All posts by Steven Lusi

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Renting with pets

By | Leasing, Pets | No Comments

As a tenant it can be an exciting time moving house, looking to upsize with a growing family or simply looking for change. You find the perfect property online plan your inspection then ask the all-important question- if your furry friend can live in this perfect house with you!

The agent replies ‘Sorry no pets allowed’, your heart breaks and now this is no longer the perfect house for you. Why is it so hard to find a property that accepts pets?

Unfortunately, most Landlords have already had a ‘badly behaved tenant/pet’ in their rental property and simply don’t want to take the risk again. Everyone has heard the stories, damaged carpet, scratched doors and floors, broken blinds caused from a pet. It’s these tenants that are few and far between that spoil it for the rest of the great tenants looking to move.

Some Landlords accept that their property is ‘perfect’ for pets and will accept them as there is ample garden space, usually with a performance clause written into the lease that the pets must be kept outside which can be quite difficult for some pet owners to manage as they love cuddles on the couch with their cat or dog. Sometimes properties are just not suitable for a pet and in some instances in apartment buildings Owners Corporations do not allow them at all.

Interestingly when a property is advertised as ‘pets accepted’ the property leases quicker than a property without, we also find that the tenants are prepared to offer additional bond to put the Landlords mind at ease that they will take full responsibility for anything that may happen as a result of the pet living in the property. A pet clause is included in the lease agreement requiring the tenant to rectify any damage caused by the pet and fumigation to the property to be carried upon vacating.

However, things could change soon, currently reforms to the Residential Tenancies Act will be introduced into the Victorian Parliament in 2018, and if passed, these reforms would be implemented in 2019. Tenants will have the right to keep pets, provided they obtain the landlord’s written consent first. Landlords will not be able to unreasonably refuse a request for consent.

In the meantime, pet owners, it’s always best to be honest about having a pet live in the property with you.

PS. That cute pup is our dog Layla

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Prepare your investment property to have a great 2019 financial year

By | Tax deductions | No Comments

This month’s blog looks at how you can prepare your property to ensure that your important asset provides incredible results for the new financial year.

Manage your expenses

This is an area where cutting certain corners can be good for you. Start with your greatest expense, usually it’s your home loan repayment and see if your rate is competitive, a 50-basis point saving on a $500,000 loan is $2,500 your pocket annually but be wary of honeytrap rates that appear low but catch you with annual fees and other charges. Typically, you are stuck with your Council and Water Rates, however with the former you can contest the rates if for whatever reason they are not in line with market, and potentially reduce the overall cost.

Look at your insurance as well, the level of cover and excess can be tweaked to adjust your annual premium but remember to not be underfunded as a small saving in premium is not worth a large loss in a potential claim. Other areas such as management fees and accountant fees can also be considered, being competitive is important however a good property manager or accountant can save and return you money far greater than the fees you pay as we will discuss a little later.

Increase your income

Having your rent at or above market levels is critical to growing your investment portfolio, a good property manager can guide if you are unsure what that level should be. Maintaining and investing in your asset to an appropriate standard is also important, whilst spending more money may seem counterintuitive, a well-maintained property ensures that you can command a higher rent and hold onto good quality tenants saving you in the long run. Renovating is a crucial way to stay ahead of the game, we have blogged previously here http://www.directpropertygroup.net.au/2017/06/ and can show you examples of how a small to medium investment can yield impressive results in circa three years. Look at your home to see what low cost way that you can improve it, see if you can create an additional bedroom by simply putting up a wall or by getting rid of an unused spa bath. This will turbo charge your returns.

Utilise a property manager/professional

As mentioned earlier, a good property manager or accountant are critical to getting the best performance out of your asset. With regards to an accountant, knowing what can be claimed, asking you to obtain a tax depreciation schedule where applicable and pre-planning are all extremely important to ensure that you get a great tax return. And don’t despair if you think you may have missed something in the past, you can go back up to two years to claim what you may have missed. With regards to a tax depreciation schedule, a skilled quantity surveyor can ensure you don’t miss any deductible item and this can really add up over the long term. Some people consider who is the cheapest to be the main criteria when selecting a property manager, but there are a number of reasons why nearly every time this is not the best strategy.

