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Do you have a budget?

By Shannon Callanan

Most of us have a household budget, but have you created a budget or financial plan for your investment property?

It is important to take into account that over time appliances and fixtures will need to be repaired or replaced; and that rates and body corporate levies will increase and that your property may not be occupied 100% of the time.

Such costs as these should be factored into a financial plan or budget for your investment property and we know it can be extremely helpful to set aside some money each month for what we call the ‘sinking fund bank account’  or ‘reserve fund’ to cover such contingencies.

Failure to have a financial plan or budget for your investment property can have an impact upon your lifestyle or household budget should such an expense occur, finding you with insufficient financial resources at the time to meet the commitment.
In this industry we often see landlords facing a shortfall when having to fund unexpected repairs. This, in turn upsets the tenant and can even lead to a them vacating or making a claim for compensation. All of these things are upsetting for all concerned but having an investment property ‘reserve fund’ in place can prevent such scenarios like this.

We suggest that you take the time to create a budget. As property managers we are familiar with usual costs on maintenance etc. and we often assist our landlords with cost estimates to help them in creating a realistic ‘reserve fund’ plan. However we always recommend consulting with your accountant for the best way to manage your investment property regarding income; expenses and tax returns.

Here are some of the main elements to consider when putting together a budget plan for your investment property:

QuarterlyWater and council rates, Strata levies
AnnuallyInsurance premiums (building, contents, landlord protection, public liability)
Factor in rent to cover 2-3 week’s vacancy per annum
Every 4-7 yearsReplacement of hot water system
Every 5 yearsRepaint
Every 8 yearsRe-carpet
Every 9 yearsReplace blinds and window coverings
Every 10 yearsReplace main appliances (such as cooktop, oven and dishwasher)

The benefit of being proactive with undertaking preventative repairs and maintenance to your property will not only improve the amenity of the property but also maximise the tax deductions that you can achieve in that financial year. However, we stress that it is unwise to over capitalise on your investment property by installing top of the range products. This is a mistake that many investors make. Top of the range products not only cost more, but do not necessarily add rental value to the property.

Have peace of mind and get your budget started.

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