{"id":5262,"date":"2015-07-31T12:00:49","date_gmt":"2015-07-31T02:00:49","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=5262"},"modified":"2015-07-31T12:00:49","modified_gmt":"2015-07-31T02:00:49","slug":"rental-guarantees-prices-predicted-to-fall-by-2017-the-reno-kings-tips-how-depreciation-affects-capital-gains-tax-renting-to-family-members","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/rental-guarantees-prices-predicted-to-fall-by-2017-the-reno-kings-tips-how-depreciation-affects-capital-gains-tax-renting-to-family-members\/","title":{"rendered":"Rental Guarantees | Prices predicted to fall by 2017 | The Reno Kings' tips | How depreciation affects capital gains tax? | Renting to Family Members"},"content":{"rendered":"

 
\nAustralia\u2019s house prices are expected to begin declining in 2017 according to a new report from economic forecaster BIS Shrapnel. Michael Yardney<\/strong><\/a> gives us his take on that situation.
\nThe Reno Kings \u2013 Paul Eslick<\/strong> and Geoff Doidge<\/strong> \u2013 give us their all time top 10\u00a0road-tested tips to get the most out of a renovation.
\nWe invite Brad Beer<\/strong><\/a> from BMT Tax Depreciation to answer Gary\u2019s question about having to pay back depreciation claimed on a property when it is sold.
\nAnother topic we are asked to touch on from time to time is about managing a property when it’s going to be kept in the family. An expert in her field talks to us about some of the complications that can occur and how to best manage the situation.
\nAs the old saying goes, if it sounds too good to be true it probably is. If you come across a property marketed with a rental guarantee, tread carefully according to Damian Collins<\/strong> who outlines why he is wary of properties offering \u2018the deal of a lifetime\u2019.
\n <\/p>\n

Transcripts:<\/h4>\n

Damian Collins<\/h3>\n

Kevin<\/b>:\u00a0 Ask any wise investor and they will tell you that if it sounds too good to be true, then it probably is. Now, this can apply to rental guarantees. Let\u2019s find out what they are, first of all, how you should be a little bit wary of them, and what you should be aware of before you start to get involved with rental guarantees.
\nJoining me is Damian Collins from Momentum Wealth. They are buyers agents in Western Australia. Damian, firstly, tell me what a rental guarantee is and why you think we should be cautious of them.
\nDamian<\/b>:\u00a0 Kevin, a rental guarantee is usually provided by developers, whether that be residential property, sometimes serviced apartments, or hotel operators. What they\u2019re providing to the investor is a guarantee of the rental return over a period of time. Sometimes they range from one year, sometimes even up to three, four, or five years.
\nWhat it effectively does is it means that the investor gets a certain level of return over that period, so they\u2019re not subject to the vagaries of the market going up and down. It sounds good in theory, but obviously, there are reasons why the developers offer it.
\nKevin<\/b>:\u00a0 Why do they offer them?
\nDamian<\/b>:\u00a0 Well, it\u2019s to give their investors certainty. Nervous investors \u2013 particularly first-time investors \u2013 in the market think, \u201cWell, what do I do if my tenant leaves? What happens if something goes wrong? What happens if the rents drop?\u201d All those things, they provide them with that certainty of the rental return.
\nBut, of course, nothing is for free. Any developer offering those sorts of rental returns has factored that into their sales price, so as a buyer of one of those properties you\u2019re going to be paying for, that rental guarantee is going to be loaded into the sales price.
\nAlso, importantly, I think what we often see is that the rental guarantees are not necessarily reflective of the market. When you come to getting a loan for the property, you often find that the valuers and the banks will only take the actual income based on the real market value, not what you\u2019re getting offered as a guarantee.
