We have just spent the best part of a weekend preparing our tax information to send to the accountant.
Even though we are just starting out we chose to get an accountant because neither of us are tax experts. We are both too busy to have more then a cursory understanding of the tax rules that we have to comply with.
This may be a little wrong in some peoples eyes but, as we are both busy with our own careers we don't have time to really know all we need to know. That and our weekends are precious to us. We have a basic understanding of what we need to know, just not the detail.
I would recommend that you learn as much about this stuff as you have time for. The more you understand the better for your piece of mind.
The other recommendation I would make is select an accountant the either already handles clients that are engaged in property investing or better still also has investment properties of their own.
An accountant that is engaged and interested is far more likely to know the rules and regulations, what you can claim and when. They will also know when not to claim and why, they will give better advice then an accountant that handles general accountancy.
If you are going to do your own books, I would still recommend getting an accountant to look over them, spend the money once to make sure that you have it right. Or as a friend of mine is doing, do a correspondence course on accountancy, the rules are not obvious and as a general rule you want to avoid attention by the tax department, an audit takes a lot of your time weather you have done anything wrong or not.
Get and learn to use some accountancy software, GnuCash is free and works across Windows, Mac OS and Linux. It is fairly good, for our purposes it seems complete. MYOB is Windows only and you have to pay for. Quicken I hear is also good and quite cheap, supports Windows and Mac OS. Though I was mildly confused when I looked at their support site, it said Windows, Mac and Mint.com. I am writing this using Linux Mint 12...I thought for a moment that they has a Linux Mint client (this makes little sense, Ubuntu support = would still work with a much bigger audience).
Monday, May 21, 2012
Tuesday, May 8, 2012
Repairs and Maintainance
This is another post about the plumber saga, covered in the "how much is your time worth post". Though that was about trying to squeeze money out of the council.
Basically what happened was some stones got into the ball cock of the water inlet to house. This led to poor inflow of water into house and specifically the hot water system. Leading the girls to run out of hot water very quickly and the system taking all day to refill.
The house had been empty for approximately 3 weeks, before the girls moved in the water worked well. As soon as they moved in it was not working well. One problem we have is that we have to trust the word of the tenants / property manager. Since we live away from Palmerston North where the house is. See "First Thoughts" post for more detail on why we chose this course.
Basically we had to bite the bullet and send the plumber round to look at the system since we couldn't go and do it ourselves. This was a difficult decision, I think mainly because we are both engineers and are skeptical about systems suddenly failing after months / years of trouble free operation. In this case it was the correct decision, however if it had been user error (1 hr showers, and other major uses of the HW etc...) the plumber would have charged us anyway.
Final thoughts: if you are a few hours away from your property like we are, it can be both a weight off your mind and a burden also. I assume that if we lived in the same city as the house we would drive by "just to have a wee look" on a regular basis. However when problems do occur it can be a challenge.
Basically what happened was some stones got into the ball cock of the water inlet to house. This led to poor inflow of water into house and specifically the hot water system. Leading the girls to run out of hot water very quickly and the system taking all day to refill.
The house had been empty for approximately 3 weeks, before the girls moved in the water worked well. As soon as they moved in it was not working well. One problem we have is that we have to trust the word of the tenants / property manager. Since we live away from Palmerston North where the house is. See "First Thoughts" post for more detail on why we chose this course.
Basically we had to bite the bullet and send the plumber round to look at the system since we couldn't go and do it ourselves. This was a difficult decision, I think mainly because we are both engineers and are skeptical about systems suddenly failing after months / years of trouble free operation. In this case it was the correct decision, however if it had been user error (1 hr showers, and other major uses of the HW etc...) the plumber would have charged us anyway.
Final thoughts: if you are a few hours away from your property like we are, it can be both a weight off your mind and a burden also. I assume that if we lived in the same city as the house we would drive by "just to have a wee look" on a regular basis. However when problems do occur it can be a challenge.
Keeping things in order
When we started in on this property investing adventure, we set up a business to handle all the property investing affairs. However at the very beginning we were spending money out of our own accounts. This was a bit of a nightmare from the keeping track of things perspective.
It didn't take us long to setup a bank account in the company name and have both eftpos and credit cards attached to these accounts. This was great for keeping track of monies spent for company expenses
By keeping all the transactions coming from one set of accounts, we are able to download a csv file from the bank every month, this is a great help for accounting. And there is no reason why you can't do this for all your accounts, I have started doing this.
I would also recommend getting an accountant, make sure that the accountant is actually interested in or better yet has their own investment properties. We were lucky enough to get an accountant that would agree to an up front cost, which would be fixed unless there was heaps of unforeseen work.
He was also keen to help us help him, by setting out all out income and expenses in a format that he would find helpful our bill may be less then the agreed price also. This also helps us keep an eye on what is going out and what is coming in. Each month we download the latest transactions for each account from the bank and update the spreadsheets. Once we had setup all out spreadsheets adding the new transactions is fairly simple and doesn't really take much time each month.
