There is one big mistake property investors make, time and again, and it can end up costing them thousands.
A panel of industry experts has revealed that investors keen to save a few dollars by not doing the right checks and balances or getting professional advice, often end up investing in the wrong property in the wrong location or missing out on huge tax deductions.
Buyers’ agent Rich Harvey of propertybuyer told a webinar hosted by Hotspotting that it could take investors 12 months to learn what they needed to know about a particular area and by then they may have missed out on the perfect investment.
He said he and his team members were in the market every day and knew exactly what was happening.
“It’s an end-to-end process, we spend between 30 to 60 days on average from when a client engages us, to when we signup a particular property for them,” he said.
He said many investors confused searching for a property with research, not realising it took more than looking at online listings to pick the perfect investment.
Harvey said propertybuyer charged fixed fees for its services – from 2% for properties up to $1 million and on a sliding scale from about 1.5% for properties over that value.
“A big advantage we offer our clients is finding off-market opportunities,” he said. “It is so competitive out there at the moment, a lot of auctions are happening and properties going over reserve, but we can eliminate some of that competition by accessing off-market opportunities through our networks.”
James Dawson of Commercial Investing Academy said the same criteria applied when investing in non-residential property.
“With commercial property there is a specific set of skills you need to know to get the deal right,” he said.
“There are so many basic things that you need to get right otherwise you can pay far too much for a property and also cut yourself off from a tremendous amount of cash flow and therefore equity growth in the short-to-median term.”
Dawson was continually surprised that investors were prepared to spend $500,000 or even $3 million on a property but weren’t prepared to spend just a couple of thousand dollars on expert advice to make sure it was the right property to buy, particularly when that fee could be a tax deduction.
“If they don’t know about the numbers, it is hard for them to get their head around what they are doing, and they can get extremely short-changed in the deal and it can take years to recover,” he said.
Mark Shorrock of Bluestone Property Management said investors also made the mistake of trying to save a bit of money by managing an investment property themselves, or just picking the cheapest property manager they could find without considering whether they were up to the job.
“That is a mistake we see a lot of people make and it would be the biggest mistake,” he said.
“Given that most of the services for having your property professionally managed are tax deductable, I can’t understand why you would want to do it yourself.
“Over 21 years’ of experience I have proven many times that we can actually earn in excess of our fee extra for a private landlord over and above what they can themselves.”
Shorrock said they achieved that through rent increases, higher occupancy levels, better quality tenants and better maintenance.
“We can make most private owners more money than they are trying to save by doing it themselves,” he said.
Peter Foldes of quantity surveyor Washington Brown said many investors didn’t realise spending just a few hundred dollars on a tax depreciation schedule at the beginning of their investment could save them multiple thousands of dollars throughout the life of the asset.
Mr Foldes said some investors just weren’t aware of the full benefits of tax depreciation and that it was available even on second-hand properties.
His company charged, depending on the property, between $660 and $770 for a standard tax depreciation schedule.
That fee itself was a tax deduction and it could result in tens of thousands of dollars in tax deductions through depreciation every year.
“Ultimately any tax deductions or any tax savings are better in an investor’s pocket and more useful in an investor’s pocket than in the tax man’s pocket,” he said.
Mr Dawson said depreciation on an investment property was “like the icing on the cake”.
“I think a lot of people haven’t realised it is a tremendous benefit particularly now for commercial property,” Dawson said.
“It is something that just has to be done.”