The Three Hidden Mistakes That Property Investors Often Make
Today I want to talk about three hidden mistakes that property investors often make.
The first one is wanting to settle on a Friday.
This comes from the fact that when we’re buying our own home if we settle on a Friday, we get the keys and we move in over the weekend. But the challenge is that 20% of settlements don’t settle on the due date because of human error. So that’s the problem. If the settlement process happens on a Friday—peak settlement time is between 2.00 pm and 4.00 pm on Friday afternoons—if there is an error that needs to be fixed, that leaves us very little time to get it done before close of business. But the challenge with this is if we don’t settle on the due date, we incur penalty interest on Saturday and Sunday, typically because the professionals are no longer working, so hopefully, you can settle on the Monday.
Ideally, the best time to settle is midweek Tuesday or Wednesday, where you can. Because this gives you enough time before Friday, or before the weekend, to sort out any issues that may arise, particularly if you’re one of those unfortunate people that don’t settle on the due date.
So one of the hidden mistakes I see is just that: wanting to settle on a Friday.
The second one I see, which is often hidden, is thinking that the accountants have Tax Depreciation fully covered.
Now, let’s be honest: accountants have heaps of the Tax Act they need to cover, lots of clients they need to consider. The main consideration for your accountant is they don’t specifically walk through your property—so they’re relying on the information you provide to them so they can then claim the right amount.
Whereas I think you need to send a quantity surveyor out to the property. Because they will physically inspect the property and look for everything that can be depreciated, give it to you in a report, and then give it over to your accountant. In my view, this gives you a much better opportunity to get the maximum allowable deductions.
So the things that you need to consider are: what if your accountant misses some claimable items you didn’t tell them about? What if they categorize something incorrectly based on the information you’ve provided them with? Or, what if there’s been some updates to legislation, but they’re just not quite across right now? For example, the 9th of May this year, budget night, there were some huge changes made to depreciation that aren’t even clear to some of the experts. So, it’s important that we stay on top of these. For me, the second point is making sure we get a quantity surveyor to go and check out the property to make sure we get maximum deductions available.
The third mistake is the do-it-yourself approach.
Quite often, this mistake’s not evident until down the track—when we’re looking in our rear-vision mirror at the past and seeing how everything turned out. But the challenge is we can never get that time back. People are often reluctant to get professionals involved, but if you think about buying an investment property and building a portfolio—it’s much more than just going online to realestate.com.au and looking at the properties and deciding which one you want to buy. Because we have to have a strategy in place that turns all of our dreams into actionable goals. We need to make sure we have a finance strategy in place, not just the borrowing capacity. We’re making sure we’ve got the whole portfolio-building in mind. We’ve got to make sure that we’re buying a property that’s investment grade, not just investment stock because we know the investment grade properties outperform a lot of just the basic investment stock, and that has a huge compounding impact. And we’re going to make sure we have a buffer in place, so that if we’re going to have maternity leave, or we want to renovate the kitchen, or go on a big holiday, we’ll know these fluctuations in cash flow have been fully accounted for.
So, for me, these are quite often mistakes made when people are building property portfolios. But I think if we are aware of them, we can overcome them.
So make sure we don’t settle on a Friday.
Make sure we add a quantity surveyor to prepare a depreciation schedule for our property.
And thirdly; strongly consider rounding yourself with a team of professionals so that you can get the best outcome for your portfolio when you’re turning those dreams into goals.
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