\nImportantly, you have to understand that when that guarantee period runs out, you\u2019re going to go back to the market levels. I\u2019ve seen them offered at 6 and 7% returns on properties where the real market value is probably closer to 4.5 to 5%. Investors get lulled into a false sense of security thinking they\u2019re going to get that rent forever, but the reality is that it\u2019s over market, and you\u2019re paying for it. One day, you\u2019re going to have to pay the price when it comes back to normal market terms.
\nKevin<\/b>:\u00a0 Damian, is it drawing a long bow to say that you could apply that to all properties that offer rental guarantees?
\nDamian<\/b>:\u00a0 Look, definitely. Nothing is free in this world. Anyone offering a guarantee is either struggling to sell it and they need to offer some extra incentive for people to buy it, hence, it might be overpriced, or alternatively, some other developer offering it, they have their profit margin they need to make. If they are going to pay 1 or 2% extra rental return for a couple of years, you can guarantee that there could be 4 or 6% in extra cost out of their pocket. They\u2019ve put that in the price, as well.
\nThere\u2019s certainly nothing for free in this world, and one way or the other, you\u2019re going to pay for a rental guarantee.
\nKevin<\/b>:\u00a0 If I were to see a property that seemed to be fairly reasonable on the surface in terms of its price and that rental guarantee looked fairly good, how should I proceed to make sure that I\u2019m not going to get trapped?
\nDamian<\/b>:\u00a0 The first thing I would be asking, Kevin, is why are they offering the guarantee? If the property was that good and stacked up on its own, why are they offering the guarantee? What\u2019s the purpose behind it? What am I missing here? What\u2019s hidden?
\nI\u2019d certainly be doing my own thorough market research on what is the proper and fair value for that property without any rental guarantee. At the same time, I\u2019d be looking at also what is the fair rental market without this inducement of the rental guarantee. Do your numbers based on that.
\nThe guarantee is a nice little additional bonus, but most people do get lulled in that false sense of security and end up paying too much for it because of that security. Do your homework, find out what\u2019s the real market value of the property, what\u2019s the real market value of the rent, and if the numbers still stack up, well, it\u2019s worth having a look at. But in my experience, the vast majority of them, that guarantee is loaded into the price.
\nKevin<\/b>:\u00a0 We\u2019re talking here about rental guarantees, of course, but could you draw the same conclusion from a property where they may offer you a Mercedes Benz with every unit that you buy or an overseas holiday? Could you draw the same conclusion from those?
\nDamian<\/b>:\u00a0 Definitely, Kevin. Again, there are two reasons why. People offering a Mercedes or offering overseas holidays, it\u2019s simply one or two things. It\u2019s that they can\u2019t sell them at the price they want and they need to load that in, so it\u2019s over priced for the real market value and they\u2019re using those as additional incentives. It\u2019s either that, or they\u2019re really just looking for other ways to maintain that price.
\nNothing is for free. Developers factor that into their project. Holidays, Mercedes, anything over and above or just to buying a normal property on fair market terms and conditions, at the end of the day, the buyer is usually paying for one way or the other.
\nKevin<\/b>:\u00a0 Good advice there from Damian Collins from Momentum Wealth. They\u2019re buyers agents in WA. Damian, thanks for your time.
\nDamian<\/b>:\u00a0 Pleasure, Kevin.
\n <\/p>\n

