Becoming a property investor is a popular wealth creation strategy for many homeowners who have created wealth through the value of their property increasing, generating rental income and reaping tax benefits.
Being uncertain about the practicalities of what's involved, however, or being unfamiliar with the costs associated with this type of investment holds some homeowners back from pursuing their property investment dreams.
When considering an investment property strategy, be sure to factor in purchase costs (e.g. inspection fees, stamp duty, legal fees and loan establishment costs) and ongoing ‘holding' costs, including mortgage repayments, building maintenance/repair costs, Council fees and utility bills, as well as management and letting fees (e.g. advertising for a tenant).
If your property is part of a strata scheme there are strata fees payable and if your investment is a house, there's annual land tax. Don't neglect landlord insurance, either, which safeguards your investment and rental income if, for example, your rental property was damaged in a storm, a fire, or through theft. On the tax side, there are deductions to take advantage of, such as depreciation (the writing down of the cost of an asset over its life) of items such as furniture and carpet. Consult your accountant to get a complete picture of associated costs.
An ideal investment property should cost very little to ‘hold', and ideally the rent should cover the loan repayments and outgoings, but this isn't always the case so research your purchase thoroughly. Property investment should be considered a long term strategy as rental returns may not always meet your expectations and the property value cycle may vary over the life of your investment.
Do you have any tips on becoming a property investor? We'd love to hear them.