Owning an investment property has associated expenses which can eat into your rental income. Fortunately, there are ways you can reduce your costs and improve your cash flow whilst creating a sound and worthwhile investment.
1. Negotiate a better deal on your ongoing costs
Always look out for better deals on your ongoing costs such as interest rates, management fees and landlord insurance.
You should review your ongoing costs annually to ensure that you’re getting a competitive deal. If your current lender, property manager or insurer isn’t competitive and will not negotiate, then its maybe time to shop around.
Refinancing your loan can offer benefits in addition to a lower interest rate, including more flexibility and features. Before deciding to refinance your loan, there are some things you need to be aware of first.
2. Choose a property within your means
Ultimately, the more you borrow to purchase an investment property the higher your interest costs will be. Additionally, whilst the more expensive property will likely have higher rental income, the associated maintenance costs and management expenses may also be higher, including council or strata rates.
3. Ensure you understand all the costs associated with your property
Before purchasing an apartment, make sure you review its strata levies. Strata levies cover ongoing maintenance, repairs and upgrades to the exterior and common areas of an apartment complex. Generally speaking, the more amenities the complex has (e.g. lift, gym, pool, gardens, etc) the higher the strata levies will be. In saying that, make sure you’ve weighed out the costs and benefits as these amenities may appeal to tenants, which could lead to higher rental income.
4. Choose a low-maintenance property
When you lease out your property, you are responsible for ongoing repairs for structural issues and also for the fixtures and fittings in your property. Older properties are likely to have more issues and may require expensive repairs.
5. Consider an interest-only loan
Borrowers who take out an interest-only loan are only required to pay the interest on the loan for the interest only period, usually five years. After this period, the loan converts to a typical principal-and-interest loan.
An interest-only loan is useful where the rental income isn’t sufficient to cover the principal and interest repayments, and may be a tax efficient investment strategy. This option isn’t suited for everyone.
An interest-only period will result in paying more interest over the life of the loan, and when the interest-only period ends the, the principal and interest repayments will be calculated on the remaining term of the loan, and will therefore be higher than if principal and interest had been paid from the beginning. Investors opt for this option when the investment property has good growth prospects in the long-term, therefore its capital growth combined with the tax efficiencies may outweigh paying more interest. You should always seek tax advice from a qualified accountant prior to engaging in investment tax strategies.
Speak to one of our award-winning brokers to determine which home loan is best suited for you and your circumstances. Contact us by calling (08) 9367 4222 or email [email protected]. Alternatively you can book a free consult here.