Michael Yardney<\/h3>\n

Kevin<\/b>:\u00a0 According to a report by economic forecaster BIS Shrapnel, Australia\u2019s house prices are expected to begin declining by 2017. It\u2019s a fascinating report. I want to get an insight into this.
\nJoining me to discuss that, Michael Yardney<\/span><\/a>\u00a0<\/span> from Metropole Property Strategists<\/span><\/a>.<\/span> Michael, you\u2019ve seen that report. What\u2019s your take on that?
\nMichael<\/b>:\u00a0 Well, BIS Shrapnel has got a good track record of predicting markets, I guess, as good as anyone else. Sometimes they get it right, sometimes they get it wrong. But I think this time, the claim that this cycle will end in 18 months to two years is pretty spot on.
\nKevin<\/b>:\u00a0 What\u2019s the trigger behind this, Michael?
\nMichael<\/b>:\u00a0 Well, let\u2019s maybe talk about what\u2019s going to be ahead, and then we can see what\u2019s going to cause it. I think this next year or so, we\u2019re going to have some interesting times economically in the world. Recently, Greece has had its financial problems, and then China has. The world is having some economic challenges, which will impact on Australia.
\nSome people are even suggesting Australia is going to need one or two months of recession where our economy slows down in response to that. What that means is interest rates are going to remain low and probably drop one more time.
\nIn that context, I believe that our property markets are going to continue doing well, driven by lowish interest rates, but there will be some challenges with some consumer confidence, just with all the bad news happening.
\nBut what will eventually finish this cycle \u2013 like every other cycle \u2013 is when interest rates go up, and that will happen when eventually, after all the bad times, the good times start occurring and our economy starts to pick up and our property markets go up even further. So, there are some good times ahead before the markets ease.
\nKevin<\/b>:\u00a0 Michael, I\u2019m going to ask you before we conclude our chat here today to take a long-term view for me and tell me what you think is likely to happen in the future, but I\u2019d just like to know how we can prepare ourselves for a market slowdown if it\u2019s ahead.
\nMichael<\/b>:\u00a0 The market is made up of multiple submarkets and multiple states, so when eventually things slow down, different segments will be affected differently. As interest rates go up, I believe that the first-home buyers will have their challenges. It\u2019s likely with some economic challenges that regional and smaller areas and areas not underpinned by multiple pillars of the economy are going to have their challenges.
\nOne way to prepare is owning the right properties in markets that are going to still remain strong. Avoid first-home owner markets. Avoid second-rate properties, which end up having challenges when the markets turn. Avoid regional areas. And really be careful of off the plan because one of the things in the BIS Shrapnel report is that in the future, they see an oversupply of the inner CBD apartments that are being built, in particular for the overseas investors.
\nCorrect asset allocation is number one, Kevin.
\nKevin<\/b>:\u00a0 Number two?
\nMichael<\/b>:\u00a0 I wouldn\u2019t speculate, and definitely, don\u2019t over commit financially. Like every other property cycle, this one is going to leave some investors who bought near the peak financially embarrassed.
\nThe problem is currently our markets are strong, enticing a whole lot of new people into the markets. Therefore, be cautious of what you\u2019re buying and make sure you have substantial financial buffers to see you through. In other words, have a line of credit or an offset account, so that if the market slows or the rents don\u2019t go up as much or more, particularly, if interest rates go up, you can cope with it.
\nKevin<\/b>:\u00a0 Excellent. Correct asset selection, don\u2019t over speculate, and that financial buffer, Michael, that\u2019s fairly important, isn\u2019t it? I\u2019ve heard you talk about that before.
\nMichael<\/b>:\u00a0 Well, it is. What tends to happen is that people budget and push themselves to their limits with today\u2019s interest rate, but could you cope if interest rates go up a percent or two? Fortunately, the banks are protecting us. No one likes it when the banks say no, but more banks today are actually factoring that in to make sure that you can weather the storms ahead, because this too shall pass.
\nKevin<\/b>:\u00a0 This too shall pass. I\u2019ve heard you say that before, too.
\nMichael, just in closing \u2013 another minute or so \u2013 could you just get the crystal ball out, and what\u2019s ahead?
\nMichael<\/b>:\u00a0 Well, I believe that this next financial year, 2015\/2016, we\u2019ll see much the same as what happened in the last year. Melbourne and Sydney will be the leading property markets, but Brisbane is also going to catch up a bit. Melbourne and Sydney won\u2019t grow as much, but will have single digit capital growth.
\nI think that Perth is still going to have a year of flattened, slightly falling property values. Adelaide is going to be steady as she goes, probably going along with inflation. The smaller markets like Tasmania, Darwin, and Canberra, there\u2019s nothing really behind them to drive strong capital growth at the moment, Kevin.
\nKevin<\/b>:\u00a0 Michael, always good talking to you. Thank you for your insight there. Michael Yardney from Metropole Property Strategists. Of course, you can catch up with Michael\u2019s blog, just the address there, Michael?
\nMichael<\/b>:\u00a0 PropertyUpdate.com.au<\/a>, and we now have an app that you can get on the iTunes or the Google store to get daily blogs, as well.<\/p>\n