First of all, no business owner will give great enough attention to their cheapest client and they certainly won’t put enough their resources towards them either. It means that you usually will get an under qualified agent who themselves will be underpaid and when an employee is undervalued and unappreciated the work suffers. Understanding marketing and leasing so that your asset gets leased quickly is also important, a one-week delay in leasing means that the cheapest agent is no longer the cheapest.

Quickly undertaking repairs so that they don’t cause further damage and therefore a greater repair cost, understanding how to spot issues before they occur is a very underrated skill that is the difference between a planned work or an after-hours emergency that escalates the cost. Knowing market rates for repairs, using skilled tradespeople who fix it right first time and the list goes on for why a great property manager is key to your assets performance.

Talk to us about your investment and how we can help your asset have its best performance this financial year.

 

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4 key considerations for a Commercial Lease Bank Guarantee

By | Commercial | No Comments

A Bank Guarantee is a form of security that a Tenant provides to a Landlord to give surety that the Tenant will perform to their obligations under the Lease. The terms of a Bank Guarantee can often be overlooked during the negotiation of a Commercial Lease as usually the main focus is on the rent and in most situations rightly so but is there any point in having the highest rent per square metre in the street if your Tenant does not pay the rent and they default in substantial arrears with an insufficient, or even worse, no or an invalid security deposit to lean upon?

We take a look at some items to consider when negotiating and obtaining the Bank Guarantee –

Amount
It is important to have appropriate cover if the Tenant was to default and vacate leaving you with an arrears shortfall and potentially a significant make good. Circumstances may call for a 6 to 12-month rent plus outgoings plus GST equivalent if the Tenants finances or its make good obligations are of concern. If a net Lease, it is wise to include outgoings charges into the calculation as often if a tenant does not pay its rent, they typically do not pay their outgoings also. Further make sure that as rent increases, the amount of the bank guarantee increases also as the rent equivalent amount for the first and last year of a 10 or 20-year lease can obviously be quite different.

Expiry
The expiry of the Bank Guarantee can be critical to ensure that the Bank Guarantee can be called upon at the right time. For example, if a Tenant has a 5-year Lease term and the Bank Guarantee expires on the same day as the Lease term ends, if the Tenant promises to make good during the last week of the term of the Lease yet fails to do so to an appropriate standard you will not be able to cash in the Bank Guarantee after its expiry. Depending on the agreed dates to update the Bank Guarantee, minimum 6 months after the term ends is a fair date for the Bank Guarantee to expire.

Particulars
Always ensure that the details in the Bank Guarantee are correct including but not limited to property address, amounts and Landlord details. If something is incorrect, it could invalidate/cause problems when cashing it in.

Make sure its original
If you receive a copy of the Bank Guarantee and if for whatever reason the Tenant has the original, they could cancel the Bank Guarantee making your copy worthless!

We hope you found the above of value and please do not hesitate to contact us should you wish to discuss management of your prized asset.

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The Land Tax Trap

By | Land Tax | No Comments

The State Revenue Office will this month be issuing Land Tax Notices to property owners that have a land value in excess of $250,000 and that is not their principal place of residence.

Some investors may be surprised at how high their Land Tax bills is due the valuation placed on their land. But what can you do about it if you disagree and think that the valuation and therefore Land Tax Amount is too high? Unfortunately, very little right now!

The State Revenue Office use your relevant Councils valuation to calculate the Land Tax amount payable by you. The council valuation occurs every two years with the last being in 2016. If you or your property manager passively pay your Council Rates and do not object to the valuation placed by Council valuers within the allotted time, usually 60 days of receiving the rates notice, you are stuck with that valuation and the higher Council and Land Tax rates. It’s a double hit.

So what can you do about it?  When you receive your Council Rates notice have your agent provide an estimate on the land value based on similar sales, hopefully your agent is already proactively doing this. If you both think it’s too high object within the allotted time.

We recently acted for a client and disputed the valuation and were successful in reducing the land rate by 25% based on comparable sales, location of the property and data that the valuer did not put into consideration. Values can change considerably from street to street, even block to block.

Don’t get stung by higher Council and Land Tax Rates than need be, review your Council Rates to avoid the Land Tax Trap.

