Looking to buy an investment property? Here are six tips to consider first.
It pays to do thorough research before buying an investment property to ensure you get the best return possible. Here are the 6 golden rules all buyers should consider before leaping into the investment property market.
1. Check out the total costs
There can be many ongoing costs when you buy an investment property. Leanne Pilkington, general manager of real estate agents Laing & Simmons – who also has experience buying her own investment properties – says the first thing to consider are fees like strata payments and council rates that will reduce the return on the investment.
2. Factor in upkeep and repairs
All property needs to be maintained, so build it in to your outgoings. “If you’re buying an apartment also look at how much is in the sinking fund and work needed down the track like painting or whether the roof needs fixing in the near term,” Pilkington says.
3. Go where the vacancy rates are low
The old adage, ‘location, location, location’ still rings true for property investment, which means it’s also essential to consider the proximity of the property to essential services like public transport and schools.
“People often invest in a property close to their home, but that’s not always the best way. Look at vacancy rates – state real estate institutes have good data on this – before you decide to invest,” Pilkington says.
Bernadette Brennan, principal of Premier Home Finders says a rule of thumb is to buy a property in an area where vacancy rates are less than 2.5 per cent.
4. Get into the right gear
It’s also important to consider whether the property will be negatively or positively geared. If it’s negatively geared, the return on the property will be less than the repayments on it, which produces tax benefits for investors on the top marginal rate. If it’s positively geared, the return will be greater than the repayments.
“If you negatively gear the property make sure you’re not hemorrhaging money each month,” says Brennan.
5. Decide between growth or yield
Another deciding factor in any investment property purchase is whether you are buying the property for capital growth or yield.
“For instance, a property in Sydney’s western suburbs might produce a yield of 7 per cent, but have low capital growth. If this means the property is positively geared, it might not be as beneficial for a higher income earner,” says Brennan.
She says investing for capital growth works if the asset is undervalued or unique.
6. Choose the right management
Once you’ve purchased your property, Pilkington advises owners to appoint a real estate agent to manage it. “Even though I’m a real estate agent I still pay a real estate to look after my property because I don’t want to have to worry about things like chasing rent or appearing at the Consumer, Trader and Tenancy Tribunal.
Finally, “do your research before you pick an agent to manage the property and look for someone experienced or who has equity in the business because there’s often a high turnover of property management staff,” she says.
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