Thursday, February 12, 2015

Investing in real estate – let's do coffee

I've just returned from Bangkok, Hong Kong and China...what a property market... but what about Australia and more importantly South Australia? These are the current issues that stand out to me as a veteran real estate agent.

An era has begun where inexperienced investors and agents are diving head first into investing into property, and into businesses that manage these investments. Revved up by Spruikers with promise of financial utopia, it's not just the public, my concern is it's also happening to ambitious, inexperienced real estate agents. The responsibilities associated with managing property investment businesses in today's litigious and consumer-focussed environment mixed with high debt levels is a potent cocktail. Recent drops in interest rates have simply fuelled risk. Why? Let me explain.

Firstly ambitious young real estate agents have been buying up big. As a new era begins, 'baby boomer' agents' rent rolls, built up over decades, are being sought out by the young entrepreneur looking for instant businesses. They are selling for big bucks. Buying these established rent rolls is easy and they seem like such simple businesses to the inexperienced, just like investing in property seems so easy.

We are in an era where instant gratification has become the norm. Creating overnight businesses on a scale never contemplated as multiple established rent rolls change hands to create mega-sized business. Now add the wave of new property investors into the mix... this is exciting but could end up in tears if not done properly.

So with all the hype around investing at the moment, let me explain what you should you expect as an investor, from a professional property management agent.

Firstly, understand that each investor, even if it is with a single property, is actually running a small business. You are 'in the business of landlord'. Being a Landlord is being a Business Owner.

Businesses have risk, as they have returns and statistically not all small businesses survive. As with all businesses, you need a good management team. Ideally experienced, and time proven. Funding is critical. Beware of over committing with massive debt, this applies to both individual owners and agencies buying up rent rolls.

Here are some elements to consider in YOUR business.

Asset Preservation. Being proactive in the maintenance of your property is so critical to securing rental returns as it will help ensure you are not lumped with unexpected capital outlay all at the one time, affecting your cash flow.

Income Preservation. Daily rental arrears management is property management 101. With new privacy laws, the 'best practice' procedures that existed 12-18 months ago have changed but being proactive is key. Understanding what legal channels can be explored, and when is essential.

Legislative compliance. The new legislation, introduced in March 2014, has provided a minefield of reforms to grasp and not understanding the implications of these could prove extremely costly. Legislative compliance is now a core component of being an investor.

Marketing. Providing suggestions on the best way to present and style property to tenants is a new and emerging trend. Exploring marketing options, such as professional photography, can go a huge way to attracting tenants to your property, and making it stand out. Just like buyers looking to purchase, tenants are driven by emotion and creating the right marketing plan will help drive interest to your property.

Finance. Considering or reconsidering your funding options and what tax benefits may exist, such as depreciation schedules can add a significant amount to your bottom line.

Market Intel & Negotiation. Tenant negotiation is a fundamental component of securing your rental returns.  Being educated on the current market and where your property fits in the picture against comparable data is a must.

So when looking at the full picture of investing, there are things you need to look out for. What few would realise without thinking it through, is that real estate agencies are running two totally different beasts if they are in sales and property management. Experience in sales has no benefit to investors once the properties have been purchased. It is an entirely different skill set to effectively manage investment properties at a professional level.

Fortunately Toop&Toop has been in the business for 30 years this year, and rather than sell out, we have second generation family now running the show... with me right by their side every step of the way.

Suzannah, with way more qualifications than I ever contemplated, in law and commerce and with her connections... runs our Property Management team with the advantage of experience and without the limitations that come from financial pressures.

Optimising your investment returns goes so much further than the initial purchase; it extends over the life of your investment.

So if you want to be serious about getting into property, let's do coffee.

Suzannah is someone you simply must meet.

Give us a call.

Anthony Toop

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