Real estate investing: Are you managing your costs right?

Investing in a rental property is a great way to grow your wealth over time. This is especially true for anyone who wants to create wealth for retirement, as significant capital gains can take some time to build up.

As an investor, you're the one who is responsible for most of the costs that relate to your property. Things like electricity bills and gas usage are payable by your tenant, but there are other expenses you're accountable for.

This might include council taxes, interest on your home loan, advertising fees, management costs and repairs. While this might set you back a bit, you need to remember that it's for your investment and it will pay off in the future. 

The key is to ensure you're managing your costs right. Get this wrong and you could be paying more than you should, possibly leading you to lose money or maintain an investment that's too expensive for your current budget. 

Claim deductions

Towards the end of the second quarter of every year, many people get themselves ready for the end of the financial year. This falls on June 30 and marks the deadline for your tax returns. What this means for you as an investor is that you need to have your deductions identified and finalised by this time. 

Property investors are fortunate enough to have a wealth of tax deductions available to them. This includes things like agent fees, repairs, maintenance, property insurance, depreciating assets and even travel to your rental home. 

Claiming these costs as tax deductions gives you the opportunity to reduce the amount of taxable income that you earn from your property – allowing you to be financially savvy with your investment. 

Keep track of your spending

It can be easy to overspend on your investment property, whether it's through significant repairs, loan repayments or otherwise. To ensure you're not overspending on holding costs or other expenses, you should speak with a wealth coach to map out what you'll need to pay and how it might affect your goals. 

Perhaps refinancing your current mortgage could help educe the amount of interest you're paying. You might even set aside funds each month to pool money together for maintenance costs. This can definitely help you in the future, should any expensive issues or repair jobs arise. 

Aside from this, employing a property manager or accountant to keep a sharp eye on the incoming and outgoing funds will help you track where your money is going. 

Make sure you have cash flow

Being a property investor means you need to have available funds to spend on your rental home. While equity from your personal residence or other investment properties can cover the deposit for another home, you'll need money for other costs, too. 

By managing your costs correctly from the get-go, you can ensure you have the funds available to pay for other expenses, whether they're quarterly council taxes or repair bills.