Owning an investment property is one of the great Australian dreams, but did you know less than 6% of Aussies actually own one?
Having a property portfolio in addition to your superannuation can be a great way to secure your finances for the future. But as with any investment, you’ll need to do your research before you jump in to make sure you are getting something that will pay off down the track. Follow these six tips to buying an investment property:
An investment isn’t worth much if you can’t afford to keep it for longer than a couple of years after buying it. Going through your finances thoroughly before committing to anything will help make sure you can hang on to it.
Aside from the mortgage repayments, make sure you take all of the extra expenses of buying property into account. You will need to pay taxes, council rates, insurance and in the months where you don’t have a tenant paying rent, you’ll need to cover the entire mortgage. If you buy an investment property that needs some fixing up you’ll need to pay for waste bin hire and renovation costs, as well as cover the repayments on your own until it is ready to be rented out.
Aside from working out your own budget and what price you can afford to pay for an investment property, you’ll also need to work out your future tenants budget. For example, if you buy a house in a middle-income area and then completely deck it out in the very best, most expensive materials, you are unlikely to recover that money through rent. There is only so much rent you can expect from a place, no matter how nice it is on the inside, if the area just doesn’t attract people with a high income.
When buying an investment property, you need to have a good think about the kind of tenant you’ll most likely attract. This is good for gauging the kind of rental return you can expect, for reasons as stated above, but it will also help you choose a property that really appeals to that market. For example, older people might prefer a quiet street a bit deeper in the suburbs, on a single level or that has lift access instead of stairs. While young people might want something closer to nightlife or restaurants and easy access to the city, and families probably think being close to schools and having a secure backyard is a priority.
This leads us into the location of the investment property. The type of property that never seems to run low on finding tenants are the ones that are convenient. That is, in a location that is an easy distance to transport, schools, shops and medical facilities. Lifestyle can be a good draw card as well, so a home near beaches or restaurants are also popular.
Remember it’s the land that is most valuable more than the building on it, so location is key for all property purchases. If you find the perfect location but the house is run down, it is very likely the cost of renovations, skip bins and labour will be worth the final outcome; a newly refurbished home in the best location.
Try to choose an area where you can see there will be demand in future, such as the suburbs that are still growing. For example, this might be a suburb on the outskirts of a city because in years to come, the population of that city might start to spread into the outer suburbs, driving the value of your investment up.
All of the tips above have one thing in common; they all require research. Buying an investment property is a big commitment financially, so you want to be sure you are completely prepared. Do the due diligence of researching not only the area you are thinking about investing in, but anything else to do with investing as well. Be aware of all taxes and charges that may come up, become familiar with yours rights as a landlord as well as the tenant’s rights and also keep an ear out for any schemes or ‘too good to be true’ offers that are doing the rounds. Take your time to research your selected area thoroughly, including how the rental market is going and if there are any major changes planned such as local factory closures or proposed highways to be built. All of these things can affect the future value of your property.
Have a plan
After you have done all of the above, it is time to write out a plan. Be clear on what you want, where you want it and what you’d like to achieve by getting into the property market. Set very specific parameters for yourself to ensure you don’t veer off track once it is time to start looking for your new property. There are so many great places for sale that it is easy to be overwhelmed or to lose focus on what you are actually trying to achieve from this.