Landlords Make

1. Not treating the investment

property like a business

If your investment property is oc-

cupied by a family member

you’re helping out, then your in-

vestment goals might be a little

different. However, most inves-

tors are in the business of owning

a property to make money. There

are often times when investors

make decisions based on emo-

tions, whether it is paying too

much for a property or basing

decisions on their personal

tastes. While you might like to

purchase a new property with

tiled floors because it looks ap-

pealing, a new property with car-

pet will return greater tax deduc-

tions each year. Under the dimin-

ishing value method, $2,500 of

carpet will return $500 worth of

deductions in the first full year,

whereas tiles will return only

$62.50 in the first full year. The

difference to a tenant might be

minimal, but the difference to the

Tax Office is that carpet is a plant

and equipment item depreciable

at 20% (Division 40) whereas a

tiled floor is considered as capital

works (Division 43) depreciable

at 2.5%.

Treating a property like a busi-

ness also means charging mar-

ket rent. While a good tenant is

worth holding onto, it’s important

to think of charging less than

market rent as handing over your

money to someone else each


don’t know they’re entitled to

claim tax depreciation deductions

on their investment properties or

have been convinced that the

property is too old to be worth-

while paying for a report. Even a

property constructed before the

qualifying date for capital works

deductions (for residential, prop-

erties built after July 17, 1985)

should have significant deduc-

tions available 95% of the time.

This might consist of capital im-

provements prior to your pur-

chase (concreting, painting, reno-

vations), or simply the residual

value of the plant and equipment

items within the property. This

includes things like air-

conditioning, blinds, carpets,

cooktops, curtains, hot water sys-

tems and much more. If you’re

renovating a property, there are

also significant deductions availa-

ble when you’re throwing away or

“scrapping” assets. The residual

value of assets thrown in the bin

can often help to finance the ren-

ovation itself!

I’ve been fortunate enough to

convince investors to have a re-

port prepared and been able to

identify many thousands of dol-

lars worth of deductions in the

current financial year and often

week. Your property manager

should be on top of comparable

properties and managing your

rental reviews. Rental increases

need to be reasonable and in line

with the market. Don’t make the

mistake of charging less than

market rent waiting for your lease

term to expire, and always re-

member that your decisions

should be based on investing ra-

ther than personal preferences.

Some of the best investment

properties might exist in places or

properties where you’d never

wish to live yourself.

2. Not maximising deductions

Most property investors are

aware that they can claim their

property managers’ fees, interest

expenses, repairs and the like,

however it’s important to know

everything you can claim, and at

the same time maximise those

claims. An accountant who is ex-

perienced with property deduc-

tions should be the first port of

call, as he or she will make sure

that everything that can be

claimed is being claimed. The

next step is contacting a quantity

surveyor to undertake a capital

allowance and tax depreciation

report. Many investors either

even more in back claims. The

difference between tax deprecia-

tion reports can quite often be

vast. Be sure you’re dealing with

a registered tax agent, and that

the report includes a low value/

low cost pooling schedule. You

might save a few dollars on a re-

port prepared by a quantity sur-

veyor inexperienced in tax depre-

ciation, but considering the fee is

tax deductible and you might be

missing out on thousands of dol-

lars' worth of claims, it’s worth

doing your homework.

3. Not getting property insurance

Property insurance can be bro-

ken into two major components:

landlord insurance and replace-

ment cost insurance.

With replacement cost insurance,

many investors might be able to

estimate a construction cost, but

there are additional costs that are

quite often neglected. A replace-

ment cost estimate prepared by a

quantity surveyor shows the actu-

al cost to reinstate a building in

today’s economic climate and to

today’s building standards. This

often results in additional costs

such as compliance costs, demo-


lition of the existing structure, site

clearing, professional fees and

costs associated with the time it

takes for reconstruction

(including design and documen-

tation).

Investors wary of their cashflow

need to consider whether a small

saving on their premium is worth

not being covered for the full cost

of reinstating a property if it was

damaged or destroyed.

Cashflow is also a consideration

when it comes to landlord insur-

ance. It might feel like it’s just an-

other expense you can do with-

out, but you need to decide how

you’d fare should the worst hap-

pen. Can you afford for a vacan-

cy period, or a tenant in arrears

moving out with a cleaning bill

that won’t be covered by the

bond? What about malicious

damage to the property? It’s OK

to take on risk, so long as you’re

confident you have a strategy to

deal with it. With the majority of

landlords having only one invest-

ment property, most investors

don’t have much wiggle room

when it comes to cashflow.

