Heading into tax time can seem a daunting prospect with understanding what you can and can’t claim on your investment property. 

The good news is that a good property manager can help to keep track of your expenditure over your property and a great accountant will help with identifying and maximising the deductions that you can claim on your investment.

Some of the areas that your accountant may talk to you about considering when putting through your return.

Agent Fees

The professional fees that are charged by your Property Manager is one item that can usually be claimed. They may include fees such as the management and administration fees, marketing costs with finding a new tenant, letting fees and other ancillary costs that may be included with the daily management of your investment. 

Rates and levies 

During the time that the property is rented, you may be able to claim for the payment of council and water rates on the property as well as the strata levies that are incurred if your property is subject to a strata title and management. Strata fees for the management of a strata plan may also be included as part of this claim.

Repairs and Maintenance

Over the course of the life of a property, items will be subject to wear and tear and break down or need replacing over time. Your accountant can usually discuss claiming any costs or depreciation for the items that are repaired or maintained over the course of a tenancy. 

Some of these items might include repairing or replacing items such as dishwashers, appliances, electrical or plumbing repairs, pest control, gutter cleaning, building maintenance or everyday maintenance like pool servicing and lawns and garden care.

Taxes and Interest

A good accountant will also discuss the option of claiming interest and land tax costs for the time that a property is tenanted, if you are eligible and calculate theses deductions to put through with your claim at tax time. 

Depreciation

Investing in a professional tax depreciation report will assist at tax time with identifying the potential for depreciable items at the property based on its current age. Your accountant can then claim any potential depreciation that has occurred on the property and maximise the return that you can receive. 

Professional Fees

Employing professional services like accountants and solicitors in the management of your property for specialised needs is an essential part of investment property ownership. Claiming the costs for these services should also be discussed with your accountant to include at tax time as well as any property insurances that are held over the investment.

If you own one or even more investment properties, there are benefits to employing a qualified property manager to take care of your assets and who will ensure that the essential areas are taken care of. 

A good property manager will take the potential stress away from you when it comes to management of the property on a day-to-day basis with thorough knowledge of legislative requirements and advise you of your responsibilities as a landlord. 

Lease the Property

A property manager will market and show the property to prospective tenants. They will also put any applications through rigorous checks to verify factors such as identity, income and previous rental or ownership history and provide you with the details to decide on a tenant of choice. 

The property manager will prepare all lease documentation and an ingoing condition report detailing the condition of the property at the commencement of the tenancy and prepare the property for move-in day.

Manage the property through the tenancy

Throughout the tenancy, there will be regular repairs and maintenance items that will occur due to use and fair wear and tear. These repairs may range from leaking taps to appliance repairs, hot water systems or more major maintenance. They can arrange relevant trades to carry out the repairs and pay the invoices as they arrive, keeping track of the essential paperwork that you will require for tax time. 

A property manager will also conduct routine inspections of the property to check the condition that it is being maintained as well as repairs and maintenance that may need to occur. They will also recommend potential work that may need to be done in the future to maximise your investment which will allow you to plan for future refurbishment or improvement costs.

Handle Disputes

From time-to-time disputes can happen, whether it be due to factors such as rent arrears, breaches during a tenancy, managing repairs and vacating challenges. A property manager will assist with negotiating through these challenges, talking with the tenant and you as a landlord to resolve the dispute.

Should any matters require referral to the tribunal to resolve, they will also appear as a representative on your behalf to resolve the matter.

Manage accounts

While rent is paid each month, a property manager can also pay bills such as council and water rates, strata levies and maintenance invoices on your behalf from the rental funds. You will then be provided with a statement and a copy of the bills so that you can take them to your accountant at tax time. 

Provide Professional Recommendations

As a trusted advisor in managing your investment, your property manager will provide professional recommendations on work that may need to be carried out to the property to maximise your investment. 

They will also keep an eye on current market conditions and advise you on potential rent increases, and the best time to implement increases while maintaining good tenants. If they are working with a sales team, they can also provide a market appraisal for sale so that you can keep your finger on the pulse of your property value.

As we head toward the end of the financial year, you may find that you are having conversations with your accountant or your property manager around areas that you can look at to maximise your investment property value and in turn, the returns that come with it. 

