Tips for property investors in 2023

This article has been republished from the Your Investment Property digital magazine.

It is easy to become lost navigating the changing landscape of the property market, but for investors and landlords, there are several resolutions they can make to ensure they still get the most out of their investments. Your Investment Property magazine reached out to several experts who shared the following tips and strategies on how to face the rest of 2023 with confidence.

Recalibrate your investment strategy

Your Property Investing director and Property Investment Association of Australia accredited adviser Tony Harrington said investors who want to succeed this year must focus on strong capital growth areas with high rental demand.

“With immigration opening up in Australia, the government expects some 235,000 immigrants so focus on areas with strong population growth potential and look for properties with high rental returns,” he told Your Investment Property magazine.

“With vacancy rates at an all-time low around the country, high rental yields can offset any potential rises in interest rates.”

When considering locations to invest in, Mr Harrington said investors must be ahead of the game - that is, to enter areas where the growth cycle is just beginning.

“The way to do that is to become aware of any upcoming infrastructure developments which in turn create job opportunities and strong rental demand,” he said.

Still, a crucial consideration property investors must take before recalibrating their strategy is their financial position.

“This way investors have a very clear path around their borrowing capacity and serviceability levels. Once they understand their financials, the next step is figuring out where they can afford to buy.”

Learn from mistakes

For Mr Harrington, time is an investors’ biggest asset, and one mistake they should avoid over the next year or two is buying into big projects with two to four-year sunset clauses.

“With banks constantly changing their lending criteria and developers uncertain of market conditions there is a considerable risk that some developments may not proceed,” he said.

“When that happens your deposit money is tied up and you lose years of potential compounding capital growth.”

Another mistake is zeroing in on mining towns where mining is the only industry.

“With changes in government and new energy all the rage, mining towns could become a thing of the past, severely affecting property prices and rent returns,” he said.

Tap the right people - brokers, agents, and managers

While it is not impossible for one to succeed in the property investing space without tapping agents and brokers, it still pays to have the right people on the team.

First Brick Property Buyers Agency director Kyrillos Mansour said there are merits to getting a mortgage broker, especially for investors who are starting to build their portfolio.

“A well-informed mortgage broker can significantly benefit investors — they can compare hundreds of loan products and find the best-fit solution for the investor's individual situation and needs,” he told Your Investment Property magazine.

With a mortgage broker, the arduous task of speaking with multiple banks can be eliminated, reducing the hassle of the loan application process.

Buyers agents are as important for investors - Mr Mansour said a knowledgeable and data-driven agent can immensely help investors decide where to purchase.

“In scenarios where the investor is proactive and has a data-driven approach, buyers agents may not be necessary, but their experience in negotiating and transacting hundreds to thousands of properties can still aid in securing a better deal.”

On top of this, buyers agents can help investors make informed decisions, free from emotional biases. This is one of the advantages of investors who tap buyers agents over those who take the do-it-yourself route.

Meanwhile, those with established portfolios are highly encouraged to get a property manager.

“A property manager will handle the day-to-day tasks of property management, freeing up time and effort for the investor to focus on other investment opportunities,” he said.

Here are some of the other benefits of getting a property manager.

• Professional management. With their professional background, managers can ensure that properties are well maintained and running smoothly, maximising the return on investment for the investor.

• Compliance. Property managers are knowledgeable about various laws and regulations.

• Tenant relations. With property managers, investors are able to secure quality tenants. Managers also handle the lease negotiation and any disputes that may arise.

• Financial management. Investors can stay on top of the financial performance of their properties with the help of managers who take over the jobs of rent collection, bookkeeping, and preparation of financial reports.

Adopt preventive maintenance

Hello Haus founder and expert property negotiator Scott Aggett said it is the responsibility of landlords and investors to ensure their properties are in tip-top shape in between tenancies.  

“Being proactive rather than reactive is a great way to reduce your long-term maintenance bill,” he said.

Some things to check are overhanging trees, dust build-up in air-conditioning systems, blocked drains, roof leaks, and pest infestation.

“Conduct regular inspections to allow the tenant to raise any issues and to address them immediately, and to check on the condition of the property. These should be conducted two to four times a year.”

Improve the marketing of the property

In a competitive market, improving the rental listing is key to ensuring that the property stands out. Mr Aggett said investors can consider these strategies to up their marketing game:

• If the property is newly bought, ask the selling agent for existing professional photos, floorplan, and videos of the property.

• For existing properties, spend some money on professional photography for the listings. Add lifestyle shots showing nearby amenities to boost the appeal of the listing.

• Show the property during the daytime and early evening.

• Have advertised openings with pre-qualified applicants.

• Be flexible to allow the maximum audience to see the property.

• Pay for a premium listing to highlight online.

Retain quality tenants

Maintaining a good relationship with tenants is a must and Mr Aggett said this can be achieved if landlords are accommodating and open-minded.

“First, fix any problems in a timely manner. Next, you must allow the tenants to create a home for themselves, as they will become more sticky and less likely to leave,” he said.

“If you can, provide options for small pets, and ensure a make-good clause is present in the lease.”

Mr Aggett said investors must understand that losing a good tenant can dent their finances.

“For example, if a good tenant cannot pay an extra $50 a week to bring it to a market rent of $600 per week and you decide to list the property for rent on the open market, the costs to re-let the property could be up to $2,400 to the landlord,” he said.

