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Buying a tenanted investment property

Buying a tenanted investment property

There are plenty of upsides to buying an investment property that already has a tenant, as well as a raft of risks. Here’s how to minimise them.

Steps you can take to minimise your risk:

Make sure the bond has been lodged properly. Your agent will arrange for the bond guarantee to be transferred into your name on settlement.Check the property condition report, making sure that it is a complete and accurate record of the property as you inspected it.Ensure there are no rental arrears. If there are, or if a landlord has agreed that rental arrears can be taken out of a bond payment, stipulate that this amount is deducted from the purchase settlement amount.Ask the leasing agent about the tenants and their payment record. You cannot demand that you meet the tenants, but attending the open house will give you a sense of how they live in the property. If possible, sight the tenants’ original application for the property and rental ledger.Look at the yield for rental properties in the area and compare them to yours. You won’t be able to increase the rent until the end of the lease.Be aware of any concessions or conditions that are either in the lease or have been agreed with the landlord or property manager, because these will become your responsibility. For example, does rent include electricity or other utilities? Has the landlord agreed to install a new oven or paint a room?

Of course, if you love a property but have doubts about the tenants, the lease or the managing agent, all is not lost. You can easily change the managing agent when you settle. You can also make vacant possession of the property a condition of settlement. You may need to wait until the lease expires to settle, but you aren’t taking on the previous owners’ problems and responsibilities.

If your only problem with a tenanted property is the rental yield, keep in mind that increasing rent on a good, long-term tenant may well drive them away anyway, so do your sums. Work out whether the amount you’d like to increase the rent by equates to more over the year than the lease fee plus any rent lost if your property is vacant for a few weeks.

Speak to CBM Mortgages today and they can help you finance your investment. <This email address is being protected from spambots. You need JavaScript enabled to view it.>

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How to maximise returns on an investment property

How to maximise returns on an investment property

When purchasing an investment property, there are a number of factors that could increase or reduce your potential return on investment. In this case it's not just location, location, location.

When considering a property for investment purposes, the most important question to ask is 'will it be attractive to tenants?'.  But how do you know what will appeal to someone you've never met? Settling on a handful of locations is a good start. “Young families and couples are the ones that drive capital growth and so a location that is within a reasonable distance to schools, entertainment, transport, and an employment hub is one to look out for,” says the finance broker. Other ideal factors are a low vacancy rate and relatively high rental yield.

Although location plays a major role, it's by no means the only defining factor. “There is a mistruth a lot of people subscribe to when selling investment properties, which is to disregard the quality because you don’t have to live in it,” advises the finance broker. “You have to buy a homeowner quality property, because someone has to live in it,” he says. “And when buying an investment property, you have to have an exit strategy, which will generally involve selling to homeowners as well as investors.”

To get the most value, you need to think about the demographic of renters who are likely to be living in the area. “You have to match the property with the area,” says the finance broker. “If you put a good quality, decent sized, one bedroom apartment in the inner city, it would be a great investment, however if you put it 30km out, it wouldn't garner as much interest.”

When investing in any kind of property, be wary of any danger signs. One of the biggest mistakes Australians make is not knowing what their cash flow is. “Bad cash flow is worse than paying too much for the property,” advises the finance broker. “It is vital to know how much your chosen property is going to cost after tax, every week after you settle. There’s no point in buying a top quality property if it’s going to send you broke.”

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Why property investors need savings

Why property investors need savings

Urgent maintenance is an unavoidable aspect of being a landlord, so having a cash buffer set aside will help you deal with any unexpected problems.

When renting out an investment property, having access to extra cash is vital for two reasons: ● to cover the costs of maintaining the property, giving it the best chance of remaining tenanted; and● to cover the cost of the mortgage should you lose your employment or rental income

“A buffer ensures that you are not stretched to your financial limits, but rather comfortable while on your investment journey,” advises a finance broker.

Ideally, your buffer would sit in an offset account against your mortgage, so that you have immediate access to the money while at the same time reducing the principal, and therefore the total interest payable on, your loan.

“Before calculating a buffer, I ensure my clients have a budget and savings plan in place that identifies their accurate living expenses and ability to save,” the broker says. “I would personally recommend a buffer of three to six months’ worth of loan repayments and living expenses.”

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