Final thought, keeping separate accounts is a great way to keep track of company / personal expenses and income.
Thursday, May 3, 2012
Raising the rent
As a general rule, if you use property managers they will want to charge as much rent as possible. This is because they get commission as a percentage of the rents collected.
This can lead them to put pressure on to raise the rent of the property. This has a double benefit for them if they have other properties in the area, more money directly for your property and as an example to raise the rents on the other houses.
There is also a gain for you of course, more money in the bank! But there is also the danger of your tenants deciding that it is too expensive to live there now and deciding to go looking elsewhere.
Just some quick maths: if you get $300/wk and your property manager gets 9%, the split is $273/wk for you and $27/wk for them. If you raise the rent by $20/wk (6.7%) you stand to gain $18.20/wk or $946.40/yr @ a 52 wk year.
If your tenants decide to move out and your property isn't let again for 3 weeks. You loose $819 @ $300/wk or if let at the new rate $873.60
Now consider the risk / reward from your perspective, if your tenants are happy and you raise the rent, they may be fine with it and you gain $946.40/yr vs risking (assuming 3 weeks vacant, could be less could be more) $873.60 loss. So at the end of the year you would be ahead by $72.80.
Considering the risk from the property managers perspective. If the manager has 30 properties they are managing (most probably have many more then this). And their average income from each property is about what they get from you. So about 30*$27 = $810/wk. They are risking 1/30th (3.3%) of their income vs 100% of yours for 3 weeks. The gains for them can multiply because of average rents increasing over all. If the property was vacant for those three weeks then the manager would only be out of pocket by $81 @ $300/wk or at the new rate by $86.40. But if let at the new rate they would also be ahead at the end of the year.
Thus there is a real incentive for the property manager to raise the average rents in an area where they have a lot of properties.
I am not saying don't raise the rent, there are many reasons to do so. But don't just take the property managers word for it. Do some research, look at your costs and weather or not you NEED to raise the rent. If your property becomes vacant for say 5 weeks rather then 3 weeks then that overall position of being ahead would take significantly longer then a year. Happy tenants that stay on and pay rent every week are better for you then getting a few dollars more each week.
Also negotiate, instead of one big jump do a few smaller jumps, i.e. $5 extra per week for 6 months, then up it again by the same amount....
This can lead them to put pressure on to raise the rent of the property. This has a double benefit for them if they have other properties in the area, more money directly for your property and as an example to raise the rents on the other houses.
There is also a gain for you of course, more money in the bank! But there is also the danger of your tenants deciding that it is too expensive to live there now and deciding to go looking elsewhere.
Just some quick maths: if you get $300/wk and your property manager gets 9%, the split is $273/wk for you and $27/wk for them. If you raise the rent by $20/wk (6.7%) you stand to gain $18.20/wk or $946.40/yr @ a 52 wk year.
If your tenants decide to move out and your property isn't let again for 3 weeks. You loose $819 @ $300/wk or if let at the new rate $873.60
Now consider the risk / reward from your perspective, if your tenants are happy and you raise the rent, they may be fine with it and you gain $946.40/yr vs risking (assuming 3 weeks vacant, could be less could be more) $873.60 loss. So at the end of the year you would be ahead by $72.80.
Considering the risk from the property managers perspective. If the manager has 30 properties they are managing (most probably have many more then this). And their average income from each property is about what they get from you. So about 30*$27 = $810/wk. They are risking 1/30th (3.3%) of their income vs 100% of yours for 3 weeks. The gains for them can multiply because of average rents increasing over all. If the property was vacant for those three weeks then the manager would only be out of pocket by $81 @ $300/wk or at the new rate by $86.40. But if let at the new rate they would also be ahead at the end of the year.
Thus there is a real incentive for the property manager to raise the average rents in an area where they have a lot of properties.
I am not saying don't raise the rent, there are many reasons to do so. But don't just take the property managers word for it. Do some research, look at your costs and weather or not you NEED to raise the rent. If your property becomes vacant for say 5 weeks rather then 3 weeks then that overall position of being ahead would take significantly longer then a year. Happy tenants that stay on and pay rent every week are better for you then getting a few dollars more each week.
Also negotiate, instead of one big jump do a few smaller jumps, i.e. $5 extra per week for 6 months, then up it again by the same amount....
Wednesday, May 2, 2012
The instant gratification problem
I, like many people around my age (under 35) have grown up in a world with computers; the internet; CD's & DVD's (who even remembers having to rewind something); ATM's; 24hr shops; digital cameras; cell phones; etc...
All these things immerse us ever deeper into the instant gratification cycle. These days we expect most things to be available, not when they are ready but when we are ready.
The problem with this culture and the world of investing, for the little guy at least, is that they are at odds. A lot of the books that I have read on investing say, some in a round about way and others directly, that success with regards to investing can be closely correlated with length of time that you have had your money invested for. Looking at the graphs and charts of value vs time the ups and downs even out over years to a gradual upwards trend.
