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Jun 7, 2023
New build incentives for investors
The rental market in Perth is experiencing near unprecedented challenges due to a lack of available homes to rent and a slowdown in construction industry availability. To combat the problem, the state government recently announced an initiative to encourage the development of more rental properties. This has the potential to benefit people who are looking for places to live. To understand how the incentive will work, you first need to know about building to rent. What is build to rent? Often, developers work on large-scale residential projects with a view to selling the homes they develop to individuals who buy off the plan and move in once the project is complete. This strategy means the development company earns its money back relatively quickly thanks to the profits generated from selling the homes or apartments it builds. With a build to rent model, developers take a more long term approach. They remain the owner of the houses or apartments they develop and lease them to tenants. Generally, the developer will have a property management team that helps to look after tenants and maintain the complex once it is built. Build-to-rent apartment complexes are popular in Europe but the concept is relatively new in Australia. Some locally based projects include Element 27 in Subiaco and a 21-storey building with close to 200 apartments that is under development in Scarborough. One of the benefits of build to rent for tenants is that they tend to be able to rely on longer leases. While private owners often sell after a few years or decide to move into the home themselves, build to rent developers have a focus on attracting and keeping tenants for the long term. New tax incentives for build to rent projects Under a new initiative, build-to-rent projects in WA will be given a 50% land tax exemption under the Land Tax Assessment Amendment (Build-to-Rent) Bill 2023. This comes on the back of the Federal Budget announcing a similar plan in early May. Premier Mark McGowan launched the plan, saying “Western Australia’s rental market is under pressure at the moment and my government is committed to doing what it can to help build its capacity.” To qualify, build-to-rent developments must contain at least 40 self-contained dwellings that can be leased by tenants, and must be owned by the same owner or group of owners. There must be a single management entity, and the project needs to be completed between 12th May 2022 and 1st July 2032. The Real Estate Institute of WA has backed the move, saying that build to rent is an innovative, contemporary solution that will get more supply into the market, and this incentive will reduce costs and encourage much-needed development in this space. What does this mean for you as an investor? Build to rent is gaining momentum in the eastern states and will probably become more common in Perth over time. These projects tend to be on a very large scale and require the financial commitment as well as industry know-how to see the project through to completion, so they benefit developers more than individual investors. While it will take several years for the build to rent initiative to make a significant difference to the rental landscape, the pendulum may swing back in favour of tenants in the future, especially if they have the option of choosing a brand-new apartment that has been built to rent. At this stage in time, with vacancy low and rental returns reasonably high, it’s a good idea to work with your property manager to ensure your investment stays in good condition and is appealing to tenants. This way, you’ll have a better chance of the property helping you to achieve your goals as the market begins to change in the future.
May 4, 2023
Are you tax compliant as a property investor?
With tax time fast approaching, it’s essential to know what investment property expenses and income you will need to declare on your tax return in relation to your investment property. Investment property tax can work in your favour to reduce your overall tax bill and offset the cost of owning an investment property, but there are potential pitfalls to avoid. Take a look at what you can claim and why you need to be careful before you submit investment property expenses in your tax return this year. Investment property tax benefits There are plenty of costs your investment property allows you to deduct at tax time. Here are a few of them, according to the ATO website: advertising for tenants body corporate fees and charges council rates water charges land tax cleaning gardening and lawn mowing pest control insurance (building, contents, public liability, loss of rent) interest expenses prepaid expenses property manager fees and commission repairs and maintenance legal expenses depreciation on goods at the property Being able to claim these expenses on tax will reduce your overall holding costs and can push you further towards being cash flow positive. A reliable property manager will help you keep a record of each expense, and a good tax accountant will help ensure they are included in your tax return. Take note: your Perth property must be tenanted or at least actively available for rent if you wish to claim any deductions when you process your tax return. You also can only claim rebates for expenses that relate to the income production of the property and not to your personal use. See the ATO website for more information. You also need to declare the income you earn from your investment property. This includes rent paid to you as well as AirBnb fees, money earned from leasing a room, or leasing your place to family and friends at less than commercial rates. It also includes income relating to capital gains. Again, you’ll find information on the ATO website. 