Many people have turned to property investing and based on the latest statistics, there are more than two million Australians who have taken this investment route, whether it’s an entire house, an apartment, or a portion of it.
But before homeowners jump the gun and get into the property investment game, real estate agents- aside from financial consultants or advisers- may be able to provide sound advice to those who wish to venture into it, especially since they are the most capable and knowledgeable resources for the industry.
Homeowners planning to turn their homes into rental property need all the advice they can get, especially for first-timers because there are a lot of things to consider.
For instance, anyone cannot just turn their homes into a rental and immediately get a tenant or move out instantly, some processes and regulations need compliance before it can be done.
However, with the right guidance and understanding of how the process works, homeowners can make their investment journey an exciting and profitable one.
Policies on mortgaged homes
When a property was acquired through mortgage and intended to use as a rental, investors may need to reside in the property for not less than a year before deciding to convert it into a rental property.
Why? This is because an owner could take advantage of the benefits provided for homebuyers when purchasing property as a primary residence compared to one that is purchased and converted to an investment property right away.
For instance, a private residential property gets a lower interest rate and allow a buyer to shell out a lower downpayment compared to vacation or investment property.
But take caution, though, because a buyer can risk being charged for mortgage fraud if they deceivingly purchase a property as a private residence but use it instantly as a rental property instead.
Not only will the buyer be defaulted from the mortgage loan, but could also get the property foreclosed.
When in doubt regarding this, an agent may be able to provide sound and practical advice to would-be buyers or investors.
Consider getting a second mortgage
When planning to venture into property investment such as a rental, a buyer or investor can consider an option of securing a mortgage or another property.
With the help of an agent, buyers can explore options to see if they qualify for another mortgage before renting out their primary residence.
Buyers or investors may disclose their investment plans and the existence of other assets, which can be considered by lenders when factoring in the rental proceeds as an income source to service mortgage repayments.
However, consult several mortgage lenders to see if they find you a good fit for this arrangement.
Do your research and weigh your options
It is always a vital step to do your research.
For instance, check with your local homeowner’s group or association to determine if some policies or restrictions could affect the way you conduct your rental property venture, such as pet ownership, noise level restrictions, etc.
Some localities limit the number of rental properties while there are some communities, especially some gated communities or high-profile suburbs that prohibit having such properties.
Another way to check is with the local council to find out if there is legislation governing rental properties or take note of major requirements to avoid getting into trouble.
Check your insurance policy
Always remember that insurance policies for rental properties and private homes are different. So, get in touch with your insurance provider before converting your property into a rental.
Failing to change your insurance policy or updating your insurance coverage to suit your rental property could put in in default and be denied claims when filing for insurance claims when the need calls for it.
Consult a tax professional
Tax obligations change from that of a private resident to that of a business owner, so getting a tax professional to help you learn the basics and get acquainted with the process is critical to the success of property investment.
Everything earned in rent is taxable income so it needs to be declared and follows that there will be a different tax rate compared to that of private or residential property.
While a property investor is taxed higher than usual, rentals are qualified for tax deductions on expenses incurred depending on the territory and legislation such as but not limited to, discounts on utility payments, landlord insurance policy, homeowner’s association fees, tax deductions computed against the cost for repairs, property tax exemptions and mortgage interest discounts.
Seeing advice from a tax professional makes property investors more aware of deductions and exemptions that apply to them.
Make it attractive for tenants
Rental property owners need to observe their competition to develop effective strategies in attracting tenants to their property.
It can be a new paint job or a good landscape may be enticing for tenants. Advertising on social media and showcasing the property’s best features and maintaining it regularly.
Learn the trade
Learning the tips and tricks of the rental trade is vital to understanding and knowing an investor’s role as a landlord. It may be a bit daunting at first and mistakes may occur along the way, but the key to knowing and taking smart actions as a landlord will help investors avoid problems and challenges along the way.