Common features of landlord in-

surance include:

Malicious or intentional

damage to the property by

the tenant or their guests;

Loss of rent if the tenant

defaults on their payments;

Liability, including for a

claim against you by the

tenant; and

Legal expenses incurred in

taking action against a ten-

ant

Not all products are created

equal; some insurance is de-

signed to be taken out in addition

to general home insurance,

whereas others are more all-

encompassing.

4. Poor tenant selection and ten-

ant relationships

Many investors make the mistake

of not undertaking proper screen-

ing of their tenants such as

checking references and other

documentation; this is really a

mandatory way to ensure to the

best of your ability that you’re go-

ing to have a co-operative tenant.

If you’re working with a property

manager, ensure that you’re con-

fident with his or her selection

process and ask any questions

you might have about their rental

history and references. Selecting

a tenant should not be merely

based on whoever is prepared to

pay the most for your property. If

your price is too high, you risk

attracting fewer quality appli-

cants. Your relationship with your

tenant is an important one, and

it’s important that once you have

a good tenant, you’re living up to

your side of the bargain. Repairs

are one of the major reasons that

tenants won’t extend their leases.

5. Failing to understand repair

costs

Repair costs are part and parcel

of property ownership and won’t

necessarily exceed fair wear and

tear. However, a major repair can

be very costly and may require

the property to be vacated. Not

only do you need to understand

your legal obligations to under-

take urgent repairs, you also

need to consider the cost implica-

tions. Many investors don’t set

aside enough money to cover

urgent repairs or stay on top of

minor problems that have the ca-

pacity to escalate if not managed

properly. Sometimes the quick fix

works fine, but often it’s delaying

a problem that’s going to cost


more money in the long run. Any

areas that come in contact with

water such as bathrooms, kitch-

ens, windows and weatherproof-

ing can potentially result in dam-

age that is difficult to detect but

eventually very expensive to re-

pair. It’s always a good idea to

take plenty of time inspecting the

property, and engaging the ser-

vices of a qualified building in-

spector is often worth it in the

long run. Strata-titled properties

have a sinking fund that forecasts

the requirements for repairs and

the associated costs, preparing a

similar plan and setting the mon-

ey aside is an easy way to en-

sure you’re able to cope with any

surprises.

Written By : Mike Mortlock

Source : Property Observer (29 Au-

gust 2012)

your current lender without shop-

ping around.

2. Assuming lower rates will auto-

matically save you money without

considering overall cost versus

savings

3. Procrastinating over applying

for a home loan while waiting for

interest rates to drop. Don't gam-

ble on better future rates.

4. Failing to get your new rate

locked in writing

5. Not doing your sums. Decreas-

ing your interest rate by at least

0.75% to 1% will save you about

$100 a month on a $150,000

mortgage

6. Switching loans or lenders

without clarifying whether the to-

tal costs (including establishment

fees, legal fees, stamp duty fees,

ongoing fees) are outweighed by

the savings in interest

7. Not having a lender or broker

evaluate your credit rating and

regularly revise your financial po-

sition

8. Not knowing the true cost of

refinancing. Make sure your lend-

er provides you with written state-

ments on application fees, de-

ferred establishment fees, or

break costs on fixed loans.

9. Falling prey to the lure of hon-

eymoon rates, which ultimately

revert back to their original or

higher rates at the end of the in-

troductory period.

10. Taking out money to pay off

credit cards with no intention of

changing spending behavior,

racking up further debts while

drawing out more home equity.

Don't turn what could be a short-

term debt into a long-term debt.

Source : Your Investment Property

(27 November 2012)

10 Things You MUST Know

Before Refinancing…

There’s more than one way to tie

a shoe, and many more ways to

botch a refinancing concern.

We reveal the top 10 mistakes

refinancers make:

1. Automatically refinancing with

The Musts of Maintenance

to Protect Tenants and Your

Investment…

One of the most vital factors for

property investors to consider is

the importance of maintenance

schedules or systems for their

rental property.

The Residential Tenancies and


Rooming Accommodation Act

(RTRAA) requires that at the start

of a tenancy, a residential proper-

ty should be clean, fit for a tenant

to live in, that the premises and

inclusions are in a good repair,

and the landlord is not in breach

of any health or safety law.

Property managers have a clear

legal responsibility to tenants to

be diligent about property condi-

tion so landlords must be pre-

pared to commit to an ongoing

maintenance schedule and any

ongoing costs associated with

this.

As with your own home, a certain

amount of wear and tear is una-

voidable. During a tenancy, prop-

erty managers may recommend

a repairs and maintenance pro-

gram to a landlord to ensure the

property remains in its best con-

dition.

