How to make your real estate investment property work harder for you

An investment property is just like any other business: it needs to be well-managed and focused on its target market for the best returns.
While the recent turnaround in rental vacancy rates across most Australian states has made life a little easier for many landlords, the likelihood of interest rate rises in the near future means there is no room for complacency.
Here's how to ensure a property pulls its weight.
Leave it to the experts
Whether you are new to property investment or an old hand, a good property manager can make a huge difference to your bottom line.
Seasoned property investors agree that employing the services of an experienced, professional managing agent is money well spent.
Buyers' advocate Janet Spencer of Buyer Solutions rates a good property manager as one that keeps a keen eye on maintenance issues and provides regular feedback to landlords, thus allowing plenty of time to budget and plan for future expenditures such as replacing carpets or repainting.
Core services include rent collection, routine inspections and co-ordination of maintenance requests. Importantly, a property manager can act as an intermediary buffer zone between the owner and the tenant.
Fees generally range from between 6 to 9 per cent of gross rental income and - as with most services - you get what you pay for.

Inspections and body corporate.
Regular inspections are vital for landlords, particularly the estimated 30 per cent who manage their own property. Inspections can alert owners to minor maintenance issues that could develop into major problems if left unattended.
In Victoria, landlords can inspect their properties every six months. But more frequent inspections may be possible if the tenant agrees. In NSW, rented properties can be inspected up to a maximum of four times a year, with seven days' notice to the tenant required.
There is probably nothing duller than a body corporate meeting, but such meetings are also vital sources of information for landlords. This is where they can learn about problematic tenants, the budget for future maintenance costs, such as exterior painting or landscaping, and any potential levies.

Time for an upgrade?
Sometimes you have to spend money to make money.
Routine upgrades to your property can translate into quality tenants, rental increases and a shorter vacancy time between tenancies.
Gerri Keays, national property management executive at Ray White Australia, says tenants have become more savvy and are increasingly demanding properties that are well-maintained and come with fixtures and fittings that are reasonably up to date. "Vertical blinds that have been around for 30 years are not going to add value to your property," Keays says. The same can be said about dated kitchens, brightly coloured walls and shag-pile carpet.
Sophie Lyon, general manager of property management at Philip Webb Real Estate, agrees. "Many tenants we see these days are choosing to rent as opposed to having to rent," she says. "They are not prepared to take just anything."

Rental review.
Raising the rent is an obvious way to increase the return on your investment, particularly in the current hotly contested rental market where vacancy rates in Melbourne and Sydney average 2 per cent or less. In the 12 months to June 2006, the increase in the median rent outpaced the annual CPI increase of 4 per cent in many areas of these cities, with rises of more than 7 per cent recorded for two-bedroom apartments in popular suburbs of Sydney.
That said, raising the rent could be counterproductive if your property remains vacant for more than a few weeks.
Anthony Atra, a leasing agent with Century 21 Cityline Realty, which specialises in the keenly sought areas of inner Sydney and the eastern suburbs, says if your inner-city property is taking more than two weeks to rent out, it is probably overpriced.

Deductions and insurance.
While the Australian Tax Office has recently stepped up its targeting of property investors who claim expenses inappropriately, there are also plenty of landlords who underestimate what they can legitimately claim. This will be particularly important for those investors who have seen the value of their tax deductions reduced as their marginal tax rates have fallen.
Expenses for which there may be an immediate deduction include advertising for tenants, bank charges, body corporate fees, travel and car expenses for collecting rent or property inspections and certain depreciable assets that cost less than $300 (see right). For further information download the Rental Property Report 2006 at the ATO website (see http://www.ato.gov.au and search for rental).
Finally, loss of rent is a common problem - particularly when tenants fall into arrears - but landlord insurance can cover this expense. Several insurers offer protection against malicious or accidental damage by tenants, theft by tenants, legal expenses and legal liability. But read the fine print, excesses vary widely as does the time you are covered for rent loss.

What you can claim.
Besides loan interest, rental property expenses for which you can claim a tax deduction include:

• advertising for tenants,
• bank charges,
• body corporate fees,
• borrowing expenses,
• council rates,
• decline in value of depreciating assets,
• gardening and lawn mowing,
• insurance,
• land tax,
• pest control,
• property agent fees or commissions,
• repairs and maintenance,
• stationery,
• telephone,
• water charges, and
• travel undertaken to inspect the property or to collect the rent.

Source: Australian Tax Office [ATO]

The right manager makes a difference.
After 10 years of buying and selling properties and dealing with all sorts of tenant issues, Margaret Steel believes finding the right property manager is crucial to success in property investment.
"It really makes it so much easier if you have someone who is able to foresee maintenance issues and head off problems," says Steel, whose residential investment portfolio consists of nine two-bedroom properties, eight of which are part of two refurbished older-style inner-city apartment blocks.
Steel has been with the same property management firm since she began buying properties in the mid-1990s, just before Melbourne's last big real-estate boom. During this time the energetic mother of two has avoided any major problems with her tenants, encouraging them by way of a personal letter to report all maintenance issues, however minor.
"A lot of tenants don't like to be seen to be whingeing, but it is better to have a leaking tap reported and fixed than to have to replace the parquetry when a tenant leaves", she says.
Steel, who built her property portfolio on the advice of buyers' advocate Janet Spencer says she regularly upgrades her properties, paying close attention to carpets and benchtops. "We figure it is worth [it] in order to get a good tenant who will stay," Steel says.

