If you love the idea of an investment property, here are some questions to consider before you take the next step.
Top 5 questions for you:
1) What are your investment strategy and goals?
What do you want to achieve from buying property and what is your deadline for achieving those goals? For example, you might view an investment property as being a source of income for you, or you might hope to sell at a profit down the track. Knowing your goals for investment will also help you determine if property is the most appropriate investment or whether another option might be more suitable for you. Bear in mind that property tends to be a longer term investment and is not always easily sold when you need money.
2) How are your finances?
This covers a few areas. How much of a deposit do you have and what is your source of this? Some investors might have cash, others might be looking at using the equity in their homes (which can hold greater risk of loss) and those with an SMSF might be looking at either leveraging finances from the SMSF or using a Limited Recourse Borrowing Arrangement (if eligible). Affordability is about more than repaying loans; it also covers the initial and ongoing costs of an investment property. These may include stamp duty, conveyancing fees, council and water rates, insurance, property management and repairs.
3) Residential or commercial?
Buying a unit or house for others to live in might be your first port of call but it’s not the only way to invest in property. You can also look at commercial properties such as office suites or larger blocks like warehouses. There are different costs and returns involved depending on the type of property you choose and it can be valuable to get advice from experts in commercial property if you choose this approach. For example, it might be easier and faster to find tenants for a small apartment, while a commercial property might be slower (meaning rental income gaps) but offer longer lease terms and better yields.
4) Location, location, location
Whether you pick residential or commercial property, location is a key part of identifying a good investment property. Some characteristics worth looking for are locations with growth potential, low vacancy rates, wide appeal to people, solid rental yield and good public transport. It’s also valuable to check on council planning and zoning as this can affect the value of the investment properties you are looking at. For example, buying a small house in an area which has been rezoned for larger-scale developments might change the value of your home or it also might be less appealing to renters. By the same token, buying a commercial suite in that same area might offer appeal to commercial renters as an opportunity to capitalise on the growing population.
5) The property itself
The old adage about buying the worst house in the best street to make money over time is not always the best approach when it comes to investment properties. It depends on your investment strategy and your budget. You might need to spend more to make it appealing to renters – or it might require time and energy you don’t have. Regardless of this, some aspects of the property to look for are broad appeal to tenants, attractive features and low maintenance (not just for yourself but for your tenants). Be aware of any repairs you