As you start your property investing journey, you will find different opinions in every corner and an overwhelming amount of information. The secret to getting on the front foot is keeping it simple. With over twenty years of experience in the property industry, BMT Tax Depreciation and Devonshire Chartered Accountants share their top five tips for new investors.
Determine your investment strategy
It's important to establish your game plan. While this may change over time, having a baseline is essential. Some examples of investment strategies include purchasing multiple properties in a relatively short period of time, across geographical locations to mitigate risk or building a portfolio to support the retirement phase.
Take the time to determine your strategy before looking for a property. Ask yourself what the end goal is and how your choice in properties can help you get there.
Do the research
You can't predict what is going to happen in the property market, but you need to have a solid idea of the market you're joining. The first step is understanding the location you're entering as this will help you understand the type of return you can expect and the specific tenant market. Looking at the property trends in the area, demand and supply, the local demographics and employment rates are some key indicators of how the property will perform. The second step is researching the property itself. Not only do you need to ensure the property fits into your budget, but you also need to understand how it will impact your cash flow in the long term. Tools such as PropCalc can help you make an informed decision by showing how the purchase will affect your cash flow. This tool allows you to customise data such as income, expenses and tax deductions for the property. You can also compare properties, view and save a range of personalised property reports.
Head over heart approach
Mortgages are a big commitment, and this sometimes leads to new investors choosing properties they like or could even see themselves living in. However, it's important to remember that this is an investment decision, and you need to take a practical approach. This means you're looking for a property that is likely to be leased out consistently. Determining your 'ideal' tenant in your investment strategy is essential to do this successfully. For example, if your ideal tenant is a single working professional or couple, a low maintenance property is preferred. Meanwhile, if you're targeting small families a property with a yard, multiple bedrooms and a practical living space is ideal.
Build your investment team
Surrounding yourself with an experienced and reliable property investment team is essential to your success. These are the people that will make your life easier throughout your investing journey. The people in this team depends on your scenario, but an accountant and property manager are a good place to start. Your accountant is there to manage your taxes and to help you maximise your property's cash flow while ensuring full compliance is maintained. Your property manager oversees the day-to-day operations such as finding tenants, collecting rent and responding to maintenance or repair requests. Both your accountant and property manager will also work with a specialist quantity surveyor. A quantity surveyor gets involved when you purchase the property and if you make any improvements. They prepare the tax depreciation schedule to ensure you can claim depreciation deductions for the lifetime of the property (up to forty years).
But what is depreciation and why do you need this schedule?
Depreciation is the natural wear and tear of a property and assets over time. Only owners of income-producing properties can claim depreciation as a tax deduction each year and this is where the schedule comes in. The tax depreciation schedule identifies everything on the property that can be depreciated. An accountant uses this schedule to determine the depreciation deductions each financial year.
Article Credit - BMT Depreciation Experts
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