October 22, 2020
5 Things to Consider Before Buying an Investment Property
Purchasing an investment property is one of the more common choices for Australians aiming to increase their wealth and secure their financial future. While “bricks and mortar” is often seen as less risky than other forms of investment, there are a number of factors worth considering that will help you manage your investment effectively and achieve your financial goals. Here are our top 5 considerations we recommend keeping in mind.
Knowing your finances and your goals
The first step in figuring out whether investing in property is right for you is having a good understanding of your current financial position and where you want to end up. Many people make the mistake of investing without clearly defined financial goals. They might have a general idea of wanting to have another source of income, but they don’t exactly know what that looks like.
At the outset you should look at why you are thinking of investing. What do you want to achieve financially? Do you want to build more cash flow? Are you aiming to set up a retirement nest egg? How long are you planning on having the investment for? 10 years, 20 years, more? Figuring out the why will help you establish a plan for your investment and a firm goal for you to work towards.
Location, location, location
Location is crucial when it comes to choosing any property, but particularly important with an investment property that you want to appeal to lots of potential tenants. Investors that don’t research their locations properly could face an underperforming investment. You need to ensure the area you choose is as attractive to renters as possible, including its proximity to public transport, schools, shopping precincts, and other popular lifestyle amenities.
You should also look at the growth rates in the area. Has there been a boom in population growth of late? Remember, as population grows, infrastructure improves, and the desirability of an area increases. What about the current vacancy rate? This is an indicator that measures an area’s percentage of rental properties that are vacant. A low vacancy rate indicates a strong rental market, high demand from tenants and a good chance that you’ll be able to keep your property leased at all times.
Be sure to keep an open mind as well when it comes to location – many investors simply look at areas they are familiar with, or perhaps where they live currently. It pays to cast a wider net so that you don’t miss out on locations that could bring you higher returns on your investment.
The age-old question: apartment or house?
Choosing between buying an apartment or a house will depend heavily on your finances, your lifestyle, and your property goals. Your desired location will also dictate the type of property available. If you are looking, for instance, at an inner-city suburb, you are generally going to find more apartments for sale than houses.
Apartments are an attractive option particularly for first-time investors because they are usually more affordable than houses. Investing in apartments generally requires less responsibility for repairs and maintenance, improvements, and the overall appearance of the property, as this all falls under the control of the body corporate.
The main advantage of investing in houses is land ownership. Land tends to appreciate over time unlike buildings which can depreciate unless they have heritage value and are well maintained.
Houses generally deliver much stronger capital growth than apartments. Apartments, however, often provide higher rental yields. Deciding which is right for you will ultimately come down to your financial situation, the current market and your investment goals.
Understanding the costs involved
Investing in property involves much more than just paying your deposit and budgeting for your mortgage repayments. There are numerous upfront and ongoing costs which need to be considered. The difference between your investment succeeding or failing can depend on your ability to anticipate costs and develop a strategy for dealing with them long term.
Initial investment costs include your deposit, stamp duty fees, bank fees, mortgage insurance and legal and conveyancing fees.
Ongoing costs can be difficult to estimate, as they may vary from month to month and year to year. Common expenses include building and landlord insurance, land tax, council rates, body corporate fees, property management fees and repairs.
Maintaining an up-to-date budget will help you keep on top of these recurring costs and ensure no hidden surprises along the way.
Find a good property manager
Engaging an expert property manager can greatly reduce the stresses and risks of property ownership while helping you get the best possible returns on your investment.
Property managers can help you with just about anything related to the management of your property – including sourcing and vetting quality tenants, setting rent and collecting it on time, and ensuring the property is kept in optimal condition. They save you time by handling tenant issues, carrying out regular inspections on your behalf and scheduling any repairs and maintenance.
Investing in property can be a great way to create wealth, but it pays to do your research and evaluate the benefits and risks involved. Knowing what to do and what not to do before setting out can help you ensure your investment succeeds in the long term.
At Jellis Craig, we have a team of experienced property managers who know the local rental market better than anyone. We are committed to delivering you quality, personalised service and expert advice so that leasing your property is smooth and stress-free. Reach out to your local Jellis Craig office for further advice on investing in property.