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Beyond the expected

Renting out an investment property

By luther_bendross 18 September 2012 27

I realise this has been touched on in the past, however I didn’t find a lot of the answers I was looking for, so here we are again.

For reasons inconsequential, Mrs Bendross and I will be leaving our house and sticking it on the rental market. For more reasons inconsequential, we will be going through an agent and not doing it privately. So I look to the hivemind for advice.

– What are typical charges? The average is 1 weeks’ rent up-front, $130 to advertise on a bunch of sites incl. Allhomes and 8.5-8.8%.

– Do you allow pets? As renters we had two dogs in tow most of the time and we’ve had them in this house. I’d like to keep the karma flowing, but karma can blow me if their German Shepherd is gonna ruin my house.

– Any agents to aim at or steer clear of? We’re in the deep, dark south so anything north of the lake seems fruitless.

– Specialist property managers vs garden-variety real estate agents?

– Anything else to look out for?

Thanks for your assistance.


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Renting out an investment property
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taninaus 7:51 am 23 Oct 12

Re the tax side of things – troll-sniffer covered most of it – it is worth noting that the principal place of residence (of a rental property) only goes for 6 years – allows for defense and other travelling workers. So as long as you are not moving into another owned property you can claim the place you are renting out as your principal place of residence and not get hit with capital gains tax – so long as you move back into it before 6 years expires (would have to check the tax rules if you sell it but not move back in before that).

I would get a property valuation before you rent it out to be assured that you have the current value – whatever the tax rules about capital gains are, then you can be certain that you are dealing with the right values and have proof of this. Last time my bank charged me for this I think it was under $200, so worth the investment and may even be tax deductable.

Re agents – I won’t recommend Independent – like mad scientist said, although they get promoted in IPG. Check who will actually be doing the property management, I have had the slick sales person with lots of experience turn into the newbie who barely knows the rules – I have learned to screen a bit better. I use Elders Gungahlin and the current group do a good job.

Jason. 10:52 pm 22 Oct 12

As tenants we rented through Cameron Real estate in Hughes. Small family run agency who were great.

As landlords, using (but not for much longer) Denise Flint Real Estate. Absolutely hopeless and nothing but problems from day one. Especially bad now we are changing agents. Avoid like the plague.

AngryIan 11:31 am 28 Sep 12

I would look at doing a long term sales agreement.
This will still allow you to have the income but not the taxes.
Happy to do the work if you want to go this route.
renttoown@homemail.com.au
Also will stop all the hassles of bad tenants.
As for pets what I do is have the clause that they have to “Make Good” at the end of the agreement and have a higher bond to cover this.

milkman 9:37 am 20 Sep 12

allyroger said :

milkman said :

allyroger said :

Serious question, if the value of your IP goes down during the “Capital Gain” period – can you claim a deduction?

You need to sell the property first.

So if i rent out the IP for 1 year then move in and it becomes my primary residence but the value has gone from $500k to $450k, i can’t claim capital loss? Sorry for being dense in this subject, it confuses me.

Correct. You can’t claim capital loss because there hasn’t BEEN a capital loss. You bought the property and still own it – any gain or loss is not realised until the property is sold.

You make claims for deduction based on actual cash in and cash out (except for depreciation). There are other tricky bits, but they are variations of this basic theme. Also, don’t get depreciation confused with capital gain or capital loss, they are not the same thing.

Don’t get too worried about not knowing all this, just learn as you go.

allyroger 9:19 am 20 Sep 12

milkman said :

allyroger said :

Serious question, if the value of your IP goes down during the “Capital Gain” period – can you claim a deduction?

You need to sell the property first.

So if i rent out the IP for 1 year then move in and it becomes my primary residence but the value has gone from $500k to $450k, i can’t claim capital loss? Sorry for being dense in this subject, it confuses me.

farout 9:31 pm 19 Sep 12

The value of the property when it first becomes an IP has nothing to do with it.

Not True.

http://www.ato.gov.au/corporate/distributor.aspx?menuid=0&doc=/content/00262404.htm&page=6#P193_12738

“Erin purchased a home on 0.9 hectares of land in July 2000 for $280,000. The home was her main residence until she moved into a new home on 1 August 2003.

On 2 August 2003, she started to rent out the old home. At that time, the market value of the old home was $450,000.

Erin wants the new home to be treated as her main residence from the date she moved into it.

On 14 April 2010, Erin sold the old home for $496,000. Erin is taken to have acquired the old home for $450,000 on 2 August 2003 and calculates her capital gain to be $46,000.

Because Erin is taken to have acquired the new home on 2 August 2003, and has held it for more than 12 months, she can use the discount method to calculate her capital gain. As Erin has no capital losses she includes a capital gain of $23,000 on her 2011 tax return.”

milkman 7:28 pm 19 Sep 12

allyroger said :

Serious question, if the value of your IP goes down during the “Capital Gain” period – can you claim a deduction?

You need to sell the property first.

XO_VSOP 6:29 pm 19 Sep 12

It’s appear to be oversupply in this profession. Just go with the biggest IPG or a smart start up Distinct as mentioned.

Tootza 5:14 pm 19 Sep 12

Property Difference all the way! They have an offer at the moment where all new clients get the first three months property management free and their rate after that is 7% + GST for the life of the management and no fee for renewals. They also take full video on the inital condition of the property! They also give 10% of their profits back to Canberra charities.

I would also say, pets on application with references. As a previous renter I was always extremely grateful for owners who allowed my dog and looked after the house accordingly.

thelozenger 4:41 pm 19 Sep 12

As a tenant, the experience we’ve had with First National Real Estate has been awful. They never return our calls (whenever we call the agent is always ‘in a meeting’ or ‘out’) and never fix anything we tell them needs fixing.

