How To Increase The Value Of Your Rental Property
Some landlords try to go it alone on the management of their investment properties. Some succeed, whilst others don’t. Many DIY landlords end up in the NSW Consumer & Tenancy Tribunal NCAT. They suffer lost rents or damage to their investment property. Lost money is often never recovered from tenants or paid by insurance companies as a result of lack or procedure or foresight.
I like to compare it to completing repairs on your own car. If you have the time, skills, tools and inclination to repair your own car, great go right ahead. When your brakes fail as you are going down a hill however, it is too late to call in the mechanic.
Don’t be part of the problem but be part of the solution.
Successful real estate agents ensure they are not just another cost but that they are actively contributing to increasing the rental returns for their landlords.
Great agents attract great tenants, who pay great rents to live in great properties. Great agents encourage great landlords to maintain great properties which, attract great rents and achieve great rental returns!
Don’t Be The Biggest Loser.
The biggest loss a landlord will ever incur is the loss of rent due to a vacancy. The second biggest loss is the loss of rent due to rents not achieving full market price due to a lack of maintenance and presentation. Not rented or rented under value result in a reduced rental return, which will never be regained.
Poorly presented and maintained properties remain on the market for longer; achieve lower rents; are vacated more often, and; require more repairs more often than do properly maintained and renovated properties. Tenants respect a property more when it is handed to them in good condition. If the landlord cares, so does the tenant. If the landlord doesn’t care, neither does the tenant.
In the rental market for the Northern Beaches many tenants are paying in excess of $35,000 per annum in rent for a 2-bedroom unit. In excess of $75,000 per annum for a 3-4 bedroom house; that is after tax dollars. This is one of the highest valued rental areas in Australia. Tenants come from a high socio-economic backgrounds. They are young professionals or high income singles seeking a beaches lifestyle and an easy commute to Sydney’s CBD. They demand exceptional properties and yet all too often they struggle to find properties presented to a level, which would reflect the rents demanded.
It is not just the tenants however who miss out. Landlords who refuse to grasp the opportunity available to them also miss out on lost rents.
A property vacant for an additional 2 weeks every second year and achieving just $20 per week less in rent, costs the owner in the order of $1,700 per annum.
Doing basic maths, the expenditure of around $20,000 (which will pay for a new kitchen, paint and floor coverings on most 2-bedroom units) will return a before tax return of in the order of 13%PA. Compare that to the 3.5% PA gross rental return most landlord achieve on the remainder of their property or the 6.0% it might cost to borrow money to complete repairs. It is a no-brainer!
Land Tax Is Paid On The Value Of Land.
In NSW the state government levies a tax based on the value of land, which is not your primary residence. There exists a threshold level below which tax is not paid; meaning that for most single property investors, who have invested in one strata title unit, the value of the land falls below the threshold. For those investors who have purchase a single residential dwelling (house) the land value will almost immediately exceed the threshold; which in 2018 is set at $629,000 above which the owner pays $100 plus 1.6% up to the premium threshold of $3,846,000 after which another formula sets in.
This tax is paid on the cumulative value of all land any one individual owns in NSW (the family home is excluded from the calculation). The calculation excludes the value of any dwellings or improvements on the land; it is purely the value of the land, which is taken into consideration.
Land Tax Not House Tax
A 2-bedroom beach side cottage might seem a delightful investment to own and hold for future redevelopment or retirement. It will be easily leased at a fair and reasonable rent. A tenant however will base their opinion of the rental value on what the dwelling has to offer. They may pay a slight premium for a generous back yard in a good position however market forces will probably mean they will never pay the landlord the true cost of holding this property. It is not inconceivable for a property of this type to attract Land Tax of in the order of $12,000PA i.e. $230 per week. On a property, which might attract a rent of in the order of $1,000 – 1,200 per week, this is a major impost on the rental returns achievable.
Shane Spence is the principal of Shane Spence Real Estate at Fairlight since 1997 and services Manly and the local Northern Beaches area. Shane can be contacted on 0412 226 722 or firstname.lastname@example.org. For more details go to http://www.shanespencerealestate.com.au.
The information contained in this article is of a general nature only and does not relate to any particular property. The views expressed in this article are those of the author who is a fully licensed real estate agent however these views should not be construed to be a valuation nor should they be construed to be financial advice. Interested parties, should make their own independent enquires and seek the services of professional financial advisers.