[Investment Tips] The importance of having a trusted team around you – Part 2
Property investing is not a single person game so I want to stress the importance of having a good team around any property investor.
What consist of a good property investment team, and where would you be able to find these people? Following on from last time, in part 2 we’ll examine the other 3 key team members you need to have around you.
The Property Investment Team Members
During any property investment journey the following team members are critical to your success:
1. Mortgage Broker (MB)
3. B&P Inspectors
4. Buyers Agent (BA)
5. Property Managers (PM)
Today we’ll cover BA, PM and Accountant.
4. Buyers Agent (BA)
The Role: to recommend which property to purchase.
BA is a vital team member in your team as they do the hard yard of asset/property selection and recommendation. A good BA will be able to assist in the following way:
– Discuss with investor to understand budget, time frame and ultimate investment goal
– Conduct research for suitable candidate properties within the suburbs that fits the price range
– Review options and present recommendation to the investor
– Act on behalf of the buyer in the negotiation and contract process, till settlement completes
– Provide some investment education to the client throughout the process
To those investors who do not have time, energy or whatever reason – BA is key vital player to the team. They are the messiah to investors who would like to invest but have no idea on where and how to start. They have a unique position in the team, where their expertise, negotiation skills, as well as their connections with local agents in making a good investment deal happen.
Like conveyancors/solicitors BA is also state based. A BA qualified to recommend properties in QLD may not necessary have the license to be able to recommend properties in VIC, so it’s important to check/confirm with BA upfront on what area they can and can’t recommend.
On top of that it’s also important to understand BAs’ niche area within a state. Take Sydney for example – a BA can, in principle recommend ANY properties across Sydney and NSW region. However it’s impossible to know all NSW suburbs thoroughly, so each of BAs will have a different niche area where they are very familiar with the area and know the suburb inside out. It is therefore paramount that during initial engagement to confirm the BA you are working with do know the target suburbs inside out. Usually the deal they present will be a good indication of whether they are a claimed suburb expert or not.
BA fees are not cheap – this can range from couple thousand dollars to a percentage of the purchase price. However as Phil Tarrant from SPI repeatedly claim, BAs do this everyday so they are geared with all the ammunition in finding a better deal than you and I can discover. And if a BA can negotiate and present a deal which potentially saves you thousands of dollars, then it simply means BA’s fee are covered.
Like brokers, a good BA understands that for a good, long lasting client relationship it is vital for he/she to understand what the client is ultimately trying to achieve via investing. The recommended property will then fit into the long term investing landscape and be able to assist the client in achieving the ultimate investment goal. In this context a good BA will always be outcome driven – because they can deliver beyond client’s expectation, hence can win over client’s trust and referral.
5. Property Manager (PM)
The Role: once property is settled, to look for tenants and manage day-to-day issues of an Investment Property on behalf of Investor
Property Manager ranges in their capabilities and character. Some will essentially “do their job to manage” whilst some others will go way out of their comfort zone just to add value. A good PM team will be able to assist in the following way:
– Have in-depth understanding of building expertise and handyman skills
– Be able to have difficult conversations with tenant/landlord as required
– Excellent communication skills – concise and precise to the point
– Do more than just collect rent. Be pro-active and provide guidance to landlord (and tenant as required) to ensure best mutual outcome for both
Handyman skills are a good to have for PM but not a must have. My personal experience is if they do have the handyman skill and are willing to do pre-purchase inspection for you then it’ll be easy to arrive at an estimated repair cost required prior to getting a tenant into the place. This has been very handy for my QLD purchases as I would be able to arrive quickly at the optimal offer price based on the pre-purchase feedback once PM has carried out. So if contract has been reviewed and green light has been given, then I can commence negotiation straight away and beat other competitors.
Having the handyman skills also means that PM can fix things quickly during routine inspection. Sometimes a quick fix could save a trip from handyman and I’ve seen it happen before and that would be value-add!
Due to the nature of the role PM selection is absolutely critical. They will be looking after the property for you, and I’ve heard lots of horror stories where management was not done properly and owner had to step in and take over management themselves….a classic example where tenant issue goes out of control. PM is someone that you need to be able to entrust to manage your property day-to-day and solve problems on your behalf. Their role is more than just collecting rent, perform routine inspections and escalating issues….if this is all they are doing, then it’s probably time to switch to someone else.
Communication skills is also one of the most important element in choosing any PM. Is his/her communication style easy to understand? Is it concise and to the point? How would they handle difficult conversation? These are all the things that an investor need to consider and be comfortable with before taking up a PM service. But fundamentally, there needs to be a trust relationship established between PM and the investor so it comes down to how quickly the PM can establish rapport and whether they can consistently deliver the outcome to anyone’s expectation.
PM fees can also vary greatly and my suggestion is always don’t go for the cheapest. Choose PMs based on a proven record of delivering results. The best way to choose a PM is to seek recommendation from fellow investors and also where possible, do interviews with the PM directly so you can understand who you will be dealing with moving forward. Sometimes there are personality clash and no matter how good a PM is you will not be able to work with them. Be open, be honest and let them know your expectation so that they know what ticks your boxes and can deliver to your standard.
The Role: to provide support and advice regarding tax and asset protection.
I have to admit I haven’t used Accountant as much as I should be so this is probably my weakest role out of them all. In my opinion a solid Accountant will be able to assist in the following ways:
– Provide advice on IP tax minimization and deductions – what you can claim and what you cannot during tax time, and what can be claimed upfront or need to be depreciated. How long to keep receipts etc. Below are some common deductions:
1. Interest incurred on an investment loan
2. Insurance incurred for the IP
3. Property Management fees/charges for the IP
4. Council, Water rates, Strata fees incurred for the IP
(Also note that new laws have recently came out to disallow claiming of travel expenses in relation to your IP)
– Provide advice on Asset protection via structures such as Trusts, Companies and SMSF (Self-Managed Super Funds)
– Provide advice on Capital Gain/Loss at the point of selling an IP
– Ensure year end compliance reporting with ATO (Tax Returns)
I’m sure there are more – but as I haven’t used Accountant much myself I can’t comment too much. But on top of my head if I have any questions in relation to what I can and cannot claim, the amount of depreciation that I can claim for an IP (you may also require to obtain a depreciation schedule from a Quantity Surveyor) and if I want to discuss about setting up Asset protection then Accountants are the ones to go to.
However as the portfolio grows it may not be a bad idea to outsource IP tax returns to your trusted accountant. They are the trusted member of the team to handle any tax related questions during selling (also to avoid making any potential mistakes in your tax return!)
A special thanks goes to Minh Pham as an Accountant for providing insights and assistance so I’m able to complete this section!
As you can see, each team member plays a vital role and in their assigned area to ensure the success of an investor’s property journey.