<\/h3>\n

Reno Kings Part 1<\/h3>\n

Kevin<\/b>:\u00a0 When it comes to renos and you want to know some top tips, you only go to one place, don\u2019t you? You go to the Reno Kings. We have Paul and Geoff on the line.
\nGood day, guys. How are you?
\nPaul:\u00a0 <\/b>Great, Kevin. How are you, mate?
\nKevin:\u00a0<\/b> Fantastic, thank you. I\u2019m really looking forward to your top ten tips. I asked you to put them together. Hey, Paul, do you want to lead off? What\u2019s the first one?
\nPaul:\u00a0 <\/b>Not a problem, Kevin. Look, one of the first and best and easiest ways to add value is to add a front fence. It\u2019s the best reno you can do. The fence is the frame around the Mona Lisa<\/i>, guys. Anyone can build one, or you can get someone in to come and do it for you, or even do a course at a local hardware shop.
\nFor existing tenants, it gives them security and helps hide in their children and hide in those pets. A lot of landlords don\u2019t like to have pets. I\u2019ll tell you what, Geoff and I, we love to have pets. I don\u2019t know of anybody who doesn\u2019t have a pet who is a tenant, and that can raise the rent.
\nYou can put another tip here, guys. Go on and put a kennel in there. You can raise the rents and also depreciate it at the same time.
\nAnother reason for putting in a fence is the valuer. The valuers these days are doing a lot of RA, which are restricted assessments. They\u2019re driving past at about 60 kilometers an hour. They like to look at street appeal. One of the best things to do is put a fence up there. It will look fantastic.
\nAnother reason you put up a fence around the front there is your banker. They like to see where they\u2019re money is parked at a polished residence. Putting a fence around the front of your place, it just gives it street appeal. It makes it look fantastic, Kevin.
\nKevin:\u00a0 <\/b>Talking about street appeal, what about that front veranda?
\nPaul:\u00a0 <\/b>Kevin, that\u2019s exactly right, that front veranda. A lot of enclosed verandas look terrible and they have no street appeal. That\u2019s come since the Second World War, when they had to enclose it to create more inner space after the War. They had a baby boom, so what they\u2019ve done is they\u2019ve enclosed it and left it like that.
\nI\u2019ll tell you what you do. You go in there and you open it up. It goes back to the original, and it looks so much more street appealing. You get the breezes. You get to know the neighbours. It\u2019s a no-brainer.
\nMost of the existing balustrades, handrails, just check that they\u2019re in good condition. They\u2019re already sitting there. All they\u2019ve done is framed on the outside and enclosed it in the there. Open that up, and you\u2019ve opened up yourself to a great, big amount of capital gain.
\nKevin:\u00a0 <\/b>The tenants love it, as well, don\u2019t they, Paul?
\nPaul:\u00a0 <\/b>Of course. You know why? Because they can sit out there. They can look. It gets the breezes. The idea of having a veranda wherever you go is to give you shade, to give you some outdoor breezes. You don\u2019t have to have the air conditioning on. You\u2019re outside, enjoying life.
\nOne of the best things that we always do when we have a veranda, or even a deck, is go there and put in a barbeque. That can also increase the rent and, at the same time, make sure the people dine out more than inside and make that kitchen last longer.
\nKevin:\u00a0 <\/b>Geoff, what about you? Have you got a tip for us?
\nGeoff:\u00a0 <\/b>Yeah, I have one. It\u2019s a very simple on. I agree Paul with the street appeal. The other one is that you know how long it takes to paint a house. I bought this house. It was very heavily shaded by trees and so forth. What happens, when you get that, is you get mold build-up. All the [3:13 inaudible]<\/b> were black. There was mold over the walls. I hired a guy. He was ridiculously cheap. In an hour, he went around with his chlorine wash and cleaned that place up.
\nJust to tell you how good this was, I did other renos as well, and I got a valuer in to value the place. He said, \u201cFantastic paint job you\u2019ve done here.\u201d I hadn\u2019t painted. I didn\u2019t say anything. I just nodded. I got a really good value for that place. It\u2019s so easy.
\nI\u2019m not an accountant, but if you paint the house in the first 12 months, you might not be able to claim that on maintenance. Check that with the accountant. But this way, it was almost as good as a full paint job.
\nKevin:\u00a0<\/b> Paul, Geoff\u2019s talking now about painting. Paint is really a great way to improve a place, isn\u2019t it?
\nPaul:\u00a0 <\/b>Kevin, it\u2019s one of your best bang for your bucks. I don\u2019t know of anyone who can\u2019t paint. I can tell you, one of the best tips here, if you\u2019re going to get out there and paint, get your head around an airless sprayer.
\nI painted a three-bedroom house internally, all the rooms, in 63 minutes. I\u2019ll tell you what, it looked absolutely fantastic. You can hire those for about $100 a day. Get lessons with water before get out there. Do that with the hirer. It\u2019s a dangerous tool, so make sure you follow the instructions. What we do is you always use water-based paints.
\nNo matter what, painting is your best bang for your buck. Whether you use an airless spray, you roll it, or you use the old-fashioned paintbrush, you can get in there and get out quickly. If it\u2019s a rental property, it\u2019s a business. Don\u2019t go in there with your thoughts of what you\u2019d like to see in that property.
\nGo in there and paint the whole thing the one color. If you want to pick out some feature walls, do so. We don\u2019t any more. We\u2019re in and out quickly. It\u2019s a business. I\u2019ll tell you what, I\u2019ve never had a tenant come around one of my rental properties and say, \u201cIt\u2019s all the same color. I can\u2019t rent this.\u201d
\nPainting, Kevin, is your best bang for your buck.
\nKevin:\u00a0<\/b> I\u2019ll tell you what, I think the first place where I ever saw the two of you was on A Current Affair<\/i>, when you ripped through a house and you painted it in no time at all.
\nPaul:\u00a0<\/b> I can tell you that Geoff stood still for a second, and I painted him by accident. Look, you have to move when I\u2019m in there with that paint. Kevin, people just don\u2019t understand the value of a paint. I\u2019ve got a thing here with paint. When I go and pick it up, I look for the heaviest can, because I think the heaviest is the best quality.
\n <\/p>\n