2023 ATO landlord crackdown This year, the Australian Taxation Office (ATO) is set to take a close look at investment property expense claims and income declarations. Reports say the ATO is expected to scrutinise 1.7 million Australian property investors, including those in Perth, using a new data-matching program. Agents from the ATO will be able to access account information from seven of the major banks, including ANZ, NAB, Westpac and St George, to confirm investors’ income and expense claims. This has come about after estimates showed there was a net tax gap of $9 billion in the 2019-2020 financial year, of which up to $1.3 billion may be related to landlord expense claims and failure to declare income. The data matching program will be able to collect personal information including loan account and transaction details. Having access to this information will allow the ATO to independently cross-check people’s claims and find out if investors are leasing properties without declaring their earnings. It is also possible that the ATO will be retroactively assessing 2021/2022 tax returns, so now is the time to contact your accountant and property manager to make sure your return correctly reflects your income and expenses. How to stay compliant The last thing you want as a property investor is to be investigated by the ATO because your tax return claims don’t match the transactions in your bank account. As mentioned, you need to work with an experienced property manager who will help you track and record expenses. If you incur expenses without looping in your property manager, keep them on file to share with your accountant. Be honest and upfront with your tax accountant. There are so many things you can claim and this should help you to offset the income you generate from your investment property. If you’re concerned that your tax return may not have been correct in previous years, you can always talk to your accountant about updating it. Do you need help to understand or report your investment property income and deductions? Get in touch today.
Mar 29, 2023
How to minimise the holding costs of your investment property
While there is the potential for long-term growth in the value of a Perth investment property, there are costs involved with owning this kind of asset. To maximise profits, it’s important to minimise expenses strategically. As property managers, we aim to help our clients reduce expenses as much as possible. Take a look at some information and tips from our team. What are investment property holding costs? Holding costs are all the things that add up to put you out of pocket when you own an investment property in Perth. The costs include outgoing expenses that you need to pay on a regular basis. For example: Council rates Strata fees Management fees (which we will discuss in more detail shortly) Upgrades to the home Repairs and maintenance The cost of the mortgage How to minimise holding costs As interest rates rise and mortgage repayments increase, minimising the expenses related to your investment property is crucial to generating more profit. Here are some strategies to reduce your holding costs: Stay on top of maintenance: Maintenance costs can put a serious dent in your pocket. By ensuring maintenance is dealt with swiftly, you can stop issues, and therefore costs, from escalating out of control. If you’re looking to buy an investment property, it is also smart to be highly aware of the condition it is in, so you know what costs you might incur. Ask for strata or building reports so you can be aware of any hidden issues. Get insured: Unfortunately, there’s always the potential for damage to the investment property due to a range of reasons. Insurance may seem like another bill to pay, but it will save you from paying a large amount if something goes wrong. We always advise our clients to take out insurance as part of the cost of owning a rental property. Monitor rental prices: It’s always best if your rental income covers as many of your out-of-pocket expenses as possible. If your tenants’ contract has expired and you are dealing with rising interest rates, consider increasing the amount you charge so you’re not losing out. With Perth rental vacancies being so low at the moment, you may have the ability to impose a change of costs. Speak to us to find out more. Tax deductions Many of the expenses involved with owning an investment property are tax deductible. Work with your accountant to find out what you can claim as a landlord in Perth as a way to minimise your holding fees. Investment property tax deductions include: Advertising for tenants Bank charges Cleaning Gardening and lawn mowing Insurance Land tax Pest control expenses Property manager fees and commissions (including prior to the property being available to rent) Secretarial and bookkeeping fees Servicing costs, for example, servicing a water heater Stationery and postage related to the management of the property Telephone calls related to the property You can also claim deductions on the interest on your home loan and costs associated with renovating the property. Keep a record of every expense and share them with your accountant. Depreciating assets Another thing to be aware of is depreciation. This means you can claim tax deductions based on the decline in value of the building’s structure, items permanently fixed to the property and even some of the appliances. Work with a specialist provider to request a depreciation certificate (the cost is usually a few hundred dollars). Share this with your accountant and they will use it to claim deductions on depreciable assets within the property on your behalf. Check out the ATO website to learn more about how this works. Use a property manager While some people see self-managing their investment property as a way to minimise the holding costs of an investment property, this approach is usually false economy. Firstly, if you don’t use a property manager, you lose valuable time. Depending on what your time is worth, it’s not often worth it. A property manager also understands the legal requirements of leasing a property to tenants. This has the potential to save you thousands of dollars as you can avoid a costly trip to the tribunal in the event of a dispute. Your property manager can also provide guidance about insurance and ensure the home is maintained in the most cost-effective way possible. He or she will help you find reliable, long-term tenants who will save you from the stress and expense of constantly marketing the place to new people. Looking for the best property managers in Perth? Get in touch today.