Please feel free to contact me about this article or any other property related matter.

 

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Our Director Steven Lusi comments in the Australian Financial Review

By | Media | No Comments

Our Director Steven Lusi comments about the importance of buying a quality investment, in a convenient location, with access to amenities and value for money in today’s Australian Financial Review.

Click here to read the full article: http://www.afr.com/personal-finance/portfolio-management/property-buyers-need-to-look-beyond-lower-price-and-perks-to-location-and-gains-20180208-h0vrfo

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Net or Gross Rent for a Commercial Lease?

By | Commercial | No Comments

Many Landlords are faced with a choice when negotiating a Commercial Lease; to have the rent paid on a Gross or Net basis.

A Net Lease means that the Tenant pays rent in addition to the outgoings, a gross Lease is when the outgoings are included in the rent.

With a Gross Lease the total payable amount of outgoings is negotiated into the rent, for example, if the Landlord wanted a rent of $90,000 per year and the outgoings were $10,000, in theory the rent negotiated will likely be $100,000. Some see this as being “cleaner” as the Tenant simply pays rent to the Landlord, and the Landlord or their agent pays the outgoings. They consider that easier to manage and in a lot of respects that is true. But consider that the annual increases for the property were 3%, but after the first-year outgoings such as Council Rates and Water Rates increased by 4% and say insurance increased by 8% (which depending on the circumstance can sometimes happen), the Landlord is losing out a few hundred dollars. This loss is compounded on a yearly basis if similar increases occur.

On a Net Lease, the Tenant is liable for the outgoings payments and any reasonable increase in cost is payable by them. However, if for whatever reason the outgoings remain the same or less than the increases in your Lease, you lose out on the increase in outgoings you would have enjoyed on a Gross Lease.

Typically, whilst outgoings are unpredictable, they almost always go up and in the minimum range of 3-4% but from time to time skew much higher. Although councils in Victoria, due to government intervention, are capping their increases, land valuations (and in some circumstances rates charges) are increasing so this is still compounding higher. Tenants are usually reluctant to enter into a Gross Lease paying the full rent and outgoings total being asked, they try to negotiate. There are circumstances where Gross Leases can be favourable almost regardless of outgoings increases and this occurs when higher annual rent increases are involved or if you have negotiated a higher starting rent.

If you are in the lucky position of being able to claim Land Tax from the Tenant, this may change your strategy yet again.

Contact us to discuss your circumstance and how we can assist you in making the right choice, Gross or Net Lease?

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Three things to consider (other than rent) when entering into a commercial lease with your Tenant

By | Commercial | No Comments
We delve into what Landlords should consider when entering into a commercial lease with a Tenant (other than rent)
Tenant
This one is obvious however the type of Tenant you Lease your property to can affect the rent achieved and even the potential sale price should you consider to sell. Demand for strong listed companies (or their subsidiaries) is very high, a building with a Bunnings for example is hot property. Is your Tenant a seasoned operator? Do they understand how to run a successful business and will they be long term? How do they want to structure their company and how does this affect you if they do not meet the requirements of the Lease or default? If you are uncertain on the Tenant but you still want to give them a go, it is important to mitigate your exposure by having guarantees or increased security deposits for example.
Lease Term and options
This depends on your strategy and the type of property, is a sale on the horizon, is it a long term family asset etc? The strategy of a long lease may not always be the best solution especially if you do not account appropriate rent reviews, or say for the example of a shopping centre if the presentation of the Tenant is low and this brings down the perception of quality for the rest of the Tenants. Allowing an appropriate length of Lease allows you to control your property which can be critical.
Rent reviews
Keeping rent at or above market levels is one of the basics of a having an investment. No one wants an underperforming asset and one way a property underperforms is by not allowing for high enough rent reviews. The amount of rent review varies from property to property, as does when to allow for market reviews. For example an outer suburban property would not command as high an annual rent review as most comparable city properties. However if you have negotiated a higher annual review than market, you would not want to allow for an early market review as it would be unlikely that the market rent would be higher than your rent with increases, assuming your initial rent was at or above market.
The above gives you a glimpse of the intricacies of a commercial lease and what a Landlord should consider when renting. Please feel free to contact our office should you wish to discuss further.