One of the areas that you can look at our renovations around the property. Many of these may have to wait until you have a short window between tenancies, however, if you budget and prepare in advance, it can help in minimising downtime between tenancies and the potential for rent loss.

Paint and flooring

Painting and floorcoverings are considered to have an average lifespan of around 10 years. Once they reach the end of that lifespan, it can also reduce the amount that you may recoup from tenants, should they damage paint and floor coverings during the tenancy.

Over time they also start to look tired and worn with everyday wear and tear which can impact the rental return. Budgeting for new paint and carpet or touching up floorboards and tiles can help to give the property a quick freshen up between tenancies and increase the potential return.

Kitchens

While they are a larger ticket item when it comes to renovations, there can be affordable ways to replace or upgrade a kitchen between tenancies. Trades and your property manager can work with you within your budget to achieve a result that can improve the value of the property.

In looking at ways to reduce the costs, if the cupboard interiors and layout are still in good condition, you may choose to replace doors, update the benchtop or appliances, or look at new handles for the doors. 

Bathrooms

In many states, there are increasing requirements around water efficiency and water-saving devices. Many tenants will also be willing to pay a little extra in rent to gain a bathroom that is clean and tidy with all fixtures and fittings that are in good order.

For more affordable renovations, replacing tapware, towel rails, shower heads and vanities may be a consideration. There are also some great options for tile paint if the full tiling of the bathroom is not within the budget initially. 

Replacing cracked or older shower screens may also be required, especially if they become an ongoing safety concern.

Landscaping

In recent years, with longer tenancies and people spending more time at home, there is increased focus around outdoor areas and gardens. Installing low-maintenance trees and shrubs can reduce the time that is needed to maintain gardens and ensure that they are less likely to get out of control for those that don’t have a green thumb. 

If there are specific requirements that you have around gardens and lawns, it can often pay to employ a gardener of your choice to regularly maintain the areas and keep them up to the standard that you would prefer. 

Employ the experts 

Regulations around the property including tenancy legislation and taxation are areas that change over time. This is where qualified and experienced experts in property management and accounting can assist in making life easier during your investment journey.

Employing a qualified and experienced property manager can remove the stress that can come with managing your own investment property. They will understand the relevant legislation and processes required to maximise your investment. 

A great accountant can also assist with removing the stress of tax time and ensure that you are receiving the best possible returns on your investment while working with you to improve your investment strategy and achieve the financial goals that you are aiming for. 

Insure your investment 

One mistake the property investors often make is failing to take out adequate insurance cover over their investment property. Even the best-laid plans cannot control everything that happens, and a good insurance policy can help in covering for cases where the unexpected happens. 

It’s important to consider not only building and contents but also landlord insurance which will cover your income in the event should a tenant fall into arrears or damage occur to the property during the lifetime of tenancies.

Maintain the property

Properties will age over time and with tenancies, even in your own home items will wear or break. Setting aside funds to account for the inevitable will ensure that you are reducing your stress levels when it comes time to need to fix an item at your investment property and guarantee that not only the tenant has functional items in the property, but you are also keeping the property up to date with the latest market. 

Allowing fixtures and fittings in the property to fall into disrepair over time can end up being a costly expense in the long run and preparing for maintenance can keep your investment in good order.

Keep up to date with the current market

A good property manager can assist you with ensuring that your property is priced at the right rate in line with current market conditions. Be aware of what the trends are in the area for your investment and talk with your property manager to ensure that you are achieving the best rent for your investment. 

You may need to also consider recent market conditions and any current tenancies that may be impacted if you increase rents. Weigh up the options of the impacts of increasing the rent, vacancy periods and excellent tenants.

The winter months can sometimes be unpredictable when it comes to the weather. Rather than it dampening your moving plans, take some steps to ensure that your move is as seamless and stress-free as possible.

Check the weather app

Rain has the potential to cause havoc on your moving plans so being prepared for any inclement weather can reduce those moving day jitters. Your weather app will be able to tell you what is expected, and it is best to plan for any event and those just in case moments. 

If it does look like rain, purchase some plastic sheeting from your local hardware store to cover furnishings and floors, even old sheets can work in these scenarios to protect those precious items. Matting outside the entry doors will also help in minimising the potential for dirt to be tracked through the property.