Feb 9, 2023
Where to invest in Perth if you want steady occupancy
One of the most important things to consider as an investor is occupancy. When you don’t have someone paying rent, it will be up to you to cover the mortgage and other holding costs in full, which will put pressure on your finances. The good news for Perth investors right now is that rental vacancy is at a 40-year low. However, if you’re looking to invest or expand your portfolio, you need to think with the long-term in mind. When the pendulum swings and vacancies rise again (you never know when this will happen), your property needs to appeal to renters and stand out from the competition. Here are some of the factors to keep in mind when selecting an investment property in Perth. Student-friendly properties While a freestanding house is always a good investment, if you are buying an apartment, townhouse or unit, there is a higher chance that you will have student tenants. Because of this, a suburb close to one of Perth’s universities is a wise choice. If you are buying a smaller place, consider: ‘Golden triangle’ suburbs close to UWA: Subiaco, Claremont, Shenton Park, Nedlands and Dalkeith Mount Lawley/Mount Hawthorn/Inglewood/Bedford or Joondalup/Heathridge/Edgewater for Edith Cowan students Bentley for Curtin University. Don’t forget the TAFE locations, either. Basically, any suburb that provides an easy ride on public transport to a major tertiary institution is suitable for an investment apartment. Keep in mind you may have a gap between tenants every few years as they graduate and move elsewhere. Close to hospitals or larger aged care facilities Healthcare workers often have a smaller budget and want to live close to their workplace. If you purchase a quality apartment or unit near one of Perth’s hospitals, you should be able to find a tenant who has a steady job and appreciates having a cost-effective place to live in. Places to consider could include: Subiaco for St John of God Hospital Subiaco Mount Lawley for St John of God Hospital Mount Lawley Mount Claremont for Graylands Hospital Nedlands for Perth Children’s Hospital, Sir Charles Gairdner Hospital and Hollywood Private Hospital West Leederville for West Leederville Private Hospital Perth CBD for Royal Perth Hospital Nurses and other healthcare workers often make excellent, reliable and long-term tenants. Close to public transport Being close to public transport is important for tenants who can’t walk to work or university. Consider properties near bus and train lines. While the property doesn’t have to be adjacent to a bus stop or across the road from a train station, there should be at least one option within walking distance. The next best option is to be a few minutes’ drive from a train station or bus interchange with plenty of parking. If you’re not from Perth and you want to invest, keep in mind that Perth is a very train-focused city. The train lines make life simple and convenient so always look for properties near to stations. Think about schools Just as you look for apartments close to university and TAFE campuses when buying an apartment, if you have the budget to invest in a family home, it makes sense to think about schools. Before you invest in Perth, speak to a property manager about who the tenants are likely to be. If it is a family with young children, aim for something walking distance from the local primary school. High school-aged children should be able to ride a bike or catch the train/bus without too much effort. Proximity to other amenities like parks and playgrounds will also be a bonus. A rental property that is a stone’s throw from a playground is always appealing to a family with young children. Think about lifestyle When people think about Perth, beaches come to mind. Coastal suburbs such as Wembley, Floreat, Scarborough, Cottesloe and Swanbourne are especially popular with young families who enjoy an active, beachside lifestyle. Perth is known for its coastline, so homes that are closer to the beach and have easy access to public transportation are highly sought after and are likely to attract long-term tenants. A little further from the coast, suburbs with a trendy village lifestyle are always popular. Leederville, Mount Lawley and Mouth Hawthorn are examples. When you’re deciding where to invest in Perth, keep the local cafe, pub and restaurant scene in mind if you think your tenants will be young professionals. The most sought-after properties are conveniently located, and these are the places that will maintain steady occupancy, even when the market changes. Property features Location and proximity to the things that make life easy are important factors but don’t forget to think about the property itself. Features that appeal to tenants include: Off-street parking/garage Air conditioning A courtyard or garden Up to date kitchen and bathroom Plenty of storage How to maximise occupancy when you invest in Perth Finally, and perhaps most importantly, if you want your property to be tenanted long-term with high-quality tenants, you need the support of a professional property manager. When you have a long-term relationship with a property manager who is caring, responsive and reliable, you’re more likely to have long-term tenants. This will go a long way to safeguard your finances and help you get more from your Perth investment property. Are you ready to find the perfect Perth investment property? Contact D Residential today.
