Despite the Banking Royal Commission and the state of the market in Australia, property is still deemed one of the safest long-term investments. As far as building a nest egg to retire on, some investors decide to live in the house while they renovate it and others buy a property and rent it out without delay. Investing in property can be the perfect way to build wealth, but there are some fundamental rules to think about before spending your hard-earned cash.
Don’t Make These Mistakes
It takes courage to leap into property investment, but you also need to count the cash, gather information, and most of all, remain calm. These are the most common mistakes people make when they invest in property for the first time:
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Choose the wrong location or property.
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Jump in without a proper appraisal.
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Fail to make decisions on facts but with emotions.
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Borrow too much without thinking about future lending market changes.
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Take too much risk (e.g. take out interest-only loans without a safety buffer).
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Rely on income from the rental for paying expenses.
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Don’t find out about all the possible tax deductions.
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Don’t consider a long-term strategy.
Understand Your Budget
One of the basics when it comes to property investment is to know and thoroughly understand your budget. Also, apply for pre-approval of your loan from the bank, so you know exactly how much you’re able to borrow before you begin your search of potential investment properties.
Be Clear About Ongoing Costs
Your budget should include money for Council rates, general repairs and insurance. A good tip for when you have bought your investment property is to do any repairs or maintenance that could be costly in future if left undone. For instance, replacing older taps and other fittings
Buy in an Area of High Rental Demand
Look for a property in a location where there is a high demand for rental accommodation. If you buy a rental close to schools, universities, and transport you will attract renters.
Have Realistic Goals
Ask yourself if you want to hold the property in the long term or whether you want fast capital growth. It’s much easier to renovate properties and flip them for a quick profit in boom times. But in a slower economic period, it can take several years for the same growth result. Also, a block on a steep slope could have a brilliant view but will no doubt be a nightmare to renovate because of excavation and retaining costs. Another tip, save money and increase your profits by doing any renovation work yourself where you can, rather than paying tradies.
Look For Livability Not Luxe
Keep in mind that a rental property only needs to be functional and clean, so don’t get carried away and buy a property because of the stylish interior design. House buying can be an emotional experience, so when you’re out there searching for your investment property, don’t buy with your heart; you don't have to love it, and it only needs to be suitable accommodation for renters.
Consider Negative Gearing With Care
Your property can be negatively geared if the rent doesn’t fully cover your repayments on your loan. Negative gearing can bring advantages around tax time, but if you don’t have the money to cover the investment loan repayments, body corporate charges or council rates, it can lead to financial stress.
Are You Paying Off Your Own Home?
You can buy an investment property while still paying off your own home, however it’s crucial that you’re able to service all your debt commitments. An ideal situation would be to have a big part of your home loan and all other debts paid off before you leap into property investment.
Get a Pest and Building Inspection
Remember, before you sign a contract to buy an investment property you need to have the building inspected for pests and structural problems. Carefully read the reports so you will avoid very costly repairs in the future. Termites are especially problematic and they’re universal, so a pest inspection is also crucial.
Homeshelf can help find you the best home for your budget, whether you want an investment property, to build on a new estate, a knockdown rebuild, or a designer home, we have an extensive builder network all over Australia and can find one to suit you. Call us today on 1800 932 013 or fill in an online form for a callback.
Author’s Bio
Kym Wallis, the founding director of Higher Ranking has over 15 years of advertising sales, digital strategy, and business development experience. He is currently working as Digital Adviser for Vergola NSW.