Real estate occupies a special place in the Australian psyche. Houses are the places where we live, shelter, work and interact with the people we love most. Home is our security and comfort.
But this masks a basic fact that property investors must recognise if they wish to be successful. It’s that investing in real estate is a business proposition, not a personal pursuit of emotional gratification. And like any business, you must apply tried and true fundamentals to make it successful.
Here are my tips on how to treat your property investment more like a commercial venture and reap more benefits.
Yearly review
The end of the financial year is prime time to take stock and assess your property portfolio’s performance.
You’re already in the process of compiling the information you need for the ATO – so why not go a step further? Spend time considering all the other elements surrounding your portfolio.
Look at your financial arrangements, current rent levels, property manager’s reports and market values. Have a look at your equity position too. If you have questions about any of these elements, now is the time to address them. Talk to a mortgage broker or speak to your accountant.
This annual review will help you plan for the coming year. Look at when your leases come up for renewal and whether your tenants are paying below-market rent. You can also assess the performance of your property manager and address any concerns. For example, I undertook my annual review last year and discovered that for one of my properties, the PM hadn’t conducted a rental inspection in seven months. That’s been remedied via a quick phone call.
The EOFY review is a critical step in being an active property investor.
Monthly audits
This is particularly for anyone who finds the annual gathering of information for your tax return an overwhelming task. Make a resolution right now to regularly monitor your property transactions.
Dedicate 15 to 30 minutes each month to looking through your dealings. Do it on the first Monday or Tuesday of every month.
During this time gather all the documents related to your investment property from the past few weeks. This will include the regular statement from your property manager and paid invoices from contractors. You also need to include receipts from any expenditure you’ve made that related to your investment.
It might also be worth referring to the ATO’s investor’s tax sheet to get your head around how they treat income and expenses too.
Read through each of the documents (it won’t take as long as you think) and make sure they’re filed in an appropriate spot.
I also suggest spreadsheeting the entries of income and expenses. It doesn’t need to be complicated and once you’ve set up the spreadsheet, it will become surprisingly quick to fill in each month.
Doing this monthly audit ensures you stay on top of the dealings and makes tax time incredibly easy.
Electronic records
Keeping an electronic record of all income and expenditure is a seamless way to ensure you don’t miss a thing.
Most contractors will email you invoices and receipts nowadays. Don’t simply send them to the trash. Instead, set up a folder on your computer and drop it there. It means you’ll have everything in one place and won’t have to wallow through shoeboxes of paper receipts.
Also, the scan function on most modern phones is extraordinarily good. Scan or photograph any hard-copy receipts and email them to yourself so you can centralise all your paperwork. It makes it simple to send everything through to your accountant come year’s end.
Separate bank accounts
Another great investor hack is to have separate cash management bank accounts for each of your investment properties, no matter how many you own.
This account is the one where your property’s rental income is deposited and expenses paid.
It costs nothing extra to establish an account for each asset. Then, at the end of the financial year, simply send a copy of all your statements to the account.
Having a bank account devoted to each one of your investments makes for seamless tracking of all the relevant transactions.
Depreciation schedule
If you haven’t organised a depreciation schedule for your investment properties, you’re missing out on a huge amount in tax deductions.
One study by MCG Quantity Surveyors showed around seven per cent of investors lose money by not ordering a depreciation schedule soon enough. These investors lost on average around $20,000 in claimable deductions.
So, don’t be among that number. Depreciation schedules are a must for investors to maximise their returns each year. Not having one is like handing money back to the government, and as Kerry Packer said at a senate inquiry in 1991:
“And if anybody in this country doesn’t minimise their tax, they want their head read. Because, as a government, I can tell you, you’re not spending it that well that we should be donating extra.”
The fact remains the cost of a depreciation schedule will often be far less than the tax benefit it returns to you in its first year of use – and the benefits flow for years to come.
Depreciation schedules aren’t just for new properties either. Established dwellings and units will also have deductible components, so arrange for a schedule as soon as you can.
Treating your investments like a business should be a no-brainer. Not only will it ensure a stress-free tax return each year, but you’ll also be a better-informed landlord. A business-like approach allows for clearer strategizing and decision making resulting in long-term real estate success.
Always review any property location research and investment analysis data, with a professional, QPIA (PIPA Member) qualified & accredited ASPIRE Property Advisor Network Advisor. Never rely on glossy sales brochures or property marketing information, ensuring a property is right for your strategy. Property Investing is about BUYING a property that matches your goals and aligns with your investment strategy, never be SOLD an investment, know your numbers!
Visit www.aspirenetwork.com.au or call our office to be connected with an accredited and independent Property Investment Advisor on 1300 710 933