Brad Beer<\/h3>\n

Kevin<\/b>:\u00a0 I had a question sent in, which we\u2019re going to answer now, from Gary. Thank you for the question, Gary. I\u2019ll just quickly read through it and then introduce the person who will answer it for you.
\nI have an investment property that I claim depreciation on each tax year. Can you please advise what happens when I sell the property? Do I then have to pay back everything that I\u2019ve claimed? Does this mean all of the deductions have to be paid back?<\/i>
\nFor example, if I get $5000 worth of depreciation and I\u2019m on a 30% tax bracket, I get approximately $1500 back. Do I only have to factor in the $1500 or the full $5000? How does it work?<\/i>
\nWell, Gary, let\u2019s get an answer on that question for you from Brad Beer from BMT Tax Depreciation experts.
\nBrad, thanks for your time.
\nBrad<\/b>:\u00a0 Thanks, Kevin. It\u2019s nice to be here.
\nKevin<\/b>:\u00a0 Can you answer Gary\u2019s question?
\nBrad<\/b>:\u00a0 Look, I can. The question relates a bit to his situation. It\u2019s a bit of an accountant whirl, but I\u2019ll give you the how depreciation affects capital gains tax answer really, and in this particular scenario, I can give you pretty close to what it would be, definitely.
\nKevin<\/b>:\u00a0 Fire away.
\nBrad<\/b>:\u00a0 Now, it is a very regular question I get. We\u2019re the quantity surveyor that works out the depreciation. We don\u2019t do the rest of your tax return, but I kind of know how it works.
\nWhen you claim depreciation what happens is and in this example, he\u2019s saying, \u201cIf I claim $5000 worth of depreciations, I get that back at my tax rate at 30% at $1500.\u201d Now, if or when you actually sell a property, what happens is that that $5000 actually gets added to your cost base for the purpose of capital gains tax. What\u2019s going to happen is you\u2019re going to pay more capital gains tax based on what you claimed.
\nHowever, usually, under the current rules, what happens is you get a 50% exemption on that capital gains tax payable, providing you\u2019ve owned it for 12 months or more. What that means is that in this scenario, there\u2019s $5000 additional income added to the end value from a cost base perspective, and you\u2019ll pay additional capital gains tax at half of that marginal rate. In this scenario, he\u2019ll pay back $750 of his $1500 effectively on the sale of the property.
\nKevin<\/b>:\u00a0 There\u2019s still a net benefit, though, isn\u2019t there?
\nBrad<\/b>:\u00a0 Yes. The fact is he\u2019s made a deduction, he\u2019s got $1500 in the pocket, and then if he sells the property, for that year, he\u2019s going to pay $750 of it back to the tax office. Now, that\u2019s only half of it.
\nThere are different tax brackets and things like that, but what happens is in most scenarios, because you\u2019re only paying that tax at half the amount, it pretty much always works out that it\u2019s worth actually claiming it on the way through, and then at the end, when you pay some additional capital gains tax, you\u2019ve put more money in your pocket on the way through.
\nThe other thing is also about the time value of money. If I get a dollar in my pocket today, it\u2019s worth more than a dollar in my pocket in a year or two years or three years\u2019 time. Capital gains tax is something you pay if you sell or when you sell, which will \u2013 I assume \u2013 be at a later date. You get to use that money. You can put it into reduce debt and do things on the way through. You just need to have some more available at the time when you potentially sell the property.
\nKevin<\/b>:\u00a0 As always, though, Gary, make sure that you check with your accountant. I\u2019m sure you would agree with that, Brad. Just check with your accountant. Your individual circumstances may alter that advice.
\nBrad<\/b>:\u00a0 Definitely.
\nKevin<\/b>:\u00a0 Brad, can I just ask you, at this time of year, any advice that you might have for property investors?
\nBrad<\/b>:\u00a0 Well, Kevin, it\u2019s interesting. Over the last few months, there\u2019s been a fair bit of heat in a lot of markets around a lot of the country \u2013 not everywhere, but a lot of the country. One thing that makes me think about is just making sure you\u2019re crunching your numbers properly. If prices have moved forward, the cost of owning that property is a little bit higher than it used to be, and really have a good look.
\nIt\u2019s all well to follow what a lot of people are buying and feel like you really need to get into the market right now before they go up too much, but you still have to make the payments, you still have to hold the property over time and make money or wealth out of that property in the future, so make sure you crunch your numbers \u2013 depreciation estimates are one part of that \u2013 and see what really is going to cost you to hold that property.
\nConsider that interest rates could go up in the future at some point when you do that, so make sure you do some scenarios both ways to make sure you could still hang onto it so that if it\u2019s not quite so hot, you are still safe.
\nKevin<\/b>:\u00a0 Very good advice from Brad Beer from BMT Tax Depreciation<\/span><\/a>.<\/span> Brad, thanks again for your time.
\nBrad<\/b>:\u00a0 Thanks, Kevin. Appreciate it.
\n <\/p>\n

