Investment Property Top 10 TipsBuying an Investment Property - Our Top 10 Tips
Buying an investment property continues to be one of Australia’s favourite ways to invest.
An investment property should be about increasing your wealth and securing your financial future.
There is however, a common misconception that property investing always delivers positive returns, while this is true most of the time it certainly isn't an instant road to riches.
1. Choosing the right property at the right price
Investing in real estate is usually all about capital growth, so choosing a property that is more likely to increase in value is the most important decision you will make.
Unlike buying shares where the value of a company is transparent, real estate is more difficult to price.
The key for you is to do your research, work out what everything is selling for in and around the area and then you'll discover that soon you'll become very good at working out what a property is worth.
2. Do your sums - Cash Flow is always king!
Investing in property is a proven path to long-term wealth, however you should consider it a medium to longer term type of investment.
You should know also that banks only take 80% of the rental income into account when working out whether you can afford an investment loan.
3. Find a good property manager and let them to do their job.
A property manager is usually a professional in their field, their job is to keep things in order for you and your tenant.
They can help you with ongoing advice and help you manage your tenants and get you get the best possible value from your property,
A good agent will let you know when you should review rents and when you shouldn't.
4. Understand the market and the dynamics where you are buying.
Consider what other properties are available in the immediate area and speak to as many locals and real estate agents as you can.
I always like to let competing agents know that I am looking at another similar property to see what they the say, it's a good trick to get inside information.
Make sure you do the leg work and consult professionals you can trust.
5. Pick the right type of mortgage to suit you.
There are many options when it comes to financing your investment property, so get sound advice in this area as it can make a big difference to your financial well-being.
Whether you choose a fixed rate loan or a variable rate loan will depend on your circumstances, but consider both options carefully before you decide.
Most investment loans should be set up as Interest Only (rather than Principal and Interest) as this increases the tax effectiveness of your investment, particularly if you have a home loan.
6. Use the equity from another property.
Leveraging equity in your home, or equity from another property investment, can be an effective way to buy an investment property.
Equity is the amount of money in your home that you actually own.
It can be calculated by working out the difference between what your property is worth and what you owe on the mortgage.
7. Negative gearing.
Negative gearing can offer property investors certain tax benefits if the cost of the investments exceeds income it produces.
Australian law allows you to deduct your borrowing and maintenance costs for a property from your total income.
However don't buy an investment property just to get a tax deduction.
8. Check the age and condition of the property and facilities.
Even with negative gearing, needing to replace the roof or hot water service in the first few months of ownership could make significant difference to your profits and really damage your cash flow.
It is therefore advisable to engage a professional building inspector before you purchase to conduct a thorough inspection of the property to find any potential problems.
9. Make the property attractive to renters.
Go for neutral tones and keep the kitchen and bathroom in good condition.
You'll find that you will attract better quality tenants if you have a well presented property and the last thing you want is a bad tennant.
Another point that is subject to debate is whether you should buy a property that you’d be happy to live in yourself.
10. Take a long-term view and manage your risks
Remember that property is a long-term investment and you should not rely on property prices rising straight away.
The longer you can afford to commit to a property the better and as you build up equity then you can consider purchasing a second investment property
Financial security is very important but life is not just about mathematics.
If you'd like to get some individual advice on what investment property options are available talk to our experienced agents today.