Residential property has long been a favourite investment option for many Australians and many investors have been satisfied with their long-term returns.
However, it's important to understand the realities of investing in property and that it is neither an instant goldmine nor a failsafe way of achieving your financial goals. That said, many people who have bought real estate and managed their investment effectively have been able to significantly grow their capital over the long-term.
Let's look at 10 tips for buying an investment property.
1. Right property, right price
Your end game should be choosing a property that has the best chance of appreciating in value. That means buying the right kind of property, in the right area, at the right price. Now that may sound a bit daunting for first-time investors, but it's all about doing lots of research, familiarising yourself with the area and property values in that area, identifying what type of property (for example freestanding house, unit, apartment, vacant land) will be the best buy and whether the demographics of renters in the area (e.g. students, retirees, young professionals, families) will deliver the best returns.
2. Understand market dynamics
It's a good idea to get as much information on your chosen area from trusted and reliable sources to build up market intelligence before you decide on which property to buy. You'll need to know about things like average rents, property values, facilities and services in the area, traffic and demographics. It's also a good idea to get independent input from sources other than real estate professionals so you get a balanced view - and try and get inside information on planned developments (such as roads, future rezoning and other infrastructural projects) so you can make an informed buying decision. Many different factors have an influence on property values, so gather as much information as you can.
3. Sum it up
Historically, property is a long-term wealth creation vehicle - which means it's a long-term financial commitment. You want to make sure that you can manage the home loan repayments in the long-term because you don't want to prejudice your asset's wealth creation potential by being forced to sell prematurely. So do your sums and make sure your cash flow predictions add up to financial health over the long-term.
You should tap into professional resources such as your accountant, mortgage lender or bank to help you work out the funding and cash-flow requirements of a property investment.
4. Home loan help
There are many different ways you can finance your investment property, from fixed rate and variable loans to interest only loans, so it's crucial that you get the best advice to structure your loan correctly. Remember to keep focused on your long-term financial goals - as it's easy to get bogged down trying to save a few dollars on a monthly home loan but then paying thousands more than you should on the purchase price.
5. Leverage existing equity
An effective way of buying an investment property can be to leverage equity either in your own home or in another property investment. This can enable you to borrow more money against your investment property which can have positive tax implications - but always seek professional advice from a trusted adviser.
6. Negative gearing
Negative gearing has been in the spotlight in the recent past, particularly given the economic slowdown and the resulting financial pressure on borrowers - but it can offer tax benefits if the cost of the investment is bigger than the income that it generates. The disclaimer however, is that tax benefits should never be the driving reason for buying an investment property.
7. Age and stage of the property
Before signing the offer to purchase, you should have the property professionally checked over so that any problems can be identified (and the cost of fixing them built into your financial planning). Obviously, properties that need upgrading and improvements can be good investment options as they may offer greater capital growth opportunities.
8. Make your rental property appealing to tenants
When buying an investment property, it's important to keep your emotional distance. It's a rental property, not your own home. That said, when it comes to sale time, if you've gone out of your way to make it appealing (from a visual and a functional perspective), it is likely to tempt owner-occupiers as well as those looking for an investment property so your pool of potential buyers is greatly increased.
9. Look long-term
The longer you can hold on to your property - the better. What's more, you may want to look at buying a second property as your equity in your initial investment increases - so you should always take a long-term view. Just because interest rates are low or everyone's talking about 'having to get into property before it's too late' - don't feel pressurised into making a hasty decision. Yes investing in property can be a sound financial move, but it has to be carefully considered and planned.
10. How to manage the property
Once you have bought your property, you may want to consider appointing a property management company to handle the day-to-day running of the property including finding tenants, dealing with tenants' queries, handling maintenance issues, advising you on the law, your rights and responsibilities as a landlord, advising on rental rates and so on. The money you pay to the property management company is tax deductible, which is good news.
If you're considering buying an investment property and would like some professional advice from one of the most experienced and highly regarded Perth property management firms, then you should contact Time Conti Sheffield. Visit their website, www.timeconti.com.au or call them on 08 9362 5333 to speak to one of their qualified consultants - they'll be happy to answer any questions you may have on any aspect of buying an investment property and property management in Perth.