Source: The Melbourne Age

Home loan lenders in interest rate war for your mortgage business

Home loan lenders want your business now and are prepared to pay for it!
Many major banks are slashing margins to lower the effective mortgage interest rates to attract new home buyers and mortgage refinance business.
Consumer finance research firm Cannex said that lenders had reported cuts to 54 fixed rate mortgages since the beginning of October.
Cannex financial analyst Harry Senlitonga said now may be a good time to consider a fixed rate loan with competition for customers in the increasingly popular fixed market driving lenders to cut rates.
"We are expecting to see more lenders follow in the next few weeks," he said.
Mr Senlitonga said rates had fallen an average 0.12 per cent in three-year fixed mortgages, while the five-year fixed rate category had dropped an average 0.17 per cent.
Fixed rate mortgages have gained popularity since the Reserve Bank of Australia (RBA) raised interest rates in May and August this year, bringing the official interest rate to 6.0 per cent.
Following the latest move, the number of fixed rate loans taken out by owner-occupiers jumped to 20.4 per cent in August from 16.2 per cent in July, according to Australian Bureau of Statistics (ABS) data.
As a result, lenders are now trying to capitalise on the increased demand for fixed rate loans as they scramble for customers in a shrinking market.
The ABS figures showed that both the number of mortgages taken out and the amount borrowed by consumers fell in August, dropping 1 per cent and 1.3 per cent respectively.
RESI Mortgage national consumer advocacy manager Lisa Montgomery said there were some great fixed rates because of the increased competition.
"We are actually seeing that there are a lot of good rates out there for consumers to fix into," Ms Montgomery said.
But she warned borrowers that fixing 100 per cent of their loan may not be the best financial move.
"There needs to be some caution displayed because when you do fix in - someone is going to lose - and it's either going to be the institution or it will be the consumer," she said.
While RBA governor Glenn Stevens said this week that the chances of another interest rate rise were high, most economists believe that rates have neared their peak and some even think rates may begin to come down next year.
"If you are looking to fix in, sit on the fence with perhaps 50 per cent of your loan and keep the other 50 per cent variable," Ms Montgomery said.
She said that by doing this, borrowers effectively had the comfort and piece of mind that came with a fixed rate but also the flexibility to make extra payments, which generally cannot be done with fixed mortgages.
As well, by only fixing part of the loan, borrowers could also take advantage of any potential falls in interest rates.
"So you're actually getting the best of both worlds," she said.
Source AAP

Bleak time for Tasmania's housing industry as mortgage interest rate rise bites.

There has been a call for the First Home Owners' Grant to be increased to help stem Tasmania's housing industry downturn.
Housing Industry Association state executive director Stuart Clues said climbing mortgage interest rates and high real estate prices were locking Tasmanian first home buyers out of the market. He said forecasts of a 5 per cent fall in housing starts in Tasmania for the coming year would see the situation worsen.
"Tasmania has the lowest percentage of first home buyers entering the market, accounting for 14 to 15 per cent of home loan approvals, compared with 19 per cent in other states," he said.
"Tasmanian families are spending close to 20 per cent of their income on paying the mortgage, when 10 years ago the figure was more like 10 to 12 per cent."
Mr Clues said with a further interest rate increase predicted for November, young families looking to buy their first house were hardest hit.
"The First Home Owners Grant has not increased despite rising house prices and interest rates," he said.
Despite low numbers of first home buyers entering the market, Mr Clues said the HIA's predicted 5 per cent fall in housing starts in Tasmania in 2006-07 was less than predicted for other states.
"New housing starts have fallen by less in Tasmania than in Australia as a whole over the past couple of years," he said.
"Housing starts in Tasmania fell by 9 per cent to a level of 2561 in 2005-06.
"A further fall of 5 per cent will see the cycle bottom at 2444 starts."
However, expenditure on renovations hit a new record high last financial year and is predicted to grow by 6 per cent to $652 million in 2006-07.
The housing industry contributes more than $1 billion a year to Tasmania's economy and renovations are a key factor – about 40 per cent of building work in Tasmania is renovations, compared with 20 per cent in other states.

Mortgage Homeowners in arrears growing

Homeowners who bought during the property boom are almost twice as likely to fall behind in their mortgage repayments.
A six-monthly review by the Reserve Bank of Australia found there had been a "modest'' increase in the number of home loans three month in arrears. The greatest increase was seen in New South Wales where prices were highest and have fallen back, followed by South Australia, Victoria and Queensland.
Some of the blame was directed towards the big banks which were accused of relaxing lending criteria.

This however can be disputed on the grounds that the boom peaked three years ago, when lending was strictly that it is said to be today. The other variable is that many of the non conforming lenders have less strict guidelines than the banks, offering loans to borrowers with bad credit.

In fact the six-monthly review found new loans to buy property sourced three to four years ago - the top of the housing boom - had a higher rate of arrears than new loans in other times. Almost 30 per cent of Australians are paying off their home. "Borrowers that took out a loan in 2003 and 2004 are more likely to have bought at around the peak of the market,'' the RBA said. ``And with the higher level of interest rates, have had less opportunity to build up repayment buffers.'' The RBA said the introduction of "low-doc loans'' -- mortgages where the homeowner or home buyer has to provide little information -- had raised the risk of running into the red. "The higher arrears rate is hardly surprising given the general lowering of credit standards that has occurred since the mid 1990s,'' the report said.
The average loan is now $230,652 and the minimum repayment now consumes about 27.7 per cent of a household's income. That figure is lower than in 1989, when rates were 17 per cent, when 30.4 per cent of income had to be spent.
But Commsec chief economist Craig James said that while arrears rate had increased, it was still at an historic low. "The RBA acknowledges that household finances have been stretched by recent developments -- code words for higher interest rates and petrol prices,'' Mr James said. "The bank believes that balance sheets are in good shape, especially given that people have generally adopted a more cautious approach to their finances.''
Source: Herald Sun