Home' API Magazine : January 2014 Contents haven’t already done this at the time
> Land tax (where applicable)
> Tax on rental income
> Travel to inspect the property
> Computer and stationery.
When calculating your cash flow, speak
to your accountant to find out which of
these holding costs will be tax deductible.
Also factor in any depreciation benefits.
(For this, you’ll need a quantity surveyor’s
report. More on that later.)
Also consider lodging a PAYG (pay as
you go) Income Tax Withholding Variation
form with the Australian Taxation Office
(ATO). If you would be entitled to a large
tax return in relation to a negatively
geared property, you can arrange to
receive that refund in instalments through
your weekly pay rather than waiting until
you lodge your tax return. This makes
cash flow throughout the year a bit more
manageable. In other words, you’ll have
more money at your disposal to pay for
your ongoing expenses.
A final consideration when calculating
cash flow is vacancy. That is, you need
to be prepared for periods with no rental
income. Michael Conolly, head of network
property management for McGrath Estate
Agents, recommends budgeting for at
least two weeks of vacancy per year, as
many investors forget to factor this in.
¿ BUDGET FOR MAINTENANCE
Kim Easterbrook, managing director of
Elite Property Advisory in Melbourne,
Don’t do things
‘on the cheap’
“We had a situation where the
hot water system broke and
the landlord wouldn’t allow us to go and
buy a new one, even though we’d given
them four quotes from reputable local
suppliers,” Kafantaris says.
“The landlord then found a supplier
who had a hot water system that had
been discontinued... It was extremely
cheap. Within six months that broke.
There was no warranty of course. The
supplier who installed it didn’t want to
have anything to do with it.
“The landlord had to go back and get a
new hot water system installed. It could
have been so much less fuss if done
properly in the first instance.”
Listen to your tenants
Don’t delay expenditure if an
issue is impacting on your
tenant’s quality of life.
Kafantaris recalls a situation where the
hotplates on a tenant’s stove weren’t
“Each time the tenant was putting on
a saucepan to cook, due to the bubbling
of the water, the saucepan started
rocking... and sometimes shaking off
onto the floor. Thank God no one got
burnt. But the landlord wouldn’t fix it. It
took so long that the tenant ended up
“The amount of lost rent in this
particular situation went to five times
the amount of fixing that stove.”
API JANUARY 2014
JANUARY 2014 API
MAINTENANCE TIP 2:
MAINTENANCE TIP 3:
says it’s vital to engage a good building
inspector before you purchase a
property, who can advise you not only
on structural issues, but also on likely
“They can see what needs to be
done and give you ball park figures for
how much those items will cost to get
repaired,” Easterbrook says.
“Some building inspectors have a
package where you can get four types
of inspections done – building, pest,
plumbing and electrical. If you’re looking
at a house, especially a period home,
they can be quite expensive to maintain
moving forward. So I recommend
to people that they get all four,”
A package like this costs around $1200
but Easterbrook points out that this is a
very good investment when you might be
spending half a million dollars.
Conolly suggests keeping a “buffer” for
maintenance costs in an offset account.
That way you get reduced interest rates
on your loan, while having the funds
readily available when maintenance
issues pop up.
As a minimum, budget $2000 per year
for maintenance, he says, although this
figure can be a lot higher for larger houses
and older properties. Also, gradually set
aside money for upgrades that will be
needed in the future such as new paint,
new carpet, or new appliances.
¿ DON’T SKIMP ON MAINTENANCE
Maintenance has to be attended to, or it
tends to cost you more money over time.
“We have some landlords that give
us a tremendous allowance, and then
there’s the landlord who won’t spend
money getting the basics fixed,” George
Kafantaris from Brisbane property
management company Property
“And they wonder why there is
vacancy and why tenants move on. And
there can be a large spend between
tenants because the property wasn’t
maintained as the tenancy went on.”
Kafantaris recalls warning a reluctant
landlord about leaves and grass growing
out of the property’s gutters.
“It might not sound like an urgent
repair, but if ignored this issue can
expedite the rusting process. After a
period of rain, you may end up footing
a bill for a replacement gutter which
is a lot more expensive than the initial
Some maintenance issues are
Emergencies, safety issues and
legislative issues absolutely cannot
be ignored, according to Kafantaris.
Electrical problems, pool fences, blind
cords, smoke alarms and many plumbing
issues fall in these categories, to name
a few. (Legislation varies from state to
state – your property manager can advise
Kafantaris says landlords also can’t
ignore upkeep of items which were in
working order when the tenant took
on the lease. “For example, if it’s an air
conditioner and it stopped working, the
landlord can’t ignore it, because the
rent was commensurate
FEATURE // ARE YOU TOO TIGHT FOR YOUR OWN GOOD?
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