People are apparently busy snapping up investment properties, with recent reports showing that close to 50 percent of new loans are to investors. Low interest rates and stable prices make investing a very attractive option, yet there are other reports suggesting the rental market is not performing at its best. Should you avoid investing altogether?
You don’t need to wait for the return of record low vacancy rates and soaring rents before you invest. Investing still offers many benefits like reliable income, tax deductions and consistent long term growth, but you need to approach it in a logical, business-like manner if you want to succeed. You need to do your research and educate yourself before buying a property. Following are some suggestions to help you make the most out of investing.
Know your reasons for investing
Whether you are looking to make a quick profit, seeking regular cash flow, or planning for the future, your reasons for investing will influence the type of property you buy and the neighbourhoods you look at.
For example if, like many investors, you are looking for long term results you may want to look at suburbs where capital growth might be lower, but the rental returns offer good value. Established areas that are close to employment hubs, have good transport access, good infrastructure and lifestyle amenities are attractive options. These suburbs will always be a desirable place to live.
Always be guided by your reasons for investing, otherwise you could make a purchase that is likely to be unsuccessful.
For example, that large block with the older home on it may be affordable and it may have great potential for redevelopment for the right investor, but it might only achieve a low rent in its current state and if your budget can’t cover the costs of subdividing and building it could be a wasted investment that ends up costing you money.
Do your research
There are many things you need to consider before making a purchase. What is influencing property values and trends in the areas you are looking at? What areas are in demand with tenants? What price bracket offers the best returns?
The media and internet offer a range of general market information, but conditions vary from region to region and suburb to suburb. The best people to speak to are local agents and property managers. They are experiencing current market conditions and can give you an up to date idea of what type of property tenants are looking for, what areas are popular with tenants, what price you should expect to pay for a good investment and what sort of rental return you could receive.
You should also research the needs of tenants when choosing a property and location. If there is a popular school nearby, look at a property that would suit a family. Similarly if you are looking near a university, choose a very low maintenance home that would attract a student.
You also need to be aware of the extra costs you will face and ensure you have enough financial leeway to cover them. Many people just consider what they can afford to borrow and how the rent received will contribute to the repayments. They forget that there are ongoing expenses. For example, you may face periods when the property is vacant for several weeks, however the loan repayments must still be met. You will also have to pay annual rates and taxes, as well as repair and maintenance costs.
To make the most of your investment you need expert advice from a variety of sources.
Talk to a financial advisor to see how much you can afford to borrow, taking into consideration the equity in your own home, your income and likely rent returns. Consult an accountant regarding tax benefits and the possible deductions available in your situation. You could also talk to a depreciation specialist to ensure you take maximum advantage of depreciation.
Finally enlist the services of an experienced property manager; they will take on the responsibility of finding and vetting tenants as well as dealing with repairs and other issues. Over the course of your investment they can also provide you with regular advice on the state of the local investment market, rent rates, tenant demand and property values, helping you shape your investment strategy.
Your property is a valuable financial investment, you should have building and contents insurance, as well as comprehensive landlord insurance.