5 Essential Tips For Property Investment – written by Mark Lewis
With property prices booming in most capital cities, along with low vacancy rates, soaring rents and what many say is an overheated share market, many people are looking to property as a sound investment into the future.
Whether you are looking to buy your first investment property, or looking to expand an existing portfolio, here are five essential tips to consider before making a purchase:
Define Your Investment Strategy
This is a good starting point and a way to define and set your goals over the short, medium and long term. As an example, are you looking to buy a rundown property, renovate it and then sell it (hopefully for a tidy profit)? Are you wanting to buy a rundown property on a larger block and sub-divide it? Is your strategy to buy a good ‘investment grade’ property in a good suburb, attractive to a wide range of potential tenants, that you plan on holding onto over the long term?
Take some time to decide on your strategy before you even start looking for a property. Your strategy may also include how many investment properties you might like in your portfolio and also, what other asset classes you may be considering.
Research, Research, Research
While you can’t predict how the market will perform into the future, you can ensure you have an understanding of the negative and positive drivers of prices and how changes can influence those prices.
Additionally, within a market such as the whole Adelaide Metropolitan Area, there are sub-markets which include LGA’s (Local Government Areas), suburbs and even individual streets. Why does one suburb outperform it’s neighbouring suburbs? Why is one street more desirable than the next street across?
There are always reasons why this is the case and doing your research will help uncover these and even assist you in predicting the next growth suburb or street.
Head Before Heart
When buying a house for you and your family to live in, it’s natural for your heart to play a more dominant role in choosing the location and house. After all, it’s the house you choose that you will turn into a home.
Conversely, when considering an investment property, your head should play a more dominant role in the selection process.
Using the knowledge gained during the research phase, be more aware of what makes a particular location and property ‘investment grade’. Focus more on the numbers, ie: what rent will it achieve, does the area and configuration of the property have high rental demand, is there a decent prospect of capital growth, will the property require money to be spent on it to make it ‘rentable’ or will there need to be money spent on ongoing maintenance, etc.
Know Your Numbers
Nearly 90% of people who buy an investment property never get past owning one property. Why? One of the main reasons people look to buy an investment property is because they assume that they are paying too much tax, therefore the primary motivator to buy an investment property is to reduce their tax bill, which generally means a negatively geared property. In essence they end up spending a dollar to get cents in the dollar back based on their marginal tax rate, and soon realise that the property is actually costing them money each month. If the property is not investment grade, achieving strong rental returns, achieving capital growth, has little to no vacant periods and not viewed as a long term investment, it will end up performing poorly, killing the motivation and ability to add the next property to the portfolio.
Surround Yourself With An Expert Team
Many people try to do everything themselves and whilst some succeed, many fail, or at least aren’t as successful with their investment as they could have otherwise been. Seek advice and utilise experts to help guide you through the process.
A Mortgage Broker is your expert when it comes to financing and optimising your investment loan. They will provide ongoing assistance to ensure your loan and structure remain optimised. Your Accountant is there to ensure you are getting the best possible (and legal) tax outcomes. Your Property Manager is there to manage your investment on a day-to-day basis ensuring your tenant is paying the best possible rent, your property is properly maintained and more importantly, to handle any issues that arise with tenants or the property. And finally, your Insurance Broker is there to make sure you have the right cover at the right price and will manage any claims as quickly and efficiently as possible.