Carolyn Majda<\/h3>\n

Kevin<\/b>:\u00a0 In your attempt to find the best possible tenant, sometimes it\u2019s a temptation to pick a family member and maybe rent to them. You think, \u201cOh, well. I\u2019ll put Aunt Mary in there, or our little cousin, or even our son or daughter, because I know what they\u2019re like.\u201d There are some things that you need to be aware of. Let\u2019s find out what they are.
\nJoining me now is Carolyn Majda from Terri Scheer Insurance. Carolyn, do you see this very often?
\nCarolyn<\/b>:\u00a0 We do tend to see it. I wouldn\u2019t say it\u2019s the most common form of renting, but certainly, we do see it, especially if people are in the country \u2013 rural areas \u2013 and their children might move to the city for studies or things like that. We often see it.
\nKevin<\/b>:\u00a0 Of course, there\u2019s nothing wrong with doing it, provided you treat it like a business and are prepared to treat them like a normal tenant.
\nCarolyn<\/b>:\u00a0 Absolutely, and it really depends on each family\u2019s circumstances, obviously. But I think keeping the emotion out of it and making sure that you do remember it\u2019s an investment property \u2013 you\u2019re investing for a reason \u2013 and make sure that whoever the family member is does respect the fact that it is a rental property and they still have obligations whether you\u2019re their mother, or their aunt, or whoever you are.
\nKevin<\/b>:\u00a0 Give us the ground rules. What should we be aware of if we are going to go down that path?
\nCarolyn<\/b>:\u00a0 Certainly. Make sure that you have a proper lease in place. A verbal agreement is all well and good until something goes wrong, and things can go wrong. You never know what\u2019s going to happen with family, so we would certainly recommend having a lease in place.
\nAppointing a property manager even takes it a little step further in having somebody managing it for you. The property manager is looking after it on a day-to-day basis, and you\u2019re not having to get too involved. That keeps it more of a business-type relationship as opposed to an emotional family relationship.
\nKevin<\/b>:\u00a0 Yes, because the temptation would be great there \u2013 wouldn\u2019t it? \u2013 given that it\u2019s someone you know to say, \u201cWell, look. We\u2019ll just do this rental agreement between us and manage it myself.\u201d
\nI mean there\u2019s one thing about managing a property with a tenant you don\u2019t know, but it\u2019s probably even worse with someone you do know.
\nCarolyn<\/b>:\u00a0 It really could be. Some of the things that we see, of course, is people who don\u2019t pay the rent on time because it\u2019s mum or dad or whatever. They\u2019ll say, \u201cLook. You just hold me over this month, and we\u2019ll get it to you next month.\u201d Then next month becomes the following month, and suddenly, you\u2019re in a bit of strife.
\nSimilarly, with caring for the property and keeping it neat and tidy \u2013 whether or not the owner would actually do inspections as often is because they might have seen that because there\u2019s a family member in there that they\u2019re looking after the property properly. It\u2019s not a given that that does happen.
\nKevin<\/b>:\u00a0 For any owner of an investment property who wants to manage their own property, what services do you provide through Terri Scheer Insurance?
\nCarolyn<\/b>:\u00a0 We do offer an insurance policy for self-managed landlords. Previously, it was only available if you had a property manager, but we do recognize that there are a lot of investors who almost have their own little business in investing and know how to look after a property. There\u2019s certainly insurance available now to assist to help cover those things that you just can\u2019t control. That\u2019s things like your loss of rent and the damage that can be caused by tenants.
\nKevin<\/b>:\u00a0 What are some of the classic areas where you\u2019re finding claims coming in, where people are being protected?
\nCarolyn<\/b>:\u00a0 Loss of rent is obviously the most frequent claim that we have, and there are various reasons that people might not be paying their rent. It could be something like hardship where they\u2019ve lost their job or something like that and they\u2019ve been released from the bond obligations, right down to your absconding tenants, things like that. Loss of rent is certainly right up there.
\nQuite often with a loss of rent claim, there will be a malicious damage claim, as well, especially if a tenant has been evicted. They might be very angry about that, and so their parting gift to the landlord \u2013 if you like \u2013 is a couple of holes in the walls or something like that.
\nI spoke with a property manager once who was telling me that he served notice on a woman, and she had just come back from doing her grocery shopping. She had a carton of eggs in her hand, and she proceeded to throw the eggs all around the lounge room walls and up into the ceiling fan. There was just egg splattered everywhere.
\nThey\u2019re the types of things that can happen. You just don\u2019t know.
\nKevin<\/b>:\u00a0 No, you don\u2019t know. I think it gets back to what you said right at the very start, too \u2013 no matter what you\u2019re doing, whether you\u2019re managing it yourself or whether you\u2019re getting an agent to manage it for you, you must treat this like a business because that\u2019s what it is and to make sure that you get the leases in place and run it like a business.
\nCarolyn<\/b>:\u00a0 Absolutely. I think the other thing, too, is making sure that if your tenants do get behind in their rent that you act really quickly to try to reduce that loss. Generally, with a landlord insurance policy, you\u2019ll need to show that you\u2019ve taken steps to try to mitigate that loss. You can\u2019t just let it go and not serve notices on tenants. Whether they\u2019re your family or not, you still need to do that if you\u2019re running it like a business.
\nKevin<\/b>:\u00a0 Very good advice. I\u2019ve been talking to Carolyn Majda from Terri Scheer Insurance. Carolyn, thank you very much for your time.
\nCarolyn<\/b>:\u00a0 Thank you.
\n <\/p>\n

