When we think of someone that owns an investment property, our mind automatically pictures rental money flowing into their bank account, and plenty of extra spending money. This can be the case if you purchase the property in cash. However, most of us need to take out a loan in order to make it happen.
The process of buying and maintaining an investment property is more complex than most people realise. There are plenty of factors to consider before committing to the investment and it’s important to address all of them.
Typical responsibilities for property investors include:
Although this seems fairly obvious, it’s important to note that your tenant’s rent should cover a large chunk of the monthly bond repayments. However, it might not cover all of it. In this case, you’ll have to contribute a bit of your own money every month.
Maintenance and Levies
Every property requires regular maintenance, no matter how old it is. People who own properties in a complex or estate are usually required to pay a monthly fee that covers routine maintenance of communal areas. This might include public pools, gardens, infrastructure, etc. Levies are put in place to cover the upkeep of these spaces.
Electricity and water bills
Sometimes these are covered in the rental agreement, but at the end of the day, the landlord is responsible for ensuring these are paid to the municipality. Even if your tenant stops paying you, you have to pay for these basic services every month.
You won’t get away with avoiding property insurance premiums. It’s an essential aspect of protecting your investment and a non-negotiable requirement from the banks. You’ll have to set aside money for insurance premiums every month.
Dealing with tenants
It’s not always easy to manage tenants. It requires good communication skills and a reasonable amount of admin. Most people hire an agent to handle these responsibilities, however, you can do it on your own. Bear in mind that if you do hire an agent, it will reduce the amount of income coming in. However, they’re super useful in the event that you’re struggling to find tenants or dealing with late rental payments.
When it comes to property, we’re interested in the long-term growth and capital appreciation of the property. Therefore, the location is very important. The area could become the hottest new place to be, and therefore increase the value of the property. On the other hand, it might become a run-down or dangerous area, and lower the value of the property. Given these factors, selling a property doesn’t happen overnight. It often takes a few months for the sale to go through.
At the end of the day, the intent of this article is not to discourage you from investing in a property. It’s incredibly advantageous to have someone else paying for your long-term investment. However, buying a property is not a quick-fix financial decision that will result in instant wealth. It usually takes years to pay off the bond and you’ll need a decent financial plan to make that happen.