Thinking of becoming a property investor? No-one tells you this!
It’s the day after Budget Christmas and the Treasurer brought us all presents! So some of us might feel it’s time to invest for our financial futures, take a few risks and get closer to an independent retirement. To save our fellow taxpayers from the burden of funding our latter years by putting a bit aside, making our money work for us as property investors.
There’s already 1000 places you can go to read about the benefits of investing in bricks and mortar. And there are plenty. But we thought you deserve a look at the challenges too. Not to dissuade you from a purchase, but to open your eyes beyond the “you’ll be dripping in gold” promises and property developer/spruiker/real estate hype. So buckle up!
You’ll pay more than the owner-occupier who owns the home next door. You’ll pay more stamp duty to buy your property – thousands more. You’ll pay more Council rates, for exactly the same rubbish collection and footpaths that an owner occupier has. Because Qld’s councils say you must. And you’ll pay higher interest rates for the same loans on the same kind of properties. You didn’t for a bit, but now you do again. Because the banks say you must.
You’ll pay more taxes. Yes the brochures talk about “tax deductions” (where the government pays for a bit of the expenses but you pay the majority) and “negative gearing” (where your expenses are more than your income – the government pays for a bit of the shortfall but you pay the majority). But once you’re positively geared you’ll pay tax on that income. And the brochure doesn’t tell you about the Qld’s government’s land tax you’ll pay if you tip the fairly low threshold of land value. Oh – and don’t forget that when you finally sell the property (let’s assume it’s gone up in price…) you’ll pay tax on half the increase in value. Yes tax on the capital that you have accumulated with after-tax dollars.
You’ll struggle to understand the tax laws. And once you do they’ll change. So you’ll need to pay a good accountant and you’ll need to pay for a depreciation schedule so you can make your lawful claims. Get them wrong or lose records and the ATO might fine you.
You’ll hand the keys of your property to a complete stranger. It’s their home now – and we’re not saying this is a bad thing. Get them settled, paying the rent and looking after the place and your landlord life gets easier. But as Qld’s Housing Minister said, you make a “social contract” when you rent out a property. Like a Ferrari fresh from the showroom, driven off by a person you’re only allowed to do the most brief of checks on. You may never know their full rental history, for example. The tenancy default databases can’t lawfully keep the info they used to.
You’ll need to be accessible for a call at any time: if there’s an emergency repair and the tenants can’t reach you they can spend the equivalent of two weeks rent without your involvement. You can’t unreasonably refuse their requests for minor alterations. You can’t take photos of your property or do open homes without their consent (if you need to sell or re-rent it). And you can’t increase their rent unless it’s reasonable and more than 6 months since the last rise.
Stuff will break. Appliances will fail just after your warranty expires and there’ll be leaks and there’ll be damage. And most of it will just be “wear and tear” that you’re legally required to repair and maintain. And sometimes these expenses will come in a run, one after another at the worst time for you when your cashflow can least cope with it.
Tenants would like a pet? And you’re okay with it if they could please pay an extra $100 bond? Even if you and your tenant would like to mutually agree on some things, the law won’t let you do that. You can only have a maximum of 4 week’s rent held as bond (unless the rent is over $700/week). But if they simply stop paying rent the legal process to breach and terminate is usually 2 months or more. So you may be thousands out of pocket on rent alone, assuming the property is left clean and undamaged.
Tenants do need protections and over time the laws have steadily increased them. Some landlords don’t respect tenants’ rights or privacy and, for example, if you do need to go to your property make sure you get your issued notices spot on. One landlord recently paid fines of $4000 for unlawful entry.
Yes there’s more. A lot more. In 2019 the Qld ALP announced a big increase in tenant protections with changes they’d make to tenancy laws. They include the right for a tenant to stay in the property indefinitely unless they breach, or you have a (very limited) need to take it back. If they’re driving the Ferrari erratically, but not speeding, you can’t choose to take back the keys.
We know that’s a long list! Property investment can definitely still be rewarding and especially when the market rises and your asset grows before you. But please don’t just listen to the rah rah of the sales pitch. Becoming a property investor means signing up for a long, long road, with its challenging twists and turns.
There’s plenty of us who should probably just take someone else’s fast red car for a spin!