They never notified us of an inspection (we just came home one day and there was an inspection evaluation on our dining table) and then said we couldn’t prove they didn’t notify us when we pulled them up on it. Luckily our place is pretty clean normally, but you feel a bit violated when someone’s been where you live without you knowing (especially when you have underwear on the airer inside at the time!)

I feel really bad for the owner, they likely have no idea how rubbish First National are.

arescarti42 1:47 pm 19 Sep 12

allyroger said :

Serious question, if the value of your IP goes down during the “Capital Gain” period – can you claim a deduction?

I’m no expert, but I don’t believe you can claim capital loss itself as a deduction against income. My understanding is only interest and maintenance are fully deductible items for IP.

sezzle 1:44 pm 19 Sep 12

I use Azzopardi Residential Property Services. Alyson has been in the game for a long time and only recently venturned out on her own. Wonderfull woman with a knack for getting the right tennats and the right price. I would highly recommend you at least give her a call, 0433 398 247
Email alyson@azzopardiproperty.com.au

allyroger 12:55 pm 19 Sep 12

Serious question, if the value of your IP goes down during the “Capital Gain” period – can you claim a deduction?

madscientist 6:38 pm 18 Sep 12

As a tenant we’ve had some pretty shabby property managers. Most of the time it’s just the junior in the office, who hasn’t progressed on to sales yet, and they clearly can’t be bothered with it and just want to get into selling houses.

But, in my current house, we have some fantastic real estate agents – small agency,John & Jane Whiting at Blandfordia R/E. There are three people in the firm and they really keep on top of everything – regular inspections where they diligently follow up on any items needing attention and are pleasant and easy to deal with.

I don’t know what they’re like on the other end of the equation (as a landlord), but they definitely make sure the property is well looked after, so I’d guess as a landlord that’s what you want!

Can’t recommend them highly enough –

http://www.blandfordia.com.au/PropertyManagement.htm

troll-sniffer 5:55 pm 18 Sep 12

Very Busy said :

Don’t forget about your statutory obligations. You will need to advise the Commissioner for ACT Revenue about the change in use of the property. The property will be subject to Land Tax when it becomes available for rent.
If the property is mortgaged, you should also notify your lender to remain within the terms of your loan. A higher interest rate will probably apply.
It would probably be worth getting a valuation done now because any capital growth that occurs while it is an investment property will be subject to Capital Gains Tax when the property is sold or is no longer an investment property. This can get tricky so if you haven’t already done so, you should do some research with the ATO to satisfy yourself that you know how this works.

Not quite. You’re entitled to have one principal place of residence CGT free at any one time. Even if it’s rented out it can still qualify as your PPOR. The idea is you cannot have more than one, so if you own another property as well, one of them MUST be subject to CGT.

poppy 5:37 pm 18 Sep 12

RE pets you should always advise tenants that pets will be considered on application. Once you get the tenants application and have some idea of their rental history and the age etc of the pet, you can make the final decision. If the tenant has rented for the past three years with their dog with no issues, then it is unlikely to be a problem for you. If you say no pets, then some tenants will just lie and bring the pet anyway so encourage honesty.

devils_advocate 3:56 pm 18 Sep 12

GBT said :

Unless you have a strange loan it shouldn’t matter whether it’s your PPOR or an IP. People switch back and forth all the time without notifying their banks. You certainly shouldn’t have to pay a higher interest rate.

I got a lower interest rate for my IPs relative to the house I live in, it’s called some “professional package” loan or something, comes with free offset as well, so maybe check with your bank as to whether you actually pay less for having it as an IP.

sophiekt 12:49 pm 18 Sep 12

I’ve mentioned them before but Peter Blackshaw Woden are
Great. Fees are pretty standard but excellent service and advice and they have been around a long time. Personally I would be careful with cut price / new Agencies – that is how Live In started out and look at the outcome. Speak to Maria, she is very professional and experienced – you get what you pay for.

mmillercfp 12:32 pm 18 Sep 12

You will find some of the information on capital gains tax and your main residence at the ATO website here: http://www.ato.gov.au/individuals/content.aspx?doc=/content/36887.htm.

Worth a read if you’ve not come across the provisions before. If in doubt your accountant should be very familiar with the applicable rules.

GBT 12:27 pm 18 Sep 12

Very Busy said :

Don’t forget about your statutory obligations. You will need to advise the Commissioner for ACT Revenue about the change in use of the property. The property will be subject to Land Tax when it becomes available for rent.
If the property is mortgaged, you should also notify your lender to remain within the terms of your loan. A higher interest rate will probably apply.
It would probably be worth getting a valuation done now because any capital growth that occurs while it is an investment property will be subject to Capital Gains Tax when the property is sold or is no longer an investment property. This can get tricky so if you haven’t already done so, you should do some research with the ATO to satisfy yourself that you know how this works.

The REA will take care of sorting out your land tax obligations.

Unless you have a strange loan it shouldn’t matter whether it’s your PPOR or an IP. People switch back and forth all the time without notifying their banks. You certainly shouldn’t have to pay a higher interest rate.

Lastly, the advice about getting a valuation done is incorrect. The calculation to determine your CGT liability is done by calculating the amount of time it was an IP as a percentage of the entire time you owned it and then that is the perctage of the entire capital gain over that time that you will be taxed. The value of the property when it first becomes an IP has nothing to do with it. You are also eligible for a 50% reduction assuming you have owned it over a year.

Best thing to do is see an accountant for any tax liabiltiies before you start renting it out.

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