REALas Australia’s most accurate property price predictions
REALas Australia’s most accurate property price predictions

Beginner’s Guide to Property Investment

Beginner’s Guide to Property Investment
January 13, 2015 Gemma H
property Investment beginners

Property Investment for Beginners

Thinking about property investment but don’t know where to start?

You’re not alone.

Property investment has been a popular method of wealth creation in Australia for years, but many people are apprehensive about the risks. All too often, we hear horror stories of plunging markets and rising interest rates with investors caught out of their depth.

However, if you take the time to plan and prepare, property investment can be a positive and worthwhile financial strategy. You’ll never be able to eliminate all of the risks, but you can put the odds in your favour.

So, grab yourself a coffee and read on. Here are some helpful tips to get you started:

  1. Understand what you want from your property investment
  2. Do your sums!
  3. Evaluate the market
  4. Get financial advice
  5. Pick the right mortgage
  6. Consider hiring a professional
  7. Buy into a location you know and understand
  8. Pick a property that will rent easily
  9. Who will manage your property?

Here’s how to begin investing in property:

1. Understand what you want from your property investment

Maybe you want to use your self-managed super fund to invest in property or you’re looking to build your wealth portfolio. Your first decision is to identify how investing in property will fit into your long-term financial strategy. Are you looking for high rental yields that generate a regular income or a property that will sell in 5 or 10 years at a profit?

Your strategy will also determine the type of house you choose to buy. For example, a property that can be increased in value through renovation works, or a property that’s ready to be rented out immediately.

2. Do your sums!

Many buyers fall into the trap of borrowing whatever a bank will lend them. But you need to recognise your limits. What repayments can you afford to make? Can you meet the expenses associated with buying a property? There are some great tools and calculators that can help you make these decisions:

Make sure you factor rising interest rates into your repayments and whether you’re willing to make changes to your lifestyle to meet expenses.

3. Evaluate the market

Buying during a rising market can provide strong capital gains if you play your cards right and the Internet offers a wealth of information to help you monitor the market. Both RP Data and Residex offer detailed reports.

More importantly, your own personal circumstance should dictate whether you’re in a position to buy. And if you’re in it for the long-term, the condition of the market holds less importance because properties typically increase in value over a period of 10 years or more.

4. Get financial advice

If you want to make the most of your property investing experience, you’ll need to understand the tax incentives and options available to you. Talk to your accountant and decide how to structure the financial set-up of your investment property.

Make sure you are aware of the expenses you can claim on an ongoing basis.

5. Pick the right mortgage

Don’t be sold on low interest rates. Banks often use different terminology to describe the nature of fees and charges associated with a loan. Remember to look at the comparison rate, which reveals the true cost of a loan.

Compare different home loans.

6. Consider hiring a professional

Property investment specialists have the insight and resources to help identify hot spots and up-and-coming trends. They can also eliminate the headache associated with negotiation. But it’s a mistake to put all your trust in another person. Always research the advice you’re given. Never sign a contract until you’re 100% convinced about a recommendation.

The Property Investment Professionals of Australia claim to offer professionals that subscribe to a Code of Conduct which considers all consumers and commits to disclosure and a high standard of Best Practice.

7. Buy into a location you know and understand

Location is everything. And you’re more likely to know the hot markets of areas that are familiar to you. Do your homework. Follow similar properties in the area and make note of what they sell for. You can also register for REALas to gain a more accurate prediction of a property’s selling price.

If you’re intending to rent your property out, you’ll need to know what type of rental yield is realistic for the properties you are interested in and what type of tenants the property will attract. Look at similar properties listed with local real estate agents and make note of their monthly rent amount.

8. Pick a property that will rent easily

If you want your property to rent out consistently, you’ll need to identify locations with high rental demand. Often properties close to public transport, schools, universities and shops are highly sought after. Research the profiles of people who inhabit a suburb so that you know what type of property to buy. For example, families will often seek properties close to schools and may need more bedrooms and a garden. University students will seek small or shared apartments with low rent close to public transport.

The socio-economic profile associated with a suburb generally indicates the quality of tenants. Try to pick locations with low criminal activity.

9. Who will manage your property?

Managing a rental property can be time-consuming and stressful. Finding suitable tenants, drawing up contracts, property maintenance and chasing payments. Choosing to self-manage will save you the fees associated with hiring a property manager, but you need to make sure you can spare the time involved to ensure a smooth rental experience.

A reliable property manager will draw from their marketing experience and resources to ensure your property is rented out consistently and efficiently. They can also save you the stress involved with handling difficult tenants.

If you do choose to hire a property manager, make sure you hire a good one.

Snapshot!

Investing in property can offer impressive financial returns if you allocate the time and resources in choosing the right property and location. But the wrong decisions can become an expensive and stressful mistake you can’t easily back out of. It’s essential you understand how your investment is going to fit into your overall financial strategy and follow a plan accordingly.

Good luck!

 

Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.

 

 

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    The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of REALas.