Reno Kings Part 2<\/h3>\n

Kevin:\u00a0<\/b> Earlier in the show, you\u2019ll recall I was talking to Geoff Doidge and Paul Eslick, who are the Reno Kings. They\u2019re giving us their top-ten renovation tips. Let\u2019s continue that series now.
\nGeoff, let\u2019s talk about adding something to a property. What about a carport?
\nGeoff:\u00a0 <\/b>Now, we\u2019re talking rental property here. The most important thing I\u2019ve found for a tenant is a vehicle. Quite often, that\u2019s why they haven\u2019t bought a house, because they\u2019re still paying off their cars. They love their cars. If you can appreciate that and protect those cars, then you\u2019re ahead of the game. I\u2019ve done this so many times now.
\nHow you do it is you get a professionally engineered shade sail and put it up as a carport for a couple of thousand dollars. Make sure it is properly designed, none of this pulling a few ropes and those saggy, baggy sails that you bought from the local hardware store. Get it professionally done, and do it with tension. They have turnbuckles and so forth. Make it look really good.
\nQuite often, even if there is a garage, I put them up. People put their car outside and they use their garage for other purposes, maybe rumpus room or whatever. There\u2019s no council approval, because it\u2019s with shade cloth. It\u2019s high-density shade cloth. In fact, it keeps most of the rain out. You might get a few drops through. So no city council approval. Check with the town planner.
\nYou can actually do this over decks and other areas, as well. It\u2019s just so powerful, adding a carport.
\nKevin:\u00a0 <\/b>What about a bedroom, Geoff?
\nGeoff:\u00a0 <\/b>Well, you have to have a bedroom.
\nKevin:\u00a0 <\/b>Can you add a bedroom? Is it worthwhile doing?
\nGeoff:\u00a0 <\/b>We keep on saying, \u201cThis is the best tip,\u201d but this<\/i> absolutely is the best tip because it brings you so much equity. If you go and look on any real estate search engine and compare a two-bedroom to a three-bedroom, you\u2019re going to find a difference \u2013 depending on the suburb \u2013 of $50,000, $80,000, $100,000, just on that.
\nNow, when you\u2019re going out and looking for property, have a look for a big combination lounge\/dining room or a little area off a hallway. If you can put up two walls and a door, voila, you\u2019ve got a bedroom. Just put a few electricals in there, a light socket, and your power point.
\nNormally, it would cost me about $2500 to do and be done in a day or two. They\u2019re non-load-bearing structures, so no engineering required. Just make sure you use a registered builder to do it.
\nKevin:\u00a0 <\/b>Indeed. The other thing I want to talk to you about too, Geoff, and I know you\u2019re a great believer in this, is actually bring the outdoors in or combining the two, just opening a house up like that.
\nGeoff:\u00a0 <\/b>Yes, it\u2019s a balance between what I was saying before when you\u2019re putting a bedroom in. What you do is to compensate for using that lounge\/dining room. If you can find a window leading to an outdoor area, any external window can be turned into a door, because it\u2019s already supported over the top.
\nYou basically cut down from the sides. You turn your window into French doors or just a normal door. Make sure it\u2019s clear glass so you can look outside. You walk outside, even you have to walk down a couple of steps. Then you pave that area there. Put your shade sail over the top. Put a private fence around the outside. You\u2019ve got a private courtyard. A private courtyard adds so much value. It gives you that indoor\/outdoor look that flows through living area to the outside.
\nKevin:\u00a0 <\/b>Paul, I just want to get back to you, if I may. Some of the big-ticket areas, like kitchens, they\u2019re well worth doing up, aren\u2019t they?
\nPaul:\u00a0 <\/b>Let\u2019s put it this way, Kevin. If this room isn\u2019t renovated, then the house isn\u2019t renovated. That\u2019s according to my better half. I wouldn\u2019t fight her any day.
\nIf the carcass is okay \u2013 and that\u2019s what the door swings off, that\u2019s what the drawers slide into, and that\u2019s what the benchtop sits on \u2013 then don\u2019t rip it out. What you have to do then is either replace the doors or paint the doors. You can paint them with a laminate paint. Change the knobs and handles on all the doors. That\u2019s all you have to do. It\u2019s very easy. They\u2019re cheap as chips, $1.30.
\nIf the splashback is of tiles, go and get some tile paint and paint the back of tiles. Polish the sink. Go and get some professional stainless steel polish, probably from a marine supplier. Go and polish that. What you can do then is just go and get a [5:01 inaudible]<\/b>. You can get those for $30. Put that in there. All of a sudden, it\u2019s going to look fantastic.
\nPut a new light in there. I like the circular fluoro lights. Give it plenty of light. The window furniture, just take the old-fashioned ones off. Open it up. I even like venetians, because you can let light in. You can see in. Also, at the same time, you have some security and privacy yourself.
