You’re ready to invest in a property. You’re all excited. You have loan pre-approval. Now, you are ready for your next steps and want to know what to look for in an investment property.
Property remains the favourite investment instrument for Australians. While investing in real estate is primarily focused on capital growth, liquidity remains important in ensuring that the investment can be financed and paid off in time. We’ve put together a list of things to check where you are looking for an investment property below, read on to learn more.
1. How can I choose the right property at the right price?
Buying an investment property at the right price is vital to the success of your property investment journey. Ascertaining the right price of a property is not straightforward and requires some research. So, if you are patient and have done your research well, you will definitely find the right property soon enough.
It is also generally advisable to invest in a suburb that you know as property investing is micro in nature. Contact your bank and arrange for independent valuation – at worse case, it is a good negotiating tool.
Lenders and mortgage insurers have valuable data on different locations and you can use their information to help you make the right decision.
While Australian law allows property investors to deduct lending and maintenance costs for the property against the total income, we do not recommend that you make an investment decision based on negative gearing alone. Negative gearing is a property strategy that allows property investors to offset certain tax benefits if the cost of the investments exceeds its income. Still, a loss is a loss is a loss! Instead, focus on making the right investment choice.
A steady stream of rental income will help with the cash flow and allow the holding of the asset to be more affordable. Investing in the right type of property for the demographic is also important – for example, a house with lawn space where there are the majority of families, apartments or units that are easy to maintain for metro areas and university suburbs etc.
2. Think local - Understand the local dynamics where you are buying
Research on several leading industry websites can help provide insights on what the local demographics are. Sometimes the price from one street to the next can vary significantly.
Another tip to be mindful of is to build a good relationship with the real estate agents in your targeted suburbs. They may have properties that are sold before they hit the market. Having you on the top of their list would certainly help.
3. Cash is King
While capital appreciation is often the goal in property investment in the long run, always ensure that you have sufficient liquidity. If you become cash-strapped, you may end up having to offload your property sooner than expected. And this may result in a loss. When you buy, make sure you have the strength to hold on.
The good news, on the other hand, is that over time, rents tend to increase and so does your income, so cashflow becomes easier if you spend wisely.
Leveraging equity from a property can be an effective way to actually raise money for a deposit. Beware that you do not take too high a risk because, unlike shares, you cannot easily sell off a part of your property. Banks and other lenders will give out loans to the value of a certain percentage of the difference between what you have borrowed and the valuation of the property.
5. Structure your loan correctly
Engage a financial advisor or a mortgage broker to help you structure a loan that is best suited to your circumstance – be it fixed, variable or a mixture of both. Interest on an investment property loan is generally tax deductible however, there are certain borrowing costs that are tax deductible and others that are not. It pays to find out those little details and the difference between them.
While interest-only loan is often advised for investment properties as you can write-off the interest amounts for tax purposes, it may not always be beneficial and having a principal and interest structure may fit better. This would also depend on your financial goals. So, there are no one-size-fits all!
6. Consider the age of the property
What should you look for in an investment property in terms of its age? If you are purchasing an established property, it is recommended to secure the services of a professional building inspector to investigate the issues that the building may have. Sometimes when purchasing a property that is not at its peak could allow you the opportunity to improve the value of the property through renovations and this increases returns for both capital growth and rental income.
7. Make your property attractive to tenants
When buying an investment property, ensure that your property attracts quality tenants. Choosing neutral and lighter colours are often advisable for homes. It is also recommended that the kitchen and bathrooms are kept in good condition and that you have appliances that are required by most tenants in WA. If you would like to know what amenities tenants are looking for, refer to our article on our blog.
A well-presented property usually pays off in ensuring that you can secure high quality tenants – who are worth their weight in gold.
8. A good Property Manager is a worthwhile investment
Some of the top reasons you should get a property management company to look after your investment property is that they will advise you on pricing it correctly, help ensure that good quality tenants are selected hence taking off the hassle of rental collection. They also help ensure that your asset is well maintained. In addition, you do not have to worry about the changing regulations and compliances.
The cherry on the cake is that the cost you pay to your property manager is typically a percentage of rent paid and this is also a tax-deductible expense.
After successfully purchasing the place, you will need to have an experienced Perth property manager who will proactively manage your investment for you. And here’s where Time Conti Sheffield’s 70 years in real estate come in. Trusted by the industry and community, our property managers have systems and processes in place that have stood the test of time in Western Australia.