At LongView we have come to realise that nearly half of our clients are ‘Accidental Landlords’. What do we mean by that? People who have inherited their investment properties or moved out of their family home and rented it out. So what? Why does that matter? Well the questions and challenges for accidental landlords are different to those of what we call “active property investors” – those who specifically bought their property from day 1 as an investment. If you are an “accidental landlord”, read on and we’ll talk about why you should care.
Curiously, Accidental Landlords’ properties are often better investments than those of active property investors. Why? How can that be? Because they are often properties with greater ‘land content’. A property inherited from parents, grand-parents or a family member was often a family home many years ago when larger gardens on bigger blocks were the norm. If they were bought many years ago, they are probably closer to the CBD and closer to public transport, shops, good schools and other amenities. So the good news is that being an Accidental Landlord doesn’t make you a poor property investor – you may have a very good investment property that will experience substantial long term capital growth.
Is it all good? Well, not always. Land appreciates, buildings depreciate, so old family homes are good for capital growth. But they often have old homes/buildings that have relatively low current rental income, so they can be lower yielding than newer properties.
Secondly, they may attract higher land tax because of their high land content.
Thirdly, they often have little if any debt attached – which is great news from a security and peace-of-mind point of view, but may mean your money is ‘not working hard for you’ – what if you borrowed against the property to buy another property as well and doubled your capacity for capital gain?
And finally, when action is required to optimise the financial outcomes – for example to renovate the property to increase rental yield, subdivide it to create a second property, borrow against it to buy a second property, or sell it to redeploy the capital into other properties or other asset classes. There can often be complex family dynamics around agreements on any decision. Sometimes it is hard to get agreement and without agreement, often nothing happens. Which can hurt everyone’s financial interests.
That’s why we help our clients by offering to conduct a ‘Portfolio Review’ – to help you and your family look afresh at your real estate investments – whether they meet your future needs or what could be done to improve or optimise their fit to your needs. We also give impartial advice and lay out the options to help clarify the family decision-making process. At least when everyone is clear about what the practical alternatives are and the financial implications of each, it is easier to discuss and reach agreement. As John Maynard Keynes famously said “you are entitled to your own opinion, but not your own facts!”. By giving families a shared factual basis, we hope it makes it easier for everyone to get on the same page to make decisions.
So if you are an ‘Accidental Landlord’ and want to review whether your property/ies are delivering the best outcomes to meet your future needs, call or email Evan Thornley our Executive Chair on 0438899301 | firstname.lastname@example.org or Antony Cohen our CFO on 0419 381 905 | email@example.com and organise to have us conduct a Portfolio Review with you and your family. The service is free of charge because we want to help families make the best decisions for the long term, and this starts with a clear set of facts and options.