How to Buy an Investment Property
The best advice we can give to you when considering investing in the property market is to do your homework.
We believe that you firstly need to check your finances and assess your budget realistically so you know whether or not you can afford the monthly costs of an investment property. Fixed interest rates loans are very popular with investors as these allow you to accurately budget for your repayments, knowing your levels won¡¦t increase.
Another form of loan that is popular with investors is an ¡§interest only¡¨ loan and this is due to the fact that it¡¦s only the interest that¡¦s tax deductible so there is no benefit in paying any of the principle off. You should always remember that your owner occupier loan repayments should take priority over your investment loan because of this tax advantage.
As with the different form of loan required for an investment property we, at Maxwell & Co Real Estate, believe that your approach to purchasing an investment property will also need to be different. Whereas your choice of ¡§home¡¨ will be influenced on emotions your investment property should have to key spheres of influence being rate of rental return and potential capital growth.
Once you have analyzed your budget you will be able to decide exactly how much you want to spend and what style and size property you are prepared to purchase for this price. Units are generally a more popular choice than houses due to less maintenance, lager tenant demand and generally their lower price range.
It is also important to have a definitive plan up front of how long you intend on keeping your investment property. Most financial advisors believe that the minimum timeframe for investing in property is five years to allow sufficient time for capital gain.
When looking for an investment property talk to Maxwell and Co Real Estate about vacancy rates, rental expectations and levels and the expected capital growth in the area. It is essential that you have an understanding of an area before you purchase a property in it. By spending the time to research an area before you invest you can save lots of effort and potentially money by purchasing something in a sought after location. As the saying goes ¡§When buying Real Estate it is all about Location Location¡¨. You need to put yourself in the shoes of potential tenant when deciding upon location; those who are renting usually value convienience so include proximity to public transport, public amenities, shopping centres, schools etc.
Some property investors choose to manage the property themselves whilst most people prefer to arrange a Real Estate agent to manage their property for them. Maxwell and Co¡¦s property management staff are fully qualified in all aspects of property management and can assist you so that you can sit back and enjoy your investment. Some of the property manager¡¦s jobs include finding and vetting the right tenants, collecting and accounting for rentals, paying outgoings such as body corporate fees and rates, arranging maintenance work and conducting ongoing inspections.
Obviously there are risks involved when investing but the key with property investment is to balance the risk against projected returns. Some of the risks to consider when purchasing property include:
- Property may be difficult to rent
- Rental may be less than expected especially as the vacancy rate increases
- A rise in interest rates will mean a rise in your monthly repayments
- Maintenance costs of the property could be higher than budgeted for
- Problems with tenants may arise causing unexpected hassles
- There could be no capital gain or worse the property could drop in value
- Covering any shortfalls of the rental from your primary source of income.
To succeed in property investment you need to devote time to some serious planning and preparation. If you are prepared to do your ¡§homework¡¨ prior to purchasing, investing in property can be extremely satisfying as well as financially rewarding.
Maxwell and Co Real Estate always recommends that you also seek professional investment advice from your account and/or financial advisor.
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