“Also, you may lose a good tenant and obtain a bad one, you just never know. Do your calculations and ensure it is worth the risk.”

Think of green upgrades

Mr Aggett said rental properties with sustainability features and upgrades can help contribute to tenants staying long-term.

“Energy efficient upgrades can be attractive to potential renters as they can see a reduced electricity bill benefit and result in a tenant occupying the property longer and therefore reducing vacancy,” he said.

However, not all upgrades can provide bang for your buck. For instance, investors must weigh the pros and cons of solar panels.

“Solar panels can cause roof leaks and future maintenance or replacement costs but if the landlord is paying for the electricity, this can be a way to increase cash flow,” Mr Aggett said.

The same can be said for water-saving devices.

“In states like Queensland, properties with these devices can pass on water usage costs to the tenant, which can amount to hundreds of dollars each quarter,” Mr Aggett said.

“However, you need to weigh up the cost of installing the devices against the savings to determine viability.” 

“Keep in mind that it takes time, energy, and fossil fuels to create these green upgrades, which also have a limited shelf life.”

Still, there are some practical green upgrades that are not as costly and can be easy to do, like having energy-efficient appliances.

Sealing windows and doors is also a good upgrade, as it can help reduce airflow inefficiencies and improve the overall quality of air inside the property.

Get the property insured

A study from the Insurance Council of Australia showed that only around three in five rental properties across the country are covered by landlord insurance.

Fleetware business development manager Brendan Fowler said there is no denying the importance of landlord insurance, which protects investors from potential lawsuits, any potential loss due to damage, and other risks.

“When choosing landlord insurance, make sure the policy covers accidental damage caused by the tenants as well as loss of rent,” he told Your Investment Property magazine.

“Shop around or engage a good insurance broker to do the work for you. Make sure you choose an insurer who specialises in landlord insurance.”

A landlord insurance policy usually covers the dwelling itself and other structures within the property. However, it might also be useful to add some optional coverage to the policy including vandalism, burglary, renovation, and building codes.

Take advantage of tax breaks

Investors must also learn to not just keep all the receipts for works done on the property but to also record all fees, including interest and bank costs.

“You may also want to consider buying the property through a family trust or even a self-managed superannuation fund (SMSF). If you don't already have one, seek out a qualified accountant who understands property investment and can recommend the best purchase structure according to your situation,” Mr Fowler said.

On top of this, Mr Fowler said a depreciation schedule can help investors increase their tax deductions.

“A new home will give greater depreciation benefits than an older home. You only have to get a schedule done once and give it to your accountant who will use the depreciation to reduce your taxable income,” he said.

:Different national sales director Brad McLeod said a depreciation schedule will help investors not only maximise their tax benefits but also improve their cashflow.

“Ultimately though, the larger the tax bill, it generally implies your earnings are improving — by having a depreciation schedule in place, you can reduce your taxable income each year which will hopefully allow you to further invest in your wealth,” he said.

Mr McLeod said having a depreciation schedule is just one example of being proactive when it comes to tax. Another must-do for all investors and landlords is to prepare early for tax time.

“This means preparing all relevant information like key statements and invoices before visiting your accountant,” he said.

“While you’re preparing your files, be sure to visit the Australian Taxation Office website to understand exactly what can benefit you during the tax period.”

Conduct a home loan review

Given the changes in interest rates over the past months, investors must revisit the terms and features of their home loans.

Mr McLeod said interest-only payments is something worth considering on the back of rising rates.

“This will free up more of their cashflow and ensures lower repayments. In this case, any rent received is likely to result in more cash in hand,” he said.

“So long as the total value of the property increases during your time as owner, you will see good capital growth with this option.”

Taking advantage of an offset account is also a good route to take, as it can help provide a safety net for when unexpected maintenance costs arise.

“It’s also a good idea to increase your frequency of repayments. Over time, this limits the amount of total interest owed on your property. If financially manageable, this is a good and easy option for clients to explore,” Mr McLeod said. 

Checking your tenancy agreements

Hello Haus founder and expert property negotiator Scott Aggett shared his tips on the things landlords must check in the tenancy agreements. When finalising the tenancy agreement, landlords must:

• Have everything clearly laid out in writing to avoid any future complications

• Prepare for the worst and reduce your risk to achieve the best

• Include all necessary clauses

• Seek professional advice from the property manager and/or solicitor before signing the agreement

• Always keep a copy of the signed agreement for your records and future reference

• Know when all appliance warranties expire to ensure they are not replacing something that is under warranty - this also creates future replacement expectations

Know the people you are renting to

• Confirm the tenant’s identity by cross-checking with government IDs

• Understand their level of employment and ensure their ability to pay rent

• Ask what their future plans are - how long do they intend to stay?

Prepare for the worst-case scenario

• Determine the appropriate number of days you must give the tenant to vacate the property after giving them notice

• Know your rights to the bond payment in the event of damages

• Know what actions you need to take if a tenant decides not to vacate the property and ensure the property manager has experience in these situations

Check the rental figures

• Rent amount

• Payment frequency (weekly, monthly, or any special arrangements)

• Term of tenancy, including the start and end dates

• Outgoings and whose responsibility they fall onto