Investing in property can be a short or long term investment. There are many pros and cons of purchasing an investment property. Below you will find three things to keep in mind when considering buying a rental property. Please note that this constitutes general advice only. You should consult your preferred accountant and or financial planner for independent financial and property investment advice.
Why not look at investing in property with family. Investing with parents or siblings over five years may enable you to have enough capital to lay down a deposit for your own dream home. Before investing, set the ground rules of how long you wish to invest and each shareholder’s percentage. Get legal advice on how this will work before signing any contract.
If you already have your dream home and wish to make some extra cash, purchasing an investment property could help financially. This could be a long-term goal such as self-funding your own retirement. Cash savings can easily be accessed over your working life, where it is harder to access cash tied up as equity in a property. In other words, an investment property is a good way to hold your savings because it isn’t as easily accessed.
2 Where/How to purchase an investment property
Contact the local real estate agent to determine:
- occupancy percentage of rentals and how long they sit on the market before being rented
- Look at property prices over the past five years to determine if the market follows an upward trend.
- Enquire about their fee for managing a rental
- Check out the suburb profile; this will show you a range of data, including Median prices and trends
- Look at demographics in the area to determine which properties are most likely to rent
Dos and Don’ts of purchasing an investment property
- Buy a property that you fall in love with, thinking you would permanently live there. Remember you will rent this property, so there will be a lot more wear and tear. It needs to be practical and will suit your tenant target audience to maximise returns.
- Overcapitalise on the property if renovations are needed. Keep to a budget and work on structural and compliance issues as a priority.
- Buy the first property you see. You may come back to this one eventually if it ticks all the boxes, but spend the time shopping around to see what your money can buy.
- Check the rental history if you are buying a property that is currently rented.
- Take a drive around other rental properties in the area to compare condition and price.
- Check that there is good transport near the property, shops and other amenities, including schools.
- Have a professional building and pest inspection to ensure that there will not be high outgoing cost in the future.
- Check if there are ongoing body corporate fees.
Finally and most importantly:
Avoid money and heartache troubles by always appointing a local agent of good standing to manage your portfolio. An experienced agent can provide valuable insight into the trends, do’s and don’ts in the local area. They will also provide advice on what items add value to your net return, and what capital items should be considered to increase the long term value of the property.