Owning property is a tried and tested form of investment in Australia. Currently, over 2 million Australians own an investment property. If you are one of the other millions of Aussies who would like to get into the property market, take a look at our tips below to get started.
Plan Ahead
As Benjamin Franklin famously said; if you fail to plan, you are planning to fail.
The first step is for you to decide what it is you are hoping to gain from this investment purchase. Are you planning on a quick ‘flip’ or a long-term investment that will help in your retirement? Will this property be something to bequeath the kids or are you hoping to generate a passive income stream to supplement your income?
There are many different reasons for starting a property investment portfolio, and each reason brings with it a different ‘best’ approach, so it’s good to know from the outset what it is that you are trying to achieve.
With that aim in mind, you can start to plan some other important things such as where you’d like to buy; metro or regional? Which state or territory? Which suburb? Buying in a location that you already know will take a lot of guess work out of your purchase.
Next on the plan is an idea of the type of property you’d like to start with. A freestanding house with land, an apartment in a complex, a townhouse or land are some of the options to consider and each one has its own benefits.
Budget
Deciding on a budget sounds pretty obvious, but there is more to it than just choosing the maximum purchase price you can afford. While working out your finances, build a buffer for unexpected expenses such as time lapses on rent between tenants, repairs and maintenance that may pop up from time to time, as well as additional costs like land tax, stamp duty, strata management fees etc.
Also take into account your own personal plans for the future. The mortgage repayments might be fine on the salary you are currently on, but do you plan to take an extended break from work to go traveling in the future? Or are you considering a possible career change down the track where you might have to go back to study or entry level wages? You want to avoid putting yourself in a position where you have to sell an investment property at a less than ideal time. On the flip side, it is reasonable to assume the amount you charge for rent will increase over the years as should the value of the property.
Once your budget is worked out, set it in stone and don’t budge from it for anything. Keep all emotion out of your decisions; if you fall in love with a place, you may be tempted to go over budget to get it.
Research
It is vital that you do due diligence with your research before proceeding with property investment. Most people go into property as a long-term strategy, so there is no reason to feel like you should race into it before you are ready.
Research the market you are interested in by looking at past sales data, as well as rental prices and demand. Take advantage of property reports from your real estate agent and get in touch with the local council to see what plans they have in store for that area. The planned addition of community services or parks might increase the value of your property while a planned highway cutting through the suburb might decrease the value. The better you know the area you are planning on investing in, the easier it will be for you to spot a good deal.
Research all of your financial options, such as which type of mortgage suits you best and which lender is offering the best rates. Subscribe to reputable property investment websites and there are also plenty of Facebook groups you can join, where you can chat to and learn from other property investors in Australia.
Use Equity
Using the equity from a property that you already own is a great way to purchase your investment property. With enough equity, you may be able to put down a deposit on a new place without dipping into your savings at all. To work out how much equity you have, simply take the current market price of your property and minus what you still owe. For example, if your place is valued at $500,000 today and you still owe $200,000 on it, then you have $300,000 worth of equity in it. Your mortgage provider will decide how much of this equity you can access to purchase your next place.
Use Professionals
You might think a good way to save money is to cut out the professionals and save on fees, but unless you have a thorough knowledge of each area of property investment and management, you may end up losing more than you are saving. Even with knowledge and experience, you need to take into account the amount of your time spent on doing things that someone else could be doing for you.
Don’t be afraid to ask for help from the professionals who know their industry inside out, such as mortgage brokers, property managers, real estate agents and financial advisors to name a few.
Your Tenant
Once you’ve settled on an area, it’s time to start thinking about the tenant. If the area you are looking at is popular with young families, you might want to focus your search on the streets within walking distance to local schools. If it is popular with young professionals, you would want to find a place near public transport or make sure there is parking available.
As for the property itself, if you are fitting out cabinetry or giving it a coat of paint, it is a good idea to keep to a neutral palette. Putting your own style or taste on things will cut down on the amount of people who are interested in renting your property.
Property investment won’t make you rich overnight. But if you plan ahead, do your research and follow expert advice, it can be a very worthwhile long-term investment that will set you up nicely for the future.