Jan 24, 2023
Should I stay or should I go? To lease or to sell your investment property
At D Residential Group, most of our clients are investors who want to increase their long-term property investment portfolio, however we also work with clients in situations where selling the investment property might be the better option. The best time to evaluate whether to sell or continue managing a property is when you’re approaching the end of the current lease or if you’ve recently inherited a property. We’re constantly tracking trends, particularly across Mount Hawthorn property investment circles, and have come up with five factors to consider before selling. Speak with your local property manager Make the decision so much easier by speaking to a local expert who understands the property market, the potential profit and the costs involved. Our director Diana Patrascu is an expert in the Perth property market with years of experience and loves the opportunity to discuss investment potential (with a side of honesty if there is no potential!). Track the investment’s performance The most important consideration in property investment is always finances. If you’ve owned the property for a while, reflect on the income it provides versus the outgoings. If you’re not making money (or worse, losing it), and the home is depreciating, it’s a good sign it’s time to sell. If you’ve just inherited the property, research the rental income for the location and size, and whether demand is high. If this is all too much, refer to the above point and contact us. Consider immediate income versus long-term income There are times in life when money talks – your child’s school fees, retirement, reducing work hours or another investment might catch your eye. In which case, liquidating your investment property makes sense. However, if your property is in good condition and low maintenance, it is likely to earn you a good monthly income. The reason ‘safe as houses’ is a commonly used phrase is because most properties do increase in value over time. Also, if you’ve only had the property a short period, capital gains tax is a cost worth considering. Consider the tax benefits of retaining the property Property investment never has a ‘get rich quick’ slogan attached due to the big outlay to purchase the property – however, there are many tax benefits that significantly offset your tax. Renting your investment means you can claim deductions ‘for most of the expenses you incur’ according to the Australian Tax Office. These include interest on your loan, rental expenses (from council rates to property management fees) and building depreciation. The tax breaks for our clients are key to building their long-term wealth. Still unsure? There’s plenty more to consider, please contact us for an honest conversation about your options.
Nov 4, 2022
Is now the right time to invest in Perth?
