Success as a Landlord
Earn money while someone pays off your mortgage - that's the life of a landlord! Owning a rental property can be a 'dream come true' if you follow these tips for successfully managing your investment.
1. Wear your business hat
Treat the management of your property as a business not a hobby. Start with a business plan and organise your operations professionally, with separate bank accounts and a bookkeeping system. Surround yourself with people that can help you make the right decisions like a good accountant and property manager.
2. Screen your tenant
You might be anxious to get a paying tenant into your property but don't be tempted to race ahead without first checking their credentials. Follow up on referees, past property managers and all the details provided by the applicant. Be familiar with your state's laws regarding leases and ensure that you use an appropriate lease form for your state.
3. Prepare for repairs
Attempting to save money by skimping on repairs and maintenance will only end up costing you more and risking legal liability in the long run. Conducting repairs quickly and keeping the property in good condition will improve the value of your asset and keep your tenants happy (and paying!).
4. Rainy day funds
Although you hope your property will always be rented, you need to be financially prepared for a worst case scenario of months with no tenant paying rent. Before closing on a property ensure you have done a cash flow analysis to show you can cover mortgage repayments for this or other unforeseen problems like interest rate rises, the need for major repairs or an unexpected drop in your income. Whether it's 'cash in bank' or a line of credit on your home loan (contact your mortgage broker for more information), you need to know you have sufficient funds to manage these situations.
5. Know your tax
Find an accountant who understands property and can structure your business affairs to maximise your personal tax situation. Be familiar with what is tax-effective and what is not. A depreciation schedule for example can save you thousands of dollars in tax, by enabling you to depreciate items and claim a tax deduction against your taxable income.
6. Take immediate action
Don't delay taking action when tenants don't pay rent or continually slip behind - you want to send a strong message that you have a business to run. Make sure you follow the step-by-step eviction process required under Tenancy Law.
7. Manage your risk
As outlined in the 'Are you Insured?' article below, landlord protection insurance is an important part of successfully managing your investment.