Property Investment FAQ's
Can I rent out my house on a normal mortgage?
If you have an owner occupier mortgage and want to rent out your property you are effectively turning your property into an investment property. As a results you will need to contact your home loan lender to see how this impacts your current home loan.
Investment loans are typically more expensive in terms of interest rates. For example, a variable interest home loan for an owner-occupier might be available at 2.75 per cent interest. However, an investment mortgage for the same property may be 3.25 per cent interest. In addition, the lender may assess how much equity you have in the property and require you to put forward additional cash to reduce your loan to value ratio.
It is very important not to misrepresent your home loan as you don’t want to be accused of occupancy fraud. Make sure you talk to your lender before changing your owner-occupied residence to a rental property.
Do I pay tax if I rent out my house?
If you rent out your house or apartment or part of your home, the net rental income needs to be declared in your tax return as per any other investments.
In addition, if you rent all or part of the property out you may not be entitled to the full main residence exemption from CGT. You generally don’t pay Capital Gains Tax if you sell the home you live in, however if you have rented the property out, the floor area that was used to generate income, is most likely not exempt from CGT.
The good news is though that being an investment, you can claim running costs like rates, water, depreciation on the property, property management fees, maintenance and repair costs, landlord insurance etc.
If you are renting out a room in your house or apartment, you can only claim expenses related to renting out that space in the property. This means you need to apportion the expenses on a floor to area basis that the tenant solely uses and add in a ‘fair’ amount for expenses based on their access to common areas.
Importantly talk to your accountant about any tax implications if you rent out your property.
Can I rent my property without a property agent?
Yes, you can rent out your property without an agent. While DIY property management may seem like you’re saving money, it does require a considerable amount of work and carries serious legal responsibilities.
Understanding the work involved before deciding to manage your property yourself is a good idea. As a self-managing landlord you will be responsible for:
- Advertising your property for rent
- Booking and hosting inspections
- Screening applications
- Managing the signing of the lease
- Completing condition reports
- Managing the bond and ensuring it is lodged with the relevant state body
- Addressing maintenance issues and general tenant concerns
- You’ll need be available out of hours and on weekends
- Staying across the ever changing residential tenancy legislation. There can be serious penalties for breaking the law, whether you meant to or not.
- Manage disputes with tenants
- Manage any evictions
- Chase unpaid rent
- Make regular inspections
- Handle end of lease processes
So, in a nutshell yes you can rent your property without an agent but partnering with an experienced property manager can help save landlords a significant amount of time and money and make owning a rental property more rewarding. Plus, property management fees are tax deductible.
How long will it take to rent out my house?
Every rental property is different when it comes to how long it will take to rent out however, by working with a skilled property managers you can help ensure the time it takes to rent the property is a short as possible.
A property manager can help ensure the property is presented in the best possible light, has the right rental price and has a strong marketing campaign. With these elements working together it can help ensure your property appeals to the greatest number of tenants and rents quickly and easily.
Can I afford to rent out my house?
There are number of upfront and ongoing costs you need to be aware of if you’re looking to rent out your property. Here is a look at some of the key costs:
- Mortgage fees. Note these may change if you are changing a loan from an owner occupier to an investment loan
- Landlord insurance
- Repair and maintenance costs
- Advertising costs to find a tenant
- Property owner rates such as water rates, council rates etc
- Property management fees
- Accountancy fees
What is capital growth of a property investment?
Capital growth, or capital appreciation, is the increase in value of your property investment over time. As an example, if you bought an investment property for $600,000 and sold it for $660,000, you would have achieved capital growth of $60,000.
What is a rental yield?
The rental yield is the profit generated by your investment as a percentage of its value. Investors use their rental yield to evaluate the income they generate from their investment and to compare properties. A high rental yield equates to greater cash flow.
How do I calculate rental yield?A yield is calculated as a percentage for both gross and net yield over the previous 12 months. Gross yield is calculated before any expenses are taken into account. Net yield includes expenses such as property vacancy, insurance, running and management fees, maintenance and stamp duty costs.
The calculation used to work out your gross yield is:Annual rental income divided by property value times 100. This gives you the percentage of your gross rental yield.
The calculation to work out your net yield is:
Annual rental income minus annual expenses and costs divided by property value times 100. This will be the percentage of your net rental yield.
What is gross rental yield?
Gross rental yield is your annual rental income received from a property before tax divided by the property’s value. The higher the yield the better.
What is net rental yield?
Net rental yield or real estate net yield - this is the income on an investment after expenses have been deducted. Expenses include costs such as repairs and maintenance costs, insurance fees, property management fees, council rates, strata levies and advertising costs. The Investment cost will generally Include purchasing and transaction costs such as stamp duty, legal fees, pest and building inspections and loan start up fees. Some of these purchasing and transaction fees may still be deductible for tax purposes in the year of purchase.
What are the benefits of buying a property investment off the plan?
Some of the benefits of buying a property investment off the plan include;
- Significant depreciation benefits which can be used to offset tax
- Often have strong tenant appeal as people like living in new homes. What this means is the investor has a greater chance of finding and attracting high-quality tenants who will in turn be more likely to look after the property and pay their rent on time
- Come with brand new appliances and often extended warranties on major systems such as electrical, plumbing, heating and air conditioning. What this means is if something breaks or goes wrong, the factory warranty should cover it
- Have low or no maintenance costs which means fewer annual expenses for investors
How can I add value to my investment property?
Here are some changes that may impact your investment property’s rental appeal and value. Consider painting the walls, tidying up the garden, fixing the flooring, updating the kitchen, refreshing the bathroom, adding some extra features such as air conditioning, dishwasher, blinds, shutters or curtains. Adding built-ins or storage, adding in a parking space if possible and keeping the apartment our house well maintained. Of course, talk to your property manager and financial advisor about your particular property and whether these changes would help add value.
How do property managers help to add value to a property investment?
Property managers can help investors by helping them set the right market rent. They can help retain tenants by addressing their day to day requests and maintenance issues promptly. They are skilled at screening tenants to find the right one for you and your property. They help keep accurate financial records for your accountant. They conduct regular inspections to ensure your property is being looked after. They manage the rent, including settling, adjusting and collecting it. They are required to attend regular training and qualification sessions and are across the ever-changing Residential Tenancy Laws and how they impact landlords.
How can I review my property investment performance?
When reviewing your property investment’s performance each year you should determine if you are charging the right rent. Assess whether your property has increased or decreased in value via a property appraisal. Review your current investment loan to make sure you are on the right one. Review your insurance policies and make sure you are still happy with them. Review your team of experts including your accountant, property manager, and other service providers - are you getting what you need. Regularly inspect the property or have your property manager inspect it on your behalf and address any potential maintenance issues. Review your tax situation to ensure you are claiming all relevant expenses and assess your rental yield on your investment property.
What purchase costs can I claim as a property investor?
As an investor you can usually claim mortgage registration and transfer charges, building inspections and conveyancer and solicitor fees, but only for the tax year you purchased the property in. Keep in mind regulations change so make sure you check with your accountant as to what exactly is deductible for you and your property.
Can I deduct property management fees in my tax return?
In most cases 100% of property management fees can be claimed as an expense along with all other costs to promote and advertise your property for rent. Check with your property manager about your particular property.
McGrath Limited and its subsidiaries, together with their directors, officers, employees and agents have used their best endeavours to ensure the information passed on in this document is accurate. However, you must make your own enquiries in relation to the information contained in this document and seek advice from your financial advisor, broker or accountant to ascertain its application to your circumstances.
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