Aaron breaks down the real costs of buying a rental property: 20% deposit, legal fees, stamp duty, plus a cash buffer for vacancies and tenant turnover. He also explains why you should funnel tax refunds back into the property account.
Managing the numbers when you have an investment property. Hey, it's Aaron from Diagnostics and Finance. Now a common thing that is potentially overlooked occasionally is one, we get the equity out of our property and we get it put with the right bank with the right structure to be able to buy those properties. But the next thing is that we're really only prepared for the 20% deposit to make it low cost borrowing. We got the legal fees, we've got the stamp duty, we got maybe a contingency fund to deal with some interest and other things, rates and all that stuff to purchase a property. But what happens after we got the property? A couple of things you need to think about. If you've got a tenant that moves out, comes in, we would have either reduction or a no rent coming in for a period of time. What if the property that we're buying is a land and home construction? We've got a period of time that we have to hold this property until we get our tenants coming in. So I'm a big advocate of having a buffer in your budget. Whether it's saved money, whether it's pre borrowed money or anything, just have that little bit of extra to be able to accommodate holding the property until you get a tenant or holding the property until the tenant returns. Holding the property until say tax time. The other thing I wanted to talk about is tax time. When you have an investment property, part of your tax return is related to your property. So make sure you understand what part is related to property. If you get five grand back in cash from the tax man and four grand is used for your property, guess where that four grand has to go? It has to go back into that management account. So not only having your equity taken out, not having it, only having it with the right property, but making sure that you have thought about your tenants not being there or a reduced income over a period of time and you've actually thought about your tax returns, what component of the property has been related to your tax return and return that money back into the account that manages and helps you manage your investment property. Hey, it's Aaron from Diagnostics and Finance. Think outside the box. Grab those extra numbers that you might need, not just what's going to purchase the property. Alright, bye for now.
