Are you considering investing in property as a means of achieving your financial goals, but are not sure where to begin?
Investing in property can provide you with a very tangible, bricks-and-mortar asset that is likely to increase in value over a number of years.
But it is a big decision! Before jumping in, there’s a lot to consider – from type, location, and condition of the property, to its potential for capital growth and your available budget.
To help make the decision process a little easier, here are nine key things to think about when you’re considering property investing, and a few tips to help you get started.
1. Growth potential
Capital growth is usually the main goal of property investors. Property is seen as a good investment, as it generally tends to increase in value over time.
But it’s important to check out the patterns of growth in the particular region you are thinking of investing in, as well as the sales history of the specific property and its potential for growth.
2. Rental income
Income generation from your property rental can provide you with a positive cash flow, or it can be used to reduce your tax liabilities through negative gearing.
When researching potential rental yields, you need to look at the history of the property, as well as rental demand in the region.
It’s important to note that properties with high capital growth potential can have lower rental yields, and vice versa. So, you’ll need to find a balance between your long-term (capital growth) and current (rental yield) goals.
3. Costs and budget
The costs of investing in property include legal fees, stamp duty, pest and building inspection reports, rates, insurance, interest, management fees, land tax, ongoing maintenance, and body corporate fees for strata units.
It’s vital to look at your budget and consider how much you can afford to borrow for the purchase, and whether you will be able to cover ongoing costs and loan repayments, and manage financially during vacancies.
The beauty of buying an investment property though is that many of the costs – such as borrowing expenses and management fees – can usually be claimed as tax deductions.
4. Property location
The cliché of ‘location location location’ actually tends to be true when it comes to property!
The location can make a substantial difference to your outcomes. For example, properties close to capital cities are likely to have greater growth potential than those in the outer suburbs, even if they cost more to purchase initially.
As well as looking into the potential for capital growth and rental demands, you also need to consider the property’s proximity to services such as transport, shops and schools. You should also look into any proposed changes that could impact on property values – such as earmarked infrastructure, or zoning changes.
5. Unit or house?
Units and apartments are frequently purchased purely for investment purposes, and they can come with a number of advantages over houses.
These may include lower purchase prices, lower maintenance requirements, and strata management for common or shared areas.
However, it’s important not to overlook the potential advantages of investing in free-standing homes, such as additional land value, and the possibility of higher growth potential.
6. Property age and condition
This is another matter you need to seriously weigh up.
For instance, you might find an older property that is cheap to buy, but that will require renovation to bring it up to expected leasing standards. On the other hand, a property in sound condition might cost more, but is more likely to be rental-ready and to have lower long-term maintenance needs.
If you do intend to renovate an investment property, it’s important not to over-capitalise. You should also renovate in a way that will appeal to a wide range of potential renters, and help attract higher rents – such as by adding an ensuite, or a lock-up garage.
7. Property management
Managing a property on your own can be time-consuming. For a tax deductible fee, you can hire a professional property manager to do the hard work on your behalf.
Quality property managers have the ‘smarts’ when it comes to all things property – including the state of the market, recommended rents, finding the most suitable tenants, and managing maintenance issues.
The important thing is to find a property manager who has an excellent track record, understands your needs, and is a great communicator.
8. Type of mortgage
If you are borrowing to buy property, you need to consider the type of loan you want to commit to.
Some of the choices include fixed or variable interest rates, interest-only, and line-of-credit loans. Many investors go for interest-only loans, as it means the entire amount of the monthly loan repayment is tax-deductible as a borrowing expense.
9. Have a long-term view
You need to be logical when it comes to real estate investment, and prepared to be in it for the long haul in order to reap the benefits. Define what you want to achieve with your property investment, and plot out how you will get there. This may involve talking to a financial adviser and mortgage consultant or broker, creating an overall strategy for investments and wealth creation with targets or milestones, and monitoring your progress to make sure you’re on track to meeting your goals.