PURCHASING YOUR INVESTMENT PROPERTY
Why investing in property may be the answer.
Australia currently faces a chronic housing shortage which, coupled with a rapidly expanding population (through natural increase and immigration), has pushed rental vacancy rates to historic lows and put upward pressure on rents. There are simply not enough houses to go around. An investment plan is one that works towards building your wealth and securing your financial freedom. For some, the future may seem a long way off, but the time to act is now because the future waits for no one. The housing market is generally a seven to ten year cycle: there are always highs, lows and steady patches. The decisions you make today will determine the lifestyle choices you have in the future.
The following factors should be taken into consideration when purchasing property as an investment:
- the likely return – yield and capital growth,
- buying and selling costs, cost to borrow money, ie interest rates, and how
- attractive the property will be for likely tenants or future buyers.
Do your homework
First you need to work out how much you can borrow. This is where our services will really help you. Make sure you have an accurate and detailed budget that takes into account all expenses associated with purchasing a property including stamp duty, council rates and other fees.
Research the area’s average rental yields, historical price growth and future expectations. Talk to your local council about future infrastructure and additional planned services.
Ensure you go to many open inspections and do your research on the internet before purchasing to ensure you have a good indication on property prices in your desired location. Invest the time to fully understand the market – it could make a big difference to future investment returns. A mortgage is a big commitment and you may have to make changes to your regular spending practices if you are to meet your repayments with ease. Include water and council rates and items such as insurances and maintenance in your budget planning.
Remember you will also incur property management fees if you are considering having your property professionally managed. Your accountant may also take the opportunity to charge you more for the extra work in preparing your tax returns. However a good accountant is worth their weight in gold. Interest rates move constantly, so you will need to allow room in your budget for interest rate increases and other unforeseen additional spending. When interest rates drop, maintaining the same repayments with the savings going into your offset account is one of the fastest ways of paying off more of your loan and building a buffer if they rise again. Think very carefully about the different loan product offerings available and how these relate to your spending and saving habits. Consider options such as an offset account that will enable you to take advantage of using any excess cash to save on interest. It’s also a great account to use to save for your next investment property.
Plan ahead – tenants come and go. Make sure your cash ow is sufficient to cover the mortgage and other outgoings when the property is empty.
Don’t think that you always have to increase the rent either. Sometimes it is more cost effective to have the same long term tenant in your property than have weeks of vacancy trying to achieve a higher rental yield.
Every property will have compromises. Don’t miss a good opportunity because you are waiting for the ‘perfect’ house or apartment. If it sounds too good to be true, it probably is.
Your selection criteria should include:
- Location: Is it close to schools, shops, day care and sporting facilities?
- Transport: Is it close to bus stops and train stations?
- Demographics: Consider population numbers, growth and density.
- Suitability to rent: Are the rooms big enough? Are there usable living spaces inside and outside and other features such as garaging and storage?
- Future potential: Can the property be renovated or developed? Are there any plans to develop surrounding properties, eg high density dwellings?
- Affordability: Stay within the second and third quartile of prices in the suburb for price and rent.