Property investment within Australia is a highly popular avenue for building wealth, and for good reason! With a stable economy and political environment plus numerous tax benefits and historically consistent capital growth; you don’t have to be a big earner to take advantage of the property market and become a property investor. Is there some kind of secret to property success but? Not really – however the following tips are sure to help you when buying an investment property.
These days you’re able to access information on nearly every property within Australia. Data such as sales history, the selling agent, demographics, amount sold for and so on is available on sites such as PDS Live and CoreLogic. This means you can research specific suburbs extensively and identify future indicators for growth. Speaking to an agent in the local area should also be considered – they’ll give you the insider’s knowledge on factors that may influence your decisions, such as which side of the street is better and if there’s any planned developments in the vicinity. Just make sure you’re talking to an expert in that suburb and then backing up their advice with your own independent research – it’s pretty much the property investors equivalent of measuring twice and cutting once.
There’s a plethora of loans out there these days, all spruiking various benefits which may or may not be applicable to your situation. Finding a loan that’s suited to your goals is one way you can make buying an investment property a whole lot easier. Take into consideration loans that offer advantages such as interest only repayments, the ability to split your loan and whether you’re able to take a repayment break. If you’re able to find a loan that’s been tailored to your property investment requirements, you may save yourself unnecessary stress or fees further down the track.
An understanding of negative and positive gearing, capital gains tax, and what you can and can’t deduct is the foundation of any good property investment strategy. By taking the time to learn all about tax concessions available to you as a property investor, you’re able to reduce the amount of tax you pay annually or on a sale. Obviously the best way to learn is by taking a hands-on approach, but don’t be afraid to ask your property manager of investor friends for advice to make life easier. They’ll probably have a better understanding of the specifics relating to concessions you’re eligible for; and be better at keeping records of any transactions or statements required for tax purposes.
As an investor you need only to look for a property that’s clean and functional. Of course it should be something that you could live in if you had to, but don’t seek out a home or apartment that’s only appeals to a niche market or is “full of character”. Just remember you’re buying purely for investment purposes and the home is for a tenant, not your family. That being said, you will most likely sell the property in the future, so keep that in mind when witling down your list of potential investments. The worst home in the best street will always retain its value!
So you think you’ve found the perfect investment property? The numbers check out; the neighbourhood is showing signs of growth; and there’s a backlog of willing tenants looking for a rental property. Before you sign anything though, it’s imperative the property is looked at by a building and pest inspector.
Having to replace the roof or hot water system shortly after buying could make a significant difference to your profits and damage your cash flow. If there are repairs to be carried out, only use a fully qualified tradesman that’s licensed to undertake said project. Don’t be afraid of a little hard work though – sometimes a property that’s not in peak condition can be improved and capital added for only very little outlay.
The less money you owe the more you can borrow, which makes reducing your debt a sound strategy if you’re thinking about investing. This is especially the case if your debt isn’t producing income e.g. a personal loan or your own home loan.
As a property investor it’s important to understand that cash flow is king, and by taking all payments and fees into consideration, you can make a more educated decision on whether or not to buy. Sitting down with a financial planner is one method for guaranteeing that the numbers are tidy, however if you’re new to the property game it’s still possible to do this yourself. A word of advice – calculate all costings after tax so you can get a better overview of just how much you’re going to be spending.
As tempting as it may be to save a few hundred dollars a year on the services of a property manager, take it from us, they’re worth every cent. Not only do they live and breathe property management, they can also take care of all those time consuming tasks associated with tenants and rental properties. The fee for a property manager is nearly negligible at the end of the day, as it can be claimed as a tax deductible. It’s also usually a highly competitive rate in a hot market. Think about them as another way to limit the amount of time you as a property investor spend on non-moneymaking activities and reduce all the stress that goes with being a DIY manager.
They say that 90% of the purchasing decision for homebuyers is based on emotion, with the remaining 10% on logic. That’s fine if you’re looking to raise a family or build your life around it, but when it comes to being a property investor, you need to be as a cold as the slab the home sits on.
Not letting your heart make decisions on your heads behalf means that you can make objective choices and avoid paying too much for a property that you only need to rent. Negotiating a price becomes a breeze because if you miss out, it’s ok. There’s bound to be another opportunity around the corner. And as long as the numbers work out, you’re happy right? Buying an investment property requires an analytical approach. Questions such as “is it in a high growth area?” or “will it appeal to renters?” are much more suitable to ask yourself, as opposed to “will I have nice views of the landscape?” or “could this be a great holiday home?” Investing is about economics, not emotion, and buying with the later can get you in serious strife.
Are you aware of all the costs involved with owning a property? Interest rates on your mortgage in conjunction with council rates, land tax, property management fees and insurance can all add up and blow out your profit margins if you’re not careful. Ongoing maintenance costs should also be considered, especially if the home is more than 10 years old. By talking to property managers and familiarising yourself with all outgoings relating home ownership, you can budget accordingly so you know where you stand.