What a difference a couple of years makes. There is no denying the Perth property market has been a rollercoaster the past few decades but demand for rental properties continues to grow. With the current unpredictability of national economic conditions, many investors are wondering if now is a good time to purchase property in Perth. Here are some of the reasons why we believe it definitely is: Post-pandemic population growth While prices in the eastern states have fallen, Perth seems to be shifting in a different direction post-pandemic. As reported by Yahoo! Finance, this is partly because COVID-19 had a positive effect on Perth’s population growth, with many former residents returning home from overseas and Australians from other states choosing to relocate to WA when lockdowns were at their peak. According to the Y! Finance article, “Perth experienced the highest positive net migration percentage trend of any capital city over the past two-and-a-half years, surging from 37 per cent in January 2020 to a high of 149 per cent in August 2022. Perth also accounted for a fifth of inbound moving enquiries for capital cities in August 2022, and remained on an upward trajectory.” The population of greater Perth currently stands at 2,093,000. This is forecast to grow to 2.9 million by 2031. This larger population will need somewhere to live. If you have the capacity to buy a Perth investment property, you have the potential to reap positive rewards. Steady prices Perth’s property market has been relatively stable despite several interest rate rises, especially when compared to other capital cities. For example, Sydney house prices dropped by 1.3 per cent in October 2022. Overall, Sydney home values are down by 10.2 per cent since January. In Perth, the property price change in October was only 0.2 per cent. If you look at annual figures, Perth property prices have actually risen by 4 per cent. While certain pockets in Perth are dropping slightly, they tend to be at the higher end of the price spectrum. There are still growth areas, particularly in postcodes that offer ‘lifestyle’ appeal and give buyers value for money. According to BrokerNews, new listings in Perth are down by 7.1% and choice remains limited for buyers. This will help prices to hold strong. Rental demand When you buy in Perth as an investor, you get more for your money than in other capital cities. You also have the opportunity to generate decent rental yield, which will help cover the cost of your investment. In Perth right now, the median rent price sits at $500 per week. As reported in the Property Tribune, the Real Estate Institute of Western Australia (REIWA) is actually calling for more property investors to help provide housing. Rental vacancy is currently sitting at just 0.4 per cent, which means anyone buying a Perth investment property has the potential to generate excellent financial returns and choose quality tenants with great incomes. Favourable conditions Finally, the recent Federal Budget didn’t announce any new taxes or capital gains penalties for property investors. While incentives were focused on helping beginner and lower-income buyers to enter the market, the lack of change around investing means you can do your forecasting with confidence for the time being. Don’t forget about your strategy Investing with the help of a supportive mortgage broker and real estate agent is an excellent idea but you also need to take care of the property while you own it. For help ensuring your Perth investment property maintains its value and doesn’t take up too much of your time, speak to D Residential today. We’re a proactive property management agency in Perth. Contact us to find out more.
Oct 19, 2022
What do you know about rental yield?
Owning an investment property is an excellent way to build your financial security. For example, average house prices in Perth have risen by more than 10 per cent in some suburbs over the last twelve months. While the property market always follows a natural ebb and flow, it’s clear this strategy makes sense if you are able to invest for the long term. Investing offers a lot of potential for strong financial returns but there are important factors to consider before you commit to making a purchase. One of these factors is rental yield, which can influence the financial commitments you make as part of your investment journey. Take a look at what rental yield means and why it is important. The investment property ‘expense gap’ When you buy an investment property, unless you are lucky enough to pay cash for it, you can’t avoid taking out or adding to your mortgage. For simplicity’s sake, let’s say you own an investment property worth $600,000, you owe $500,000 on the mortgage and you have repayments of around $2,500 per month. To help cover the cost of the loan, you will probably need a tenant to lease the home and pay rent. The money they pay (let’s say it is $400 per week) will go towards some, but likely not all of your loan repayment costs. So you will still have a gap to pay to cover the cost of the mortgage. In addition to this, you have what is referred to as your ‘holding expenses’. These include: The cost of insurance The cost of a property manager Strata fees Council fees Water rates if applicable Maintenance and repair costs As explained by Lendi, your rental yield refers to the “profit you generate each year from your investments as a percentage of its value.” Obviously, the higher your rental yield, the less you have to pay in outgoing expenses. This gives you the flexibility of more cash in your pocket or the ability to make higher repayments so you can close the loan off sooner. To calculate your ‘gross rental yield’, for a $600,000 property with tenants paying $400 per week in rent: You purchased a property for $600,000. The weekly rent on your property is $400. Multiply this figure by 52. 400 x 52 = 20,800 (annual rental income) Gross rental yield = (annual rental income/property value) x100 Gross rental yield= (20,800 / 600,000) x 100 Gross rental yield= 3.46% You also need to use expenses to calculate your ‘net yield’. For example the annual cost of holding your rental property may add up to $3,000 once everything is factored in: Net rental yield = [(Annual rental income – annual expenses) / total property cost] x 100 Net rental yield = [(20,800 – 3000) / 600,000] x 100 Net rental yield = 2.96% Perth average rental yields A particular suburb may seem like a great place to invest in or a home may be appealing to you as an investment property but you’ll need to check the average and potential rental yield as part of your due diligence. For example, Subiaco is a highly sought-after suburb in Perth but recent figures show the average rental yield at 2.6 per cent for houses and 4.6 per cent for apartments. In Scarborough and Willagee, the rental house yield is 3.9 per cent and in Highgate, it is 3.0 per cent. Generally speaking, a rental yield higher than 3 per cent is considered ‘good’ but the higher the percentage, the better because it will minimise your holding costs. With all this being said, rental yields do change over time. If a new rail line opens in a suburb or if a new business hub or hospital is established, the rental yield can quickly change. This is why you need to do some research before you buy. Get advice from your Perth property manager As you can see, buying an investment property requires careful calculation. If you’re thinking about purchasing an investment property, get in touch with a property manager who can assist you in estimating the rental yield and ensure you can afford the associated costs of owning a home. Your property manager will ensure you charge the right price for your investment property and that it is taken care of in a way that reduces holding costs. They can also share advice about whether incoming infrastructure is likely to have an impact on the future rental price of the property. Finally, don’t forget to ask about depreciation and what you can claim as a tax deduction to reduce the overall cost of owning an investment home. Need a reliable, professional Perth property manager? Contact D Residential today.
