1. Plan for future returns
Purchasing a rental property is not a get-rich-quick scheme. Propertyinvestment of any kind should be viewed as a medium to long-term
investment. A property will appreciate over the long term and will generate a rental income, however, there might be costs that are not entirely covered by the rent. There is a good chance that the rental property will pay for itself over time or when the market booms or when the bond is paid off. However, in the initial stages there will probably be a cost involved.
2. Crunch the numbers
The monthly bond repayment is only one of a few monthly expenses that need to be considered. Affording a rental property is not just being able to pay the bond. When it comes time to crunch the numbers, landlords need to factor in expenses such as property insurance, rates and taxes, utilities, possible legal costs or collection costs, rental agent’s commission (a rental agent can assist with vetting potential tenants, collecting rent and general management of the property) and general property maintenance.
3. Set up emergency funds
Ideally, landlords will also need to have a contingency fund in place to assist with any unforeseen circumstances such as issues that are not covered by the home insurance or for legal costs if the tenant defaults on the rental agreement.
4. Selecting the right tenant is crucial
Each prospective tenant should be put through a vetting process before they can let the property. This process is where the services of a rental agent will really pay off, as they will provide the landlord with the professional vetting of potential tenants. Factors that will need to be considered include: the tenant’s previous rental history, reasons why they are moving, their place of employment and their monthly income. Landlords should verify the information given by contacting the references provided by the tenant.
(More on this in another post)
5. Set up detailed contracts
A highly detailed lease agreement that contains all the necessary stipulations upfront will help landlords to avoid any complications or misunderstandings regarding the responsibilities of each party. The more that is covered in the contract, the smoother the rental should run as each party knows exactly what is expected of them. No aspects of the rental agreement should be left open to interpretation, with the document covering aspects such as acceptable tenant behaviour, breakage costs, the preferred method of payment and date that the rental is payable. Equally important is for the landlord to have a detailed agreement with the management agent should they decide to use one. The landlord will be able to sign a mandate with the rental agent which outlines all terms and conditions of the agreement, such as the commission structure and what is expected from the agent. (More on this in another post)
6. Create checklists for rental inspections
Make a checklist of all the items that need to be looked at before and after a new tenant moves into the property to ensure that all potential problem areas can be sorted out and that a snag list can be drawn up with the tenant in a comprehensive manner.