Top 10 Tips for Choosing the Right Investment Property
Interested in becoming a real estate investor? If so, you’re making a smart choice. In fact, real estate has produced more personal wealth than any other asset class in Australia! Sure, real estate values fluctuate, but historically they have always gone up over the long term.
With so much upside potential, it’s not surprising that more and more Australians are buying investment properties. However, like any investment, real estate returns aren’t guaranteed. Here are 10 helpful hints to assist you to avoid some of the common pitfalls:
1. Make Sure Real Estate Investing Is for You
Do you know how to fix a leaking tap? How are you at painting or patching up plaster walls? Sure, you can always call a professional to undertake repairs for you, but doing so will chip away at your returns.
Most real estate investors with one or two properties understand this and often save money by doing their own repairs. If you do not have funds available to pay tradespeople or know the difference between a flat or Phillip’s head screwdriver, being a landlord or property investor may not be for you. If you are not convinced realestate is right for you, read this article by “Your Investment Property” which will shed some light on the pros and cons of residential property investment.
2. Keep Your Goals in Sight
Do you want to generate retirement income? Are you looking to build equity to help fund your children’s education? When it comes to real estate investing, your end goal should extend far beyond the property itself.
Sure, you could buy a property and hold on to it for a decade in hope of earning a decent return. However, understanding your financial goals and objectives is critical in identifying the right investment property.
3. Do the Math
In real estate investing, cash flow is king. So, delve deep into the finances and get a realistic idea of a property’s projected cash flow before signing on the dotted line. This is especially important if you are getting a mortgage to cover the cost of your investment. You need to make sure you can afford the mortgage payments long term.
That being said, mortgage payments aren’t the only expenses you’ll encounter as a property investor. Insurance, repairs, and taxes need to be budgeted and allowed for as well. Use a spreadsheet to calculate these and any other foreseeable and “one-off” unexpected expenses.
4. Location is Key
You’ve heard it before: “location, location, location”. More bedrooms and bathrooms are great, but nothing affects the value of a home and its potential cash flow as much as its location. Put simply, the location of a property plays a critical role in its financial performance.
For the most part, renters and homeowners alike want to be close to the CBD, schools, shopping, amenities, and public transportation. The closer your property is to these areas, the more in-demand it will be and the more money it will generate.
5. Think Supply and Demand
Proximity to work, shopping, and schools are important, but supply and demand, or scarcity, should play an equal role when evaluating properties.
For example, imagine you are looking at two properties both of which are close to public transportation and great restaurants and shops. Both properties are located in a thriving area and will be in high demand. However, there is a large apartment complex near one and almost zero rental apartments or homes near the other.
While both may prove to be sound investments, the latter should earn you a higher return due to the limited supply. With greater competition for the property, you should not only be able to charge higher rents, but you will also be better positioned to demand more favourable rental terms and select a great tenant.
6. Consider Renovating
Should you buy a brand new property or one you can renovate and add value to? Although it’s nice to purchase a turn-key property you can rent right away, you should keep an open mind when it comes to “fixer uppers”.
The ability to renovate wisely and add value is certainly an appealing option. Don’t write a property off simply because it looks a little rough around the edges. Repainting a few rooms, resurfacing the kitchen cabinets, and making other easy and cost-effective improvements can have a positive impact on both the value of the property and its rental return.
Nonetheless, you should always avoid spending money on improvements that won’t deliver returns. Consider the extent of the improvements needed, your skills, and your access to capital before deciding whether or not to consider renovating. Here is an article about some of the associated with renovating and how to avoid them.
7. Beware of Off-the-Plan Properties
Commonly referred to as “cookie cutter properties”, off-the-plan homes are those with similar blueprints, features, and finishes. They’re often found in developments built by one developer. They’re cheaper to build, which also makes them cheaper to buy.
While a lower purchase price might seem like a positive, this is rarely the case. By nature, off-the-plan properties often lack scarcity. They’re typically surrounded by other homes that look just like they do and often come on the market at the same time, right when construction commences.
8. Choose the Right Features
As a real estate investor, you want a property that appeals to the greatest number of buyers and prospective tenants. Aside from picking a property in a great location, look for one with extra features buyers and tenants will appreciate. A swimming pool, fireplace, french doors etc, can make your property stand out from the pack and attract more interest.
9. Set Up the Purchase the Right Way
Prior to selecting a property, it is extremely important to ensure you structure the purchase in a way that will benefit you the most. In addition to being tax-effective, your existing assets need to be protected. Obtaining professional legal and taxation advice will ensure you purchase your property in the correct entity ie. your personal name, business name, trust, or a company, that maximises your benefits and best protects your interests.
10. Talk to an Expert
With your hard-earned money on the line, you need expert advice. Vie Financial has helped thousands of real estate investors throughout Australia navigate the marketplace, secure funding, and achieve success through property investment. Our team will work with your professional advisers to provide tailored financial solutions to fit your particular needs, so contact us today!
Introducing Gene Medwin of Vie Financial Devonport & North West
Franchise Principle of both Devonport & North West offices. Since opening in January 2016, Gene has quickly established himself as one of the country’s brightest young brokers, earning the reputation as a trusted adviser with both industry peers and clients alike.