Renting Out Your Property

What you'll learn in this step is that convenience is the key with property rental and liability insurance can give you peace of mind.

Tenants for Rent

Investment properties are generally rented out unless you're in the enviable position of not needing the rental income so when calculating what you can afford to buy, you will need to factor in contingencies for the property being empty for short periods, whether for repairs or for finding new tenants.

Rental income helps generate the cash flow to pay the mortgage but don't forget to include this income when you file your tax return as this money will count towards your total income for the year.

Making Your Investment Pay

If you hold your investment property for long enough, you will hopefully each the stage where your losses are turning into gains. This occurs for two reasons. First, the rent you are charging will probably rise as it keeps pace with the market value for rents. Second, you and your tenants are steadily whittling the mortgage away and once your rental income exceeds your mortgage repayments you are no longer negatively geared. You may instead be neutrally-geared or positively-geared.

From an accounting point of view, no negative gearing means no tax advantages.But that doesn't necessarily mean you should rush out and sell it. Yes,you'll have to pay more tax because the income you're making is more thanyour losses but the fact is you are making money - which is why you investedin the first place.

Seek advice from a tax agent or financial planner before leaping to sell a positively-geared property investment. The temptation is to reap your profits and plough them into another property – and this is a perfectly reasonable strategy – but don't lose track of the costs involved in doing that. Stamp duty alone can be a prohibitive disincentive.

Do You DIY or Choose a Property Manager?

While it is possible to manage a rental property yourself and in doing so you can save the cost of a management fee (usually around 5 per cent), it can be time-consuming and it's hard to remain emotionally-detached if you have tenants ringing up complaining about every little thing. The other option is to get a professional property manager to manage it for you. Employing a property manager has many advantages apart from the time saving and convenience factors they offer. As they manage so many properties they will have also access to a large number of reputable tradespeople with whom they may have negotiated cheaper service fees.

They can also deal with the time consuming tasks of vetting potential tenants and checking their credit worthiness. As they deal with tenants and rentals every day, property managers have up-to-date information on what the market is like and what tenants are prepared to pay. They may also have access to tenants who they can recommend for your property. And don't forget their fees are tax deductible.

While everyone wants a large tax deduction, you shouldn't overcommit yourself in order to get one. You still have to make the mortgage payments and those lucrative tax benefits don't arrive until the end of the financial year. In periods of low inflation, the benefits of negative gearing are usually negligible.

Insurance

While it is up to your tenants to take out their own contents insurance,you will need to have building insurance. You may also want to consider liability insurance to protect yourself in case your tenants damage the property or themselves.