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Investment Cash-Flow Property Management

6 ‘Surprise’ Property Expenses Investors Must Prepare For and How to Handle Them

When you become a property investor there are a number of expenses you know you will incur from the very beginning of your real estate investing journey. These include things like: stamp duty; legal fees; mortgage repayments; advertising for a tenant; property management fees; strata levies; rates and water; and, scheduled property maintenance.

With all of these costs, you know and are fully aware that at some point during your ownership, you will need to set aside some money for these kinds of expenses. They are 'known expenses' because you can readily reckon with them coming up during the property's ownership life-cycle.

There are other costs property investors will face during the lifetime of their real estate investment. Some of these costs will seem like they come out of nowhere. And, they can sometimes affect you at the worst possible moment. These are your ‘unknown expenses', and they are unfortunately an unavoidable part of real estate investing.

With a lot of new property investors buying real estate over the past decade, there are a lot of data points now available about what some of these 'unknown expenses' are likely to be; and, more importantly, some of the strategies you can use to deal with them.

6 Common 'Surprise' Property Expenses

#1 - Roof and Guttering Repairs

The roofing and guttering are often not thought of by renovators and because of this many investors may be caught out. While bathrooms, kitchens, master bedrooms, and ensuites, receive all of the attention throughout a renovation, roof tiles, roof sheeting, and the guttering attached the house hardly ever receive attention during a renovation. This may be because they are out of sight and out of mind.

To avoid being caught out by this problem make sure before you settle on any investment property you have a building inspector look over every aspect of the property for any possible defects - this includes the roof and guttering. If it's picked up before settlement you may be able to negotiate a price which factors-in roof and gutter repairs, or at the very least have these repairs completed before you settle on the property.

#2 - Special 'Hidden' Levies

Make sure before you settle on a property you check the fine print of any contract. This is absolutely critical because often, buried in the fine print of the contract, you will find clauses which make you liable for payment of 'special levies'. This is especially common when you buy a property in an apartment complex, for example.

It is widely known when you purchase an apartment, you'll be liable for payment of regular strata management fees which are designed to help pay for services that all apartment owners in the complex benefit from. 'Special levies' may come into effect if a major upgrade to the building complex is undertaken or serious remedial work is required to fix construction defects.

Like strata management fees, there is no real way to avoid paying these costs. So, there is only one way to handle them. Just as you need to set aside funds for regular maintenance, you will also need to set aside funds for this kind of expense.

#3 - Hot Water Plumbing

The plumbing for hot water is also one of those expenses that can go missing in a renovation. As a new property investor especially, you need to be aware that hot water systems will need replacing at some point due to corrosion anyway. The best way to handle this kind of 'unexpected' expense is to keep aside funds along with your scheduled maintenance planning. Hot water systems tend to last for 5 to 10 years and it is not uncommon to see property investors needing to replace them within a few years of acquiring their property.

#4 - Household Air Conditioning

If there is one gripe that tenants have, it is that the heat in the house throughout the summer months is unbearable. In older properties without air conditioning, this can lead to tenants who are otherwise good, deciding to move elsewhere into a property that is air-conditioned. Anyone who can remember the 47-degree temperatures we had last summer can probably sympathize with anyone requiring air conditioning as a must-have in a rental property.

It is possible to improve your cash flow and make your tenants more comfortable at the same time. Ask your tenants if they would be prepared to pay a little bit more rent each week for you to provide air conditioning if the property doesn't already have it. With the extreme heat that we suffer here in Australia, there are probably few people who wouldn't see the value in spending a few extra dollars a week to be more comfortable during the summer months.

Good air conditioners can cost between $1,000 to $1,500 plus extra for installation. Their annual servicing costs are between $80 to $120. That may not sound cheap, however, it is far less expensive than some of the other costs you may face when it comes to 'unknown' expenses. Not to mention the loss of otherwise good tenants who need some respite from the summer heat.

#5 - The Cost of Evicting a Tenant

Most tenants and landlords have a good working relationship. Successful and experienced property investors know how vital to their real estate investing success good tenants are. Because they pay their rent on time and take good care of the property very good tenants are in high demand by the real estate investing community. If you have a good tenant you'll want to keep them.

Sometimes, though, things can go wrong and there is a need for the investor to remove the tenant from the property. This can occur when there's been serious damage to the property or the tenant has become very far behind on their rent payments. This is not an easy process, especially if the tenant resists eviction and the matter ends up in the tenancy tribunal. There will often be extra fees and charges to go through this process. But, if your tenant is many thousands of dollars behind in rent, your positive cash flow property can very quickly become a negative cash flow headache, leaving you with no option other than eviction.

#6 - Grounds Maintenance

We’re not talking here about mowing the lawn and keeping the gardens tidy, although again, you could ask your tenant if they would be prepared to pay you extra rent for this to be taken care of for them. It is normally a tenant’s responsibility to keep lawns and gardens maintained.

From time to time, especially in the case of natural disasters, there will be a need for you to spend some money on cleaning up the grounds and removing dangers, such as fallen trees for example. Often this may be claimable under insurance, but if it is not, it can be useful to prepare by building it into planned maintenance contingency funds. Being proactive and removing things like trees that pose a threat can also work to head-off a problem before it surfaces.

With good planning and expert advice along the way, it is possible to be prepared for these 'surprise' expenses. As you learn how to deal with them, you’ll find they have much less impact on your goals to build wealth and security through real estate investing.

1on1 Property’s expertise in managing hundreds of investment properties for Landlords can help you to succeed with property. Give us a call today on 4014 1900 and find out how we can help you with your property investment goals.

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