\nUpdating a kitchen, it\u2019s a real expensive area, but if you go about it the right way, gee, you can make a lot of difference. I know of a bloke who spent $240 just using laminate paint, changing the window furnishing, and painting the splashback, and I think he increased the value of that kitchen by about $6000. That\u2019s for $240. That\u2019s the power of just doing a minimal on an area that costs a lot.
\nKevin:\u00a0 <\/b>Paul, what about that other big-ticket area, the bathroom?
\nPaul:\u00a0 <\/b>That bathroom, I can tell you, that\u2019s another area, if it ain\u2019t renovated, then the house ain\u2019t renovated. You have watch the costs in those areas. Of course, there\u2019s a lot of plumbing in those particular areas.
\nWhat I do is if I go into a bathroom\u2026 If you had a house that was painted pink, would you demolish it? Would you get rid of it? You wouldn\u2019t. You\u2019d go out there and you\u2019d paint it. So what? You go in there, and you repaint that funky pink bath. You paint it white.
\nYou can get a professional in there or you can do it yourself. Lots of products out there. Go and Google it, have a look at it. Paint those yellow shower tiles with a white tile paint. It looks fantastic. Anyone can do it.
\nDestroy that shower curtain. I\u2019ll tell you what, they are just disgraceful. Replace it with a clear glass shower screen, the 6 millimeter clear glass in a white frame will do. You don\u2019t have to go frameless here, to cut down the cost.
\nRenew that vanity basin with a new covered one. Go white and go polymarble. It looks fantastic.
\nYou can get a pan and cistern these days for about $139. Why get on your hands and knees and try and clean all that up when you can just go and get a new one? Make sure the old fitments fit into the new ones.
\nOpen up the whole lot with a good paint job. Make sure you paint that bathroom white because of three things. It makes it BBC \u2013 it makes it bigger, brighter, and cleaner.
\nKevin: <\/b>I\u2019ll bet too, Paul, that you and Geoff have been into many renovations, lifted up the carpet or the liner, and found those beautiful timber floors just waiting to be polished.
\nPaul:\u00a0 <\/b>That happens all the time, doesn\u2019t it, Geoffrey, with that sanding and polishing?
\nGeoff:\u00a0 <\/b>Yes. Don\u2019t do it yourself.
\nPaul:\u00a0 <\/b>I\u2019ve done the dance once, so I can tell you. You can hire a machine. You can hire the edger. You have to make sure you hammer those nails down. You can do the dance. I\u2019ll tell you, after doing it for a long time, you only have to do two and you\u2019ll never do it again, because you get a professional in. They can do it quicker, easier, and better.
\nI can tell you, the difference is that after you\u2019ve done it, you really know the difference between the floors. You can have a look and just try a small section of the floor there before you do it to make sure it\u2019s going to be okay.
\nSometimes you get a lot of borers that are a quarter of a millimeter under the surface. Once you strip that first quarter of a millimeter off with the sander, it\u2019ll expose that and it\u2019ll look horrible. Sometimes you\u2019ll go back to carpet. But if you test it and it looks okay, polished floorboards, man, don\u2019t they look fantastic in a house?
\nKevin:\u00a0 <\/b>Wonderful stuff, guys, here. They\u2019re top ten from the Reno Kings. Geoff and Paul, thanks for your time, guys.
\nGeoff:\u00a0 <\/b>Thanks, Kevin.
\nPaul:\u00a0 <\/b>Thank you very much, Kevin.
\n 
\n <\/p>\n","protected":false},"excerpt":{"rendered":"

  Australia\u2019s house prices are expected to begin declining in 2017 according to a new report from economic forecaster BIS Shrapnel. Michael Yardney gives us his take on that situation. The Reno Kings \u2013 Paul Eslick and Geoff Doidge \u2013 give us their all time…<\/p>\n","protected":false},"author":176692471,"featured_media":5265,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[24],"tags":[101],"class_list":["post-5262","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-shows","tag-podcast"],"yoast_head":"\nRental Guarantees | Prices predicted to fall by 2017 | The Reno Kings' tips | How depreciation affects capital gains tax? | Renting to Family Members - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/rental-guarantees-prices-predicted-to-fall-by-2017-the-reno-kings-tips-how-depreciation-affects-capital-gains-tax-renting-to-family-members\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Rental Guarantees | Prices predicted to fall by 2017 | The Reno Kings' tips | How depreciation affects capital gains tax? | Renting to Family Members - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"  Australia\u2019s house prices are expected to begin declining in 2017 according to a new report from economic forecaster BIS Shrapnel. 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