Hire the professionals

Where you can, hiring professional removalists can make the move an easier process. They can help you pack up your belongings and deliver them to your new home so that you can minimise the heavy lifting and focus on unpacking and settling into the new property.

Outsourcing the clean-up to professional cleaners, carpet cleaners and gardeners can also make life easier and if you are renting, this can ensure that you are taking steps to help get your bond returned sooner with an easier handover.

Outsource your connections

There are some great companies that can assist with the connections and disconnections of your services to get you set up sooner in your new home and have the lights on for move-in day. They can also help with closing off old accounts for your previous residence and finalising those accounts.

Label your boxes

Do the little things like labelling your boxes relevant to the room that they belong to or what they contain when you are packing up. This will help your removalists identify the areas that the boxes need to go when they are unpacking in your new home, and you will be able to unpack the ones that you need more urgently. 

Prepare for a full day

When you are organising your time of move-in winter, keep in mind that the daylight hours are shorter. Get started as early as you can to use most of the daylight that you have. 

If you have pets or children, moving day can be quite a stressful experience. You might consider where possible to arrange for friends or family to care for them which can reduce potential anxieties around the move.

Having a bag of essentials on hand including things like a small tool kit, some smaller cleaning items, snacks and even a change of clothes while they might seem insignificant, can help make the day run smoother.

Tax depreciation is often overlooked in investment property ownership and arranging a schedule or estimate if your property is eligible before 30 June can help you to maximise the potential tax returns.

A tax depreciation schedule can be organised through a quantity surveyor who will inspect your rental property and report back on the depreciable assets of the investment. The report will account for the decline in value of any plant and equipment assets of the property as well as the building.

What is tax depreciation?

During the life cycle of a residential property, the building and equipment contained within will age with wear and tear and as a result, the value will depreciate over time. The Australian Taxation Office permits Owners of investment properties to submit claims against the depreciation of the residential building as well as certain fixture and fittings included within the property. 

When should I arrange a tax depreciation schedule?

As we head toward the end of the financial year, now is the perfect time to have your tax depreciation schedule arranged. This will ensure that you can claim the cost of the schedule with this year’s tax return in addition to the potential depreciable building, plant and equipment claims that can be made at tax time on your investment property.

How do I arrange a tax depreciation schedule?

Your accountant may have recommendations of organisations who have qualified quantity surveyors to carry out a depreciation schedule. Alternatively, your Property Manager can often recommend a company and assist with arranging a time with the tenants to inspect the property and carry out the requirements to complete the report on your behalf. 

You will then receive a report detailing the potential deductions that can be claimed on the depreciable assets of your investment property which can be provided to your accountant to assist when lodging your return this financial year. 

There are advantages to investigating if your property qualifies for depreciable deductions including the opportunity to claim potential returns at tax time on your property investment. A conversation with your accountant or property manager may be the first step in ensuring that you are not missing out on potential savings and maximising the returns on your property investment.

When you check your existing loan against what else is out there, you may find worthwhile savings. Such “refinancing” works particularly well if you can add other debts into your home loan, letting you pay off a car loan or personal loan at lower home-loan rates. Make sure you don’t end up paying your debts off more slowly. Take the refinancing savings and use them to pay off your loan faster.

Service matters

Lenders may promise quick service, yet take weeks to deliver your loan. Big banks can be as slow as small mortgage companies. Paperwork gets lost or delayed. In these cases, it helps to have a representative/mortgage broker who can push the lender along on your behalf.

“Unbelievable rates” are that way for a reason

Some lenders have been offering “honeymoon” rates as low as 3.99 per cent. But those eye-grabbing rates “revert” to a much higher standard rate after a few months and the fees can be fierce. The loan with the amazing rate may leave you paying more for years afterwards. Or it may only be available under very strict conditions – conditions you don’t want to meet.

Watch out for exit costs

Certain loans carry a hefty fee if you pay them off early. One of these products may be your best loan – so long as you know you want to keep your mortgage for many years.

Understand how mortgages work

Taking out a home loan can seem scary, especially if it’s your first. Talking with friends and relatives will take away some of the mystery. The 1300HomeLoan site offers assistance and guidance to help you understand the home loan process.

Don’t buy features you won’t use

Many borrowers often say they want a product such as an “all-in-one” loan, which lets you bundle your salary, borrowings and savings into one account. They find that a highly featured loan perfectly suits their needs.

