Good morning dear readers. I hope you had a wonderful, recuperative long weekend and this rainy Tuesday finds you catching up on your Savings Guide posts as a way to ease back into the world of work. This morning’s ‘How-To’ is looking at whether you can make money renting your property. Whether you’ve come into ownership or another property, or are looking to rent your family home, there are several elements to consider. Here are some of the ins and outs of becoming a landlord.
Variable Vs Fixed Mortgage
One of the first things to look at when considering renting your property is your type of mortgage. If your mortgage is variable, you’ll be unable to predict the vagaries of the next couple of years, and changing your rent according to your interest repayments will only cause your tenants to hand in their notice. A fixed mortgage, on the other hand, is relatively stable and allows you to thoroughly estimate the ongoing expenditure (including maintenance) versus the generated income of your property.
Suitability As A Landlord
As a renter, I am far too familiar with the reality that not every one was born to be a landlord. Before throwing yourself in there, it’s worthwhile having a think about whether you’re suited as well. A couple of questions to ask include:
- Do I have the financial capital to survive in periods without tenants?
- Do I want to be hands-on, or will I have to coordinate people to manage the estate and maintenance?
- Would I be able to evict someone if it was called for?
- Am I committed to providing, and maintaining, a fully functioning house for a tenant?
You need to have a solid idea of how much the house is going to cost you over the next ten years. Include maintenance, water (and electricity costs when there are no tenants), mortgage repayments and any professional services you’ll need to employ. Once that is established, you also need to decide on your rental price. This is dependent on the state of the house, the location (in terms of the immediate street and what’s accessible), and what else is available around you. To my mind, you want to be looking for long-term, responsible tenants that treat the house as if it’s their own.
Not all landlords would agree with me I know- in a town like Sydney, with 2% vacancy, you’re likely to have a new tenant within thirty seconds. But I still feel that you save money on repairs, real state agent costs and loss of rental income by attracting a long-term tenant.
Once a property becomes classified as rental, all expenses incurred in running the property (including mortgage interest) becomes a tax deduction. On the other hand, rental income is income. You’ll also need to consult a tax lawyer about the capital gains implications of your property.
How To Make Money Renting Your Property
The basic nut of it all is that you will be able to make money from your rental property if you have thoroughly evaluated your opportunities, expenses and projected income, and found yourself in the black.
You need to be sure of your financial situation, else a rental property can be a stretch to far. A bit of financial advice never goes astray in these scenarios either.