For the first-time landlord using an agent, property manager or not what are the consequences? Stay the liabilities with the property investor when outsourcing responsibilities?
Novice Investorís Liabilities
First-Time Landlordís Preparation to fill a Vacancy
Steps of preparation for the first tenancy
You purchased your first investment property. That is just the start and not quite the time to sit back. For the novice investor who starts as first-time landlord it is a big job to get the head around everything before signing up the first tenant. The clock is ticking as prolonging the vacancy rate is burning money by increasing holding costs. As checklist following steps show the workload;
∑ Cleaning up property and chattels to attract good tenants
∑ Advertising the vacancy and working through the tenant screening process
∑ Open homes and viewings for prospective tenants
∑ Preparing the paper work like tenancy agreement, customized clauses and conditions and move-in inspection report
Busy investors can outsource† landlordís duties by engaging a property manager. Often overlooked the part liabilities stays with the property investor.
∑ For the investment property;
∑ Payments to the bank, council fees, levies for local government services and insurance
∑ For the investment structure;
∑ For business operation;
∑ Legal obligations for a solely investor/partnership, trust and/or company structure and legal frame work for engaged contractors, trades people, builders, property managers and tenancy law
Cash-flow or capital gain
Cash-flow or capital gain property that decision is part of the purchase decision when accepting the purchase price. The general rule of thumb is that properties in areas with strong capital gain are cash-flow negative. The opposite are multi-unit properties.
Negative cash-flow means the outgoings (expenses) resulting in loss.† Depending on the ownership structure you might be able to offset those losses against the taxable income from other income and employment.† But you can do more than that.† For closing the gap between expenses and rental income:
∑ Use improvements to increase the rent
∑ Split the mortgage in fixed and floating loans and reduce debts without penalty charges and with windfall money
∑ Save on maintenance and repair by using the right people for quality work
∑ Choose only tenants who fit to the rental
Do-it-yourself approach or engage a property manager, you have to make that decision.† Sometimes you wonít have a choice because of a remote location of the rental or time limitations if you work in a full-time job.†
In summary when hiring an agent you obviously lose control over your investment and the cash-flow will drop. Importantly, you as owner remain liable for your investment. When working with an agent, do your homework, reference check etc - that is what successful landlords do. Good luck.
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Klauster Blogs lead to a real person, IT professional, investor, landlord and business owner with interests in technologies, properties and trading.
His passion, making experiences available and helping people like you, comes from extensive travelling and the principles of lifeóhow to avoid pitfalls in unfamiliar territory when investing or forming relationships.
The philosophy to treat life, partnerships and hobbies as an investment has helped people in his circle. Life is a dream with a deadline, happiness comes from making the right choices and having realistic expectations.
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