December 28, 2016
Interest rates have been hovering at record lows for over a year now, the property market continues to grow and rents creep ever higher, particularly in capital cities – it’s starting to become pretty clear - now is a great time to be a property investor.
Done well, property investment can help you set yourself up financially for the future as well as future proof your wealth.
But while property investment it may sound like a simple wealth creation tool, if you’re looking to get into the market, it’s important to be able to be able to shift your thinking from purchasing a home you want to live in to purchasing a home for investment.
When you go to purchase the home of your dreams you look for things like: ‘Will the location fit my lifestyle? Is the size of the house suited to my needs? Do I like the interior decorating?’ – All things that are practical and will make you feel like you’re making the right decision for you next home.
But, when it comes to purchasing an investment property, you need to be looking at it from a different angle; ‘Is the area going to achieve good capital growth? Is there a demand for rental properties in the area? What sort of demographic is the area, do they want this kind of house? Will the house require a lot of maintenance?’ - Generally these are the sorts of things that indicate whether you can make a positive return on the property and how easy it will be to manage in the future.
Creating wealth through investment is not a new strategy so it’s important to do your homework.
Here are a few key factors you should consider when looking to buy an investment property:
- Suburb reputation;
- Suburb location e.g. close to the city, schools, waterways, parks;
- Proximity to transport;
- Proximity to shops, cafes and other entertainment;
- Proximity to child minding facilities, schools, or other educations institutions;
- How functional it is in terms of space;
- What tenants it will suit;
- Is there a demand for rental properties that are similar
- What do similar rental properties go for in the area?
- What’s the standard vacancy periods for rentals in the area?
- What sort of growth has the suburb seen in rents and sales?
- Will it need any repairs to get it ready for lease and will there be much ongoing maintenance.
- If it is a unit, the trustworthiness of strata and the sinking fund level;
- The type of neighbours;
- Infrastructure planned for the area – if there are lots of new building constructions, will an influx of new properties impact your future rental yield?
- If the location is suitable to making regular inspections.
As with any investment plan, it’s important to have a long-term approach when you’re looking to buy an investment property. While property prices are currently booming at the moment, the fact is that property should always offer you a good return. Ideally, depending on how the market is going and your personal situation, you should aim to hold on to your investment for 7-10 years. This means looking at the numbers and understanding there will be smalls dips and rises in the market in and around the bigger fluctuations.
If you’re thinking of taking a crack at the property investment market, it makes sense to crunch the numbers with a professional financial adviser or accountant.