Sep 22, 2022
How interest rate rises create opportunities for WA investors
Yes, rising interest rates can mean opportunities for Perth property investors. After near-unprecedented lows, rates in Australia have jumped several times in a row, going from a cash rate of 0.10% to 2.35% in September, with more rises forecast to follow. The cost of borrowing money is rising and banks and lenders have changed their variable interest rates accordingly. This is forecast to swing the property pendulum in Perth to a buyer’s market but the change can mean good news for investors on a number of levels. Take a look at the silver lining that comes from interest rate rises and some tips to help you stay ahead financially. A buyer’s market When the property cycle favours buyers, there are more homes on the market and fewer people who have the budget to pay a premium for them. For Perth property investors, this presents the opportunity to make a strategic purchase. The goal of an investment property is to see it rise in value, usually over the long term. If a unit or home can be purchased at a competitive price, there is more potential to earn strong returns. As Perth Now recently reported, Perth’s property market is currently defying the odds with house prices up 0.07 per cent in August. While it’s hard to predict the future, this gives an indication that the city is still an excellent place to invest. Anyone who has been in the property market for a long time will tell you to ‘zig when others are zagging’. When it’s a buyers market, it is because people are nervous or holding back and choosing not to invest in property. This gives the people who do go ahead the benefit of less competition and more investment properties to choose from. There is also more flexibility to negotiate when it comes to contracts and settlement terms. Stronger rental returns As mentioned, when interest rates force the market to slow down, fewer people invest in homes. The result of this is fewer investment properties on the market. This comes down to the basic economic equation of supply and demand; the fewer homes available for rent, the more landlords can charge for them (within reason of course). In August, Perth rental vacancy rates sat at 0.8%. As explained on REIWA.com, typically, a vacancy rate between 2.5 and 3.5 per cent represents a balanced market. The benefit to landlords in a tight rental market is good rental yield, meaning the cost of holding an investment property will be lower. Rental yields have increased by close to three per cent in Perth recently. If you already own an investment property and haven’t had a discussion with your property manager about adjusting the rent you charge, now is the time to do so. Before you invest in property in Perth, work with the right advisors When interest rates increase, savvy investors rely on the support of a few different professionals. Firstly, a tax accountant can ensure you claim the maximum deductions as a property investor. This won’t impact the money you spend on your investment property over the course of the year but it can ensure you pay less tax when the end of the financial year rolls around. The next person is your mortgage broker. Contact them to check if you are paying too high an interest rate and see what you can do about locking in a lower or fixed amount. This can give you more financial breathing room. Remember, a change in interest rates doesn’t mean you can’t invest. Speak to your broker about your timing and budget; you may find you are placed to take advantage of a buyer’s market and make a purchase. Finally, your Perth property manager is in your corner to help you identify Perth investment opportunities, take excellent care of the properties in your portfolio and show you how to maximise rental yield. Need a Perth property manager with their finger on the pulse? Speak to D Residential today.