Examples of planned mainte-

nance can include budgeting to

paint internally every five to sev-

en years; cleaning gutters regu-

larly; ensuring adequate tiling in

the kitchen, laundry and bath-

room areas; replacing floor cov-

erings every seven to eight

years; continually assessing the

security features of the property;

and annual termite inspections.

Landlords should also consider

conducting repairs that will effec-

tively reduce or prevent continual

“breakdown repairs” which are

both unexpected and unbudget-

ed.

To ensure the safety of tenants,

and to reduce the likelihood of

small maintenance problems be-

coming big serious ones, it is crit-

ical that property managers have

a reliable maintenance system in

place.

The system should begin with the

initial notification from the tenant,

which is followed through to pay-

ment for completion of the work

by a licensed professional who

has adequate professional in-

demnity and public liability cover.

When it comes to emergency or

routine repairs, it is best practice

for property manager to seek

written instructions from the land-

lord – unless they have been in-

structed to proceed with repairs

up to a certain expenditure limit.

It is also a legal requirement that

property managers keep land-

lords informed of any develop-

ments or issues in relation to

their property.

Under the RTRAA, emergency

repairs include situations such as

a burst water service or a serious

water service leak; a gas leak; a

dangerous electrical fault; flood-

ing or serious flood damage; or

serious storm, fire or impact dam-

age.

Property managers are legally

required to take immediate action

to effect emergency repairs. They

must act on routine repairs within

seven days of being notified by

the tenant.

Source : REIQ (8 November 2012)

Act Now to Save

Thousands!

Your capital works claim – time is

almost up…

On the 18th of July 1985, the

Australian Taxation Office intro-

duced legislation that allowed


property investors to claim capital

works allowance (Division 43),

commonly known as building

write-off, on residential proper-

ties.

Essentially this write-off allows

residential property investors to

claim a deduction for the wear

and tear on the structural ele-

ment of a building including items

that are fixed to the structure.

Building write-off can be claimed

at 4% over twenty-five years for

structures which commenced

construction between 18/7/1985

and 16/9/1987. After this date the

allowance adjusts to a rate of

2.5% over forty years.

The 4% capital works allowance

will soon be exhausted for prop-

erties which fall within these

dates.

For example, on the 1st of July

2010 a property investor pur-

chased a residential property that

commenced construction on the

1st of October 1986 and was

completed on the 1st of April

1987.

BMT Tax Depreciation was able

to determine that the original con-

struction qualified for the 4%

building write-off. There was also

a small $50,000 extension which

took place in 1995 that qualified

for the 2.5% claim resulting in a

$1,250 deduction per year.

The investor was able to claim

4% of the historical construction

cost, which was estimated at

$180,000, excluding plant and

equipment. This worked out to be

$7,200 in building write-off de-

ductions in the first year of own-

ership plus the $1,250 available

for the extension. In the second

year the owner was able to claim

the final remaining portion of the

original building write-off. In the

third year there will be no original

building write-off remaining. How-

ever, the $1,250 deduction avail-

able for the $50,000 extension

will continue through to 2035. In

addition, the depreciation availa-

ble on the plant and equipment

will also continue as can be seen

in the table on the right side.

When purchasing an investment

property, checking into the re-

maining building write-off will im-

pact on the depreciation deduc-

tions and therefore, the proper-

ty’s cash flow potential. If unsure,

simply call BMT Tax Depreciation

and one of our property deprecia-

tion experts will be able to assist.

Article Provided by BMT Tax Depre-

ciation.

Bradley Beer (B. Con. Mgt, AAIQS,

MRICS) is the Managing Director of

BMT Tax Depreciation. Please con-

tact 1300 728 726 or vis-

it www.bmtqs.com.au for an Austral-

ia wide service.

15 February Mid Month Accounting 1 March End of Month Accounting

A Selection of Properties Recently Leased

Kangaroo Point Apartment $410p.w.

1 bed, 1 bath, 1 car accommodation

Quote

“There are no secrets to success. It is the result of

preparation, hard work and learning from failure.”

-- General Colin Powell

Toowong Unit $520 p.w.


RE/MAX Profile Real Estate 141 Boundary Road TEL 07 3510 5221 FAX 07 3876 5544

www.profilerealestate.com.au Bardon QLD 4065 TEL 07 3510 5227 Nikki [email protected]

www.propertyrentalsbrisbane.com PO Box 388, Paddington, 4064 Helen [email protected]

Marcia [email protected]

Errors & Omissions: These details have been prepared by us on information we have obtained and while we trust it to be correct, is not guaranteed by us and you should rely on your own enquiries.

Albion House $700 p.w.


Calendar of Events

Landlords' Newsletter February 2013

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Transcript of Landlords' Newsletter February 2013