Investing in property is a great way to secure your future. In fact many of Australia’s millionaires have created their wealth through real estate. In order to maximise your investment there are many factors you need to consider. The following is a rundown of the various aspects of property investment and the things you need to do to maximise your investment. Prior to purchasing an investment property we recommend that you consult your financial adviser, accountant or solicitor for professional advice.
The characteristics that you look for in an investment property are largely dependent on its location.
In areas close to the cities houses and units anywhere between 1 bedroom to 4 bedrooms in size should attract tenants. Whereas in the outer suburbs tenants prefer houses with at least 2 bedrooms. The main reason why people move to the outer suburbs is to have a house with a backyard. Having said that, tenants can still be found for units in the outer suburbs but capital growth historically has not been as great as for houses.
The ideal investment property within 10km of the city would include the following:
· At least 1 large bedroom (preferably with a study)
· If it is a 2 bedroom property the bedroom’s should be large
· 2 bathrooms in 2 bedroom properties
· A lockup garage
· At least 50sqm of living space
The ideal investment property more than 10km from the city would include the following:
· At least 2 large bedrooms
· 2 bathrooms
· Double garage
It is imperative that when you buy real estate you make sure you are paying a good price. Buying at a price that is more than it is worth can take years to overcome. An example of such a scenario is the overpriced properties sold by two tier marketeers on the Gold Coast where tens of thousands of dollars have been added to the true value of properties and then sold to unsuspecting interstate residents. Some of the people who have been stung by this scam are holding their properties years down the track that are worth less than what they paid for them.
Price research is perhaps the most important step in buying real estate. There are a number of ways in which you can find out what the true value of a particular property is. They are:
- Visit to get a list of all the real estate sales that have been made in the past year in your particular postcode. Once received simply visit a few of the similar priced properties on the list and compare them with the one you intend on buying. If the house or unit you are buying is better than those on the list then you should be getting a good deal. If not then you should go back to the drawing board.
- Hire an independent valuer to value the house. There are many valuers that can be found in the Yellow Pages. The cost of a valuation report ranges from $150 to $600. This money is well worth it if you find out that the property is overpriced by thousands of dollars.
To ensure the highest tax deduction possible, many investors opt for an interest only loan when it comes to investment properties. Most banks offer an interest only period of 5 years and some even offer a 10-year period. In the interest only period the ongoing loan balance remains the same as the amount originally borrowed due to the fact that only interest is being paid instead of principal and interest. This means that the amount of interest that can be claimed as a tax deduction is maximised. This type of loan also allows you to free up cash flow to save for deposits on further real estate purchases. Please discuss your situation with an accountant before deciding on which loan is ideal for your needs.
Another strategy that can be used when it comes to financing real estate is to fix the interest rate for the entire interest only period. Not only does this protect you from the possibility of increasing interest rates but also it provides certainty as to the repayments you will need to make for the entire period. It allows you to accurately budget for the period.
To receive an indication of your home loan options please input your details into our apply online page.
The rental return
The rent return you will receive will mainly depend on the location of the property. For example the rent return on country properties is usually higher than those in the city. Also the rent returns in Brisbane are generally better than Sydney. The Australian Property Investor reguarly prints tables of the rent returns of each suburb. This magazine can be purchased from most newsagents.
Off the plan properties
A strategy often used by real estate investors is buying properties off the plan, with a long settlement period, using deposit bonds or bank guarantees. Theoretically, when the property settles (usually at least a year later) it will have grown in value. So the buyer profits from the growth in value and it has only cost him the price of the deposit bond. The buyer can either crystallise the profit by selling the property before settlement (known as ‘flipping’) or can settle on the property and rent it out (either way the investor is ahead). In terms of return on capital, buying properties off the plan can provide huge returns percentage wise.
In reality it is possible for the property to lose value between the time when contracts are exchanged and the settlement date. In this scenario if the investor is not in the position to settle he has to sell the unit at a loss before the settlement date. If he is in a position to settle on the unit it can be rented out and should eventually increase in value to at least the price it was bought for. In today’s overheated inner city unit market the prospect of an off the plan property decreasing in value during the construction period is a distinct possibility.
Investors should be careful when purchasing properties off the plan. The major task one should undertake before purchasing is to view the developer’s previous developments and check the quality of the buildings. It is even advisable to ask the people living in the existing developments what they think about it, as they would know best. Always engage the services of professional adviser before undertaking such a risky investment strategy.
Disclaimer: This page is meant for information purposes only. We recommend you seek professional advice from you financial adviser, accountant and solicitor before investing in real estate.