The Pros and Cons of Being a Landlord

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The Pros and Cons of Being a Landlord

While Australia thinks of itself as a property-loving nation, it may surprise you to know that our levels of home ownership are low compared to other developed nations.

We sit above Austria, Switzerland and Germany, but well below Singapore, Hungary and Kosovo (topping the list with an impressive 97.8% of residents owning their own home). Source: TradingEconomics.com

Data from our most recent Census data reveals that just under a third of Australians – 27% – rent through a private landlord.

This is an increase from 22% in 2006.

Owning investment property in Australia is seen as a safe and steady way to increase wealth, with one in five Australian households owning one or more residential properties other than their primary home. Five per cent of these households own four or more properties.

To summarise, one third of Aussies are renters, and of those who own property, nearly three quarters are landlords, with many owning more than one investment property.

One of the main reasons for the (relatively) high tenancy rate in Australia is our housing affordability issue, a problem that has not experienced any relief this year (house prices rose an average of 16% in 2021).

If you are thinking about investing property and becoming a landlord, you may be weighing up the benefits and costs of this type of responsibility.

Benefits

Property is a Valuable Asset

Australians hold 5% of their wealth in property, which is currently valued at $9.1 trillion. Property in desirable areas generally holds its value and increases over time, providing owners with a steadily-increasing asset, and one that does not experience the volatility of other types of investments, such as the share market.

As an example, the average growth rate for property in Melbourne has been 4.8% each year for the last ten years.

With demand for quality housing not going to die down any time soon, investing in a property can be  a good long-term strategy.

Building equity in a property can also help you borrow to acquire other assets.

Additional Income

In most cases, tenants provide the regular income which help you service the mortgage on your investment. If your property is positively geared, then you are in the fortunate position where any rental income will provide you with a positive cash flow.

Tax Benefits

The benefits of negative gearing are well-known. Put simply, negative gearing is the process of borrowing money to buy an income-producing asset that generates less income than is needed to cover the cost of the asset.  In the case of an investment property, this is when your rental return is higher than your interest repayments and other expenses that you incur such as maintenance, council and water rates, and body corporate fees.

Depreciation (general wear and tear) on your investment property is a claimable tax deduction and can be calculated with a tax depreciation schedule prepared by a professional quantity surveyor.

Flexibility

As the owner of an investment property, you can decide (adhering to tenancy laws and regulations) who will live in your property and for how long, and also when you sell, upgrade or renovate the property. You may also decide at some point to cease being the landlord and live in the property yourself.

Cons

Properties Are Money Pits

It is time-consuming and expensive to manage a property that someone else lives in.

The expense of being a landlord doesn’t end when you sign the contract on your new property. Maintenance, emergency repairs, landlord’s insurance, mowing and gardening services, commission to letting agents will make constant demands  on your wallet.

Properties in Victoria must meet basic minimum standards for tenants, including safety considerations such as locks, smoke detectors and electric safety.

There will also be potential gaps in your rental income if your property is vacant for an extended period, and you will need to cover the mortgage repayments until a new tenant can be found.

Problem Tenants

Got a nightmare tenant who damages your property or can’t pay their rent? You will probably be able to evict them but not without a potentially long and expensive legal battle. In the meantime, you will be covering the expenses of the property with rent to offset these costs.

Not a Short-Term Cash Injection

If you run into financial difficulties and have to sell your property, there is no guarantee that you will make a profit on your investment. An investment property is a long-term investment, so you should be ready to ride the highs and low of the property market over a number of years while your investment appreciates in value.

Have you bought an investment property?

The Home Inspection Hub can assist with a tax depreciation schedule.

Our inspection and report process is carried out by a qualified quantity surveyor who specialises in tax depreciation schedules.

The report we prepare for you is easy to read and contains all of the information your accountant may require.

Get in touch and we will take you through the process and answer any questions you may have.

Call us on 1300 071 283 or visit our website – www.thehomeinspectionhub.com.au- and ask for a free quote  on a tax depreciation schedule or any of our other residential building inspections.