But beware that you will pay higher interest rates and fees for all those features. After talking with lending experts, some customers decide they don’t need as many expensive features as they thought they did. Whether you use eChoice or get your loan some other way, ask yourself: “what am I really going to use?”

The most popular form of investment in property among Australians and New Zealanders has clearly been residential property — flats, townhouses and houses. It’s one of several property investment alternatives. Others include offices, commercial property (like factories) and retail property. Investors who can’t afford to buy their own office block can also choose from various property trusts that invest on behalf of many people. Several of these trusts are available to investors through the Australian Stock Exchange and the NZX Equity Market. And all have different financial profiles.

Different sorts of property often produce similar returns. But while most prospective property investors have undertaken their own home financing and can transfer this experience to similar housing, it is unwise to believe that other property investments have similar characteristics. If you are venturing outside housing for the first time for investment purposes, make sure that you understand the details of the new market and obtain expert advice, if necessary. 

Property management

Most property owners handle their property management through a real estate office. Most real estate offices provide an excellent service by marketing for tenants, arranging for rent to be collected, fixing minor repairs and providing a useful summary for tax purposes at the end of the year — but they usually charge between five and 10 per cent of the annual rent for this service. If you have the time to undertake these services yourself, then this can increase your return. But the call upon you, at possibly extremely inconvenient times, can be a heavy cost. In particular, if your tenants are turning over frequently (or are likely to do so), or if your particular segment of the rental market is prone to unusual competitive pressures (good and bad), the commission spent on an agent might be a sound investment.

Initial costs

* Stamp duty. This will usually be the biggest additional cost of acquiring a property — often up to six per cent. Remember to allow for this expense when determining how much you can afford. Stamp duty is a capital cost and is added to the cost base of the property.

* Legal/conveyancing fees. These are normally deductible if the property is for investment purposes.

Ongoing costs

Property as an investment has many benefits but it can be an expensive asset to hold. When calculating the return (and do make sure that you calculate it), ensure that you allow for the following charges:

* Interest costs on the borrowings.

* Insurance (be aware that items you provide such as drapes, carpets and appliances are contents and will need to be insured).

* Rates. Most residential tenancies do not allow for the payment of rates and other government taxes; therefore they need to be paid by the property owner. (This usually does not apply to other forms of property investments.)

* Repairs. Be realistic. Things do go wrong and need to be repaired or replaced. Maintenance items are usually tax-deductible — but be aware that property improvements are deemed to be capital expenditure and are added to the cost base of your property and are, therefore, not fully tax-deductible.

* Owners Corporation. These fees are payable in most unit and apartment complexes. The level of these fees can sometimes be quite high, particularly if there are large or expensive-to-maintain common areas such as gardens or pools.

The above costs are indicative of the types of expenses you will incur — but there may be others.

Gearing

Successive governments have helped investors to put together an investment portfolio by offering a range of valuable, tax-driven benefits. Most costs associated with investment property are allowable tax deductions. Where the rental income does not fully cover the expenses, then this is referred to as negative gearing.

Treat negative gearing with care. You make money only when the net capital value of the property increases by more than the net negative outgoings. This is fine in a buoyant market, but can be disastrous in a down market. If uncertain, seek advice. And do not forget capital gains tax — the tax on the increase in the value of your property between when you bought it and when you sold it.

Your investment, not your home

Finally, and most importantly, remember that property investment is fundamentally that — an investment. Far too many people are seduced into believing that their wonderful investment will eventually become a “second home” and select a house accordingly. Often, they can do better by investing in another area or even type of property, eventually realising an investment gain and doing far better than they would from a purchase driven by emotions.

Likewise, be careful of property investment seminars — especially those for purchases off a plan. Investment advisors who provide advice on the full range of your investment needs are strictly and closely licensed by official organisations.

Affordability is a relative term that is often used in property circles. But, of course, the concept of affordability has a different impetus or expectation for all-comers (whether they be buyers, renters or sellers). 

Broadly defined, affordability is a continual balancing act between your wants, needs, weekly budget and bank balance. 

As an anonymous sage decreed, “Bad habits are like a comfortable bed: easy to get into, but hard to get out of.” 

Realigning habitually stagnant behaviour to achieve a positive outcome is where the affordability factor comes into its own.