This pretty much holds true for not only property but the stock market also. The forex market is not like this, but it is basically gambling anyway in my view.
I'm not really sure what I am trying to say with this post except be patient, investing is not really something you should be in for the mythical "quick buck".
All these things immerse us ever deeper into the instant gratification cycle. These days we expect most things to be available, not when they are ready but when we are ready.
The problem with this culture and the world of investing, for the little guy at least, is that they are at odds. A lot of the books that I have read on investing say, some in a round about way and others directly, that success with regards to investing can be closely correlated with length of time that you have had your money invested for. Looking at the graphs and charts of value vs time the ups and downs even out over years to a gradual upwards trend.
This pretty much holds true for not only property but the stock market also. The forex market is not like this, but it is basically gambling anyway in my view.
I'm not really sure what I am trying to say with this post except be patient, investing is not really something you should be in for the mythical "quick buck".
Tuesday, May 1, 2012
One Horse Towns
This is paraphrased from someone else that I was talking to who was giving me some advice. I thought it was really useful, maybe not right away for us. But maybe in the future, but defiantly worth writing down.
He was saying that you should be careful of one horse towns, by that he meant small towns with only one big employer. If the town would devastated by that employer going out of business then it maybe risky buying rental property there. This goes along with knowing your market, but this is more then just knowing the school zones and the expensive / trendy areas. It is a little more then location, location, location!
If you know the main employer in your little town is in a good position and that it will not go out of business easily then there can be some real bargains to be had in small towns. I live in a relatively small town, and from talking to people looking for rentals around here it can be difficult to find good quality rentals. Investors tend to stick to the bigger centers, at least in NZ, small towns can offer good opportunities but I think the research burden is higher then in the bigger cities and towns.
There is more room for error in a big center, this is one of the reasons that we brought in a city for our first rental.
These are just my thoughts helped by some good advice from a fellow investor, I encourage you to do more research as these are big decisions and they will be with you for years to come good or bad.
Feel free to leave comments, I am keen to hear your thoughts or advice, I am always looking to learn or discuss thoughts with others.
He was saying that you should be careful of one horse towns, by that he meant small towns with only one big employer. If the town would devastated by that employer going out of business then it maybe risky buying rental property there. This goes along with knowing your market, but this is more then just knowing the school zones and the expensive / trendy areas. It is a little more then location, location, location!
If you know the main employer in your little town is in a good position and that it will not go out of business easily then there can be some real bargains to be had in small towns. I live in a relatively small town, and from talking to people looking for rentals around here it can be difficult to find good quality rentals. Investors tend to stick to the bigger centers, at least in NZ, small towns can offer good opportunities but I think the research burden is higher then in the bigger cities and towns.
There is more room for error in a big center, this is one of the reasons that we brought in a city for our first rental.
These are just my thoughts helped by some good advice from a fellow investor, I encourage you to do more research as these are big decisions and they will be with you for years to come good or bad.
Feel free to leave comments, I am keen to hear your thoughts or advice, I am always looking to learn or discuss thoughts with others.
Sunday, April 29, 2012
How much is your time worth?
We have recently been having problems with the council, there were some road works on the street outside the rental property. After some back and forth between us and the council they have said that since it was not the council that was doing the work they did not accept liability.
It was our view that the council is responsible, because it is their responsibility to supply clean water. The roading contractor was not hired by us or doing work on our property. The work was being done on council land and therefore the council must have given consent for the works to be done.
The plumbers bill came to about $110, we were not worried about the amount involved but more the principal. Principals will only go so far, we have decided to pay the bill ourselves and take the easier path. So the big guys win again by simply denying responsibility, but we are very busy people and look at this as a stress-less fee.
Maybe this is not the best course of action in the long term, but in the short term we feel out limited time is better spent trying to relax after working hard and trying to get ahead. This whole property investing thing is somewhat stressful and this was a "cheap" stress reduction.
These are just my thoughts, I encourage you to do more research as these are big decisions and they will be with you for years to come good or bad. Choose to fight the battles that you can not only win but are worth winning, we decided $110 wasn't worth the stress of fighting even though we were most likely in the right.
It was our view that the council is responsible, because it is their responsibility to supply clean water. The roading contractor was not hired by us or doing work on our property. The work was being done on council land and therefore the council must have given consent for the works to be done.
The plumbers bill came to about $110, we were not worried about the amount involved but more the principal. Principals will only go so far, we have decided to pay the bill ourselves and take the easier path. So the big guys win again by simply denying responsibility, but we are very busy people and look at this as a stress-less fee.
Maybe this is not the best course of action in the long term, but in the short term we feel out limited time is better spent trying to relax after working hard and trying to get ahead. This whole property investing thing is somewhat stressful and this was a "cheap" stress reduction.
These are just my thoughts, I encourage you to do more research as these are big decisions and they will be with you for years to come good or bad. Choose to fight the battles that you can not only win but are worth winning, we decided $110 wasn't worth the stress of fighting even though we were most likely in the right.
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