Our top 10 tips for investing in property
Did you know the richest 200 people in Australia total a whopping $233.1 billion in net worth? That’s an average of $1.16 billion per person!
When the Australian Financial Review released its rich list in May last year, the question on the lips of many was ‘how did the richest Australians gain their fortunes’?
Smart Company did the sums and found that property was the main source of wealth for 55 of the 200 rich listers. Harry Triguboff of Meriton property development came in at number two, with a net worth of $11.43b. Westfield shopping centre developer Frank Lowy sits at number 4 with $8.26b net worth and Lang Walker of Walker Corporation property development is worth about $3.00 billion and comes in as the 12th richest Australian.
It seems investing in property is investing in wealth!
Obviously popular amongst Australia’s richest, property investment is still regarded as a safe bet, even for beginners. But, how do you go about buying your investment property and building your wealth?
Here are our top 10 tips for investing in property..
1. Do your homework and choose your property wisely
Investing in property is about capital growth. Therefore, it’s important the property you buy is likely to increase in value. Research the location, know the neighbourhood and become familiar with what houses are selling for. When you know what a property is worth, you increase your chance of recognising, and nabbing, a bargain. When you purchase a property for less than its market value, you’ve already made profit.
2. Consider the rental return
Just as important as capital growth is a healthy rental return, with a low vacancy rate. A good investment is one that has a high rental yield with a strong rental return. Get to know the demographic in the area – if the neighbourhood is home to mostly families, a studio apartment might not be the best purchase. Become familiar with the amenities in the neighbourhood – are there good schools, good public transport, shops and retail centres and access to motorways and arterial roads? Know the market and buy to suit.
3. Consider your potential tenants
Now that you know the demographic of the area and are familiar with the neighbourhood, think about your potential tenants. Use your imagination to place them in the property – is the floor plan suitable? Is there a fenced yard for pets? Is there traffic noise that you can hear from the home? Are the neighbours quiet? All of these considerations will help drive the demand from tenants for your investment property.
4. Get your timing right
Don’t make impulsive purchases and rush in before you have done your homework. However, don’t take too long and miss out on opportunities because you’re being too cautious.
Do your research, know your stuff and have the courage to act at the right time.
5. Use equity from your existing property
Often when looking to buy an investment property, it’s just that – an investment, not a family home. Assuming you already have a family house, consider using the equity in that home to purchase your investment property. Calculate the equity in your home by subtracting what you owe from what the property is worth – this is the amount of the property you actually own. By using that equity, you can increase your borrowing capacity to purchase your investment property and can potentially increase tax deductions too.
6. Structure your mortgage to suit you
Investment loans are not a one size fits all. Do your research and speak with your Mortgage Broker about the right loan for you. Fixed over variable, principal over interest-only, interest in advance or offset account – there are multiple considerations when choosing the mortgage that suits your investment and your needs.
7. Cherish your cash flow
Cashflow is king. Do your sums and ensure you know the income the property will generate and if it is enough to cover outgoings. If not, plan for any shortfalls. Aim to allow for about 10% of the value of the property to cover costs such as insurances, rates, maintenance, property management fees and land taxes.
8. Find a good property manager
While it might be appealing to self-manage your property, it’s more work than you might think. Shop around for a quality, well-priced, professional property manager to take care of all the tenancy details at your investment property. A good property manager will seamlessly handle finding the right tenants for the right rental price, take care of any maintenance issues and collection of rent, and ensure the tenants are looking after the property. This will save you time and potentially any tenancy-induced headaches.
Fees for property management are also tax deductible!
9. Get the property rental ready
Attract the right tenants with a property that is well-presented and low maintenance. Kitchen and bathrooms are the kings so make sure these rooms are up to scratch. A property in great condition is more likely to attract better quality tenants and these tenants will be willing to pay more for a property that is spick and span, and suits their needs.
10. Be patient
Investing in property is not a ‘get rich quick’ scheme. While there is potential for exceptional wealth building, gains made through property tend to be long-term. Property has the power to compound over time and provide steady long-term returns, but you must buckle up and prepare to sit with it for some time to realise these gains. These may be sale profits gained through capital growth, or using the property to leverage into another property and building your portfolio.
Our financial planners can help you with all things property investment – contact our team today to talk about how to get started on purchasing your investment property.