What if homeownership is on your horizon?

If you are considering becoming a homeowner, it is worth your time to make an appointment with a lender to familiarise yourself with the processes involved, such as budgeting, types of loans and ongoing fees. 

If the sums, sentiment and inspections add up, you’re a winner. But if, on the other hand, all the emotions and finances don’t balance out, it pays to steer clear. 

Starting out

Most people would say that if you can’t afford to buy a home, there’s little point in looking.

But we beg to differ. Much can be learnt from looking at homes, including finding out what you like and dislike in terms of architectural styles, how they are marketed, what prices are being attained, and the competition levels. 

Researchers know that ‘information is power.

Only with the attainment of information can you work out what is fair and reasonable to pay for your first home — and devise a plan to reach your goal.

What it really takes to escape the rental cycle is a determination to get ahead, build up the bank balance and resist any urge for a retail therapy that will leave a substantial dent in your line of credit. 

Saving will require immense discipline to reach your goal, but if temptation knocks on your door, it’s worth reminding yourself exactly what your priorities are. 

The best start is to write down a monthly budget and stick to it. 

This should incorporate all your income and expenditure, paying particular attention to savings, rent, current loan and credit card repayments, ongoing commitments to food, clothing and holidays, electricity, gas and phone expenses, motor vehicle costs and any other incidentals that affect your bottom line. 

As a rule, lenders say that you can afford to spend about 30 per cent of your gross monthly income on repayments, so keep this in mind when setting saving targets. 

It’s amazing the difference that the simple step of having funds redirected into a savings account via direct debit can make — and how quickly your buying power mounts.

Be realistic about your borrowing limit

Like most major decisions, it is important to be realistic about borrowing.  

In days past, a healthy deposit was about 25 per cent of the purchase price, but buyers can often borrow up to 95 per cent. 

Remember, there should also be enough money to cover stamp duty, settlement and mortgage costs, home insurance, removal costs and conveyancing, the sum of which can sometimes stagger first-time buyers. 

Even though these expenses are likely to stretch many people, there should also be a contingency fund should your hot water heater or refrigerator blow up. 

It’s an understatement that first-time buyers are particularly vulnerable to mortgage repayments, with recent reports showing that one in seven borrowers would be in trouble if rates rose by one per cent, and one in three if they increased two per cent. With looming interest rate rises, this is well worth considering.

So if you feel you may be spreading yourself too thin, consider whether it’s vital to buy now, or further explore your market options.

This may mean delaying your purchase — and potentially paying more than you first budgeted for — but it’s often better to be safe than sorry.

To take advantage of property listings, buyers need to fine-tune their online approach.

A smart way to find your next property is to adjust your online search habits. If location is high on your list of priorities, it can help to sort properties by distance to amenities and places of importance to you, such as a best friend or family member’s home.

Many listings portals offer map view features, which help to home in on your desired location. 

The map view shows you all the properties that are available in your targeted zone — regardless of how long they have been on the market. This saves time by streamlining the search process, rather than scrolling through countless pages of listings.

Adopt the filtered approach

Astute buyers use online filters when searching for their ideal property.

At any given time, there are literally thousands of good properties sitting online waiting to be discovered.

Most properties in the Australian and New Zealand markets generally sell within 40 days of being listed.

If your main aim is to pinpoint potential properties that may have languished in the listings rotations, you should change the listing format from ‘most recent listings’ to ‘older listings’.

Cutting through listings that languish

Listings that remain on the market longer than anticipated usually do so for a good reason.

The buyer’s role is to assess why the property remains for sale. 

Bottom line: is the vendor’s price expectation simply too high for the property type and neighbouring median values? 

Or is it the fault of the home’s features, its tenuous history or an unfeasible renovation that initially seems like too much hard work and expense to amend?

Finding out the answers to these questions, particularly if the property is still of potential interest, provides a powerful bargaining chip in renegotiating price and settlement details.  

In some areas, you should also check the fine print in the online preview to see if there are any state government incentives to entice buyers to choose older listings.

Get to know your local agents

Another smart move is to acquaint yourself with local agents in the areas you’re interested in.

The best real estate agents will always inform you about listings you might have missed in your online search.

Of equal value, they can also keep you abreast of potential listings that haven’t yet made it online, but might well make an appearance in the near future.