Not every property owner is prepared enough to find success as an investor. As the managing agency, it helps to support your clients so they generate better financial returns.
Property investment is heavily promoted as the path to riches for Australians. We all hear stories of wealthy investors who have dozens of properties under their name and are always cash flow positive.
If you have spent more than five minutes in the property industry, you will know this is far from the case for most investors. The holding costs of an investment property can be high, even if it is brand new. When investors realise how challenging the reality of dealing with more than one home can be, many are turned off.
Common investment property problems
The difficulties investors run into include the following:
Interest rate fluctuations
Vacancy and lost income
Unexpected repairs
Ongoing maintenance
Replacing big ticket items like carpets, ovens, air conditioning and curtains
Damage caused by disrespectful tenants
Theft
Unpaid rent
The cost of insurance
Staying up to date with council and water rates
Paying strata fees
Dealing with strata issues
Complying with residential tenancy laws.
Changes to residential tenancy laws in 2021 have highlighted how many property owners are ill-equipped to provide their tenants with a fair experience. Even small things like how many sets of keys are provided are now legislated and many property owners are struggling to catch up with the changes.
With all the expenses and responsibilities, property owners start to feel the pressure. They may decide their ticket to riches wasn’t worth the paper it was printed on and look to sell their investment in favour of a less complex strategy.
How your agency can help
There are steps you can take to mitigate the risk of your rent roll shrinking because of property owners who are overwhelmed, fed up and losing money.
Working in partnership with your clients, here are some ways to ensure your property portfolio is sustainable:
Share financial forecasts
Make it clear to your clients what you expect their average monthly expenses to be. For example, there are ‘constants’ like rates, strata fees and agency fees. You can also suggest they put a percentage of revenue each month to put towards repairs, maintenance and fire alarm checks. This will reduce the stress of large one-off bills.*
2. Talk to your clients about depreciation reports
Some investment properties qualify their owners for significant tax breaks. A depreciation schedule costs around $600 to be put together but can be used by tax accountants for several years. The resulting tax refund can be put aside to cover the cost of replacing items in the property.
3. Clarify return on investment
Walk your clients through their break even and profit points. Analysis could show when they can expect to start building equity in their property or demonstrate where the cash flow positive point is. This can help them decide if holding the property is worth it.
4. Plan future investments
Some investors reach a point where paying off investment properties is costing too much. However, there are alternative strategies such as purchasing land to subdivide or buying in lower cost areas which could reduce holding costs and deliver better returns. Hold a webinar, share some blogs or talk to clients individually to explain their options.
5. Create a maintenance schedule
As well as encouraging your clients to put money aside for repairs, create a schedule to invite tradespeople on a regular basis. These professionals can make sure small problems don’t turn into large ones and save your clients from big unexpected expenses.
6. Minimise vacancy
It’s not always possible to have every home rented out all the time but you can create systems to minimise the days they are empty, for example have a five-star cleaning team on call so a new tenant can move in within 48 hours of the previous one moving out. Don’t leave it up to the tenant to arrange a cleaner or do it themselves because the job may not be done the way you need it to be. The cost can be built into the rent or management agreement.
7. Cross promote your teams
Sales and property management go hand in hand; for example if an investor makes a purchase, the selling agent should be able to immediately introduce them to your agency’s PM team. When an investor decides it's all too much and wants to sell, there is no reason for them to work with any agency other than your own. Keep rent roll clients in the loop about recent sales so they know exactly who to call on when they are ready to sell.
BBDH Solutions are rent-roll agents with over 40 years experience in connecting the right vendor with the right purchaser. Download our information booklet on the new Victorian Minimum Living Standards Legislation
* this article is for marketing purposes only and the information is of a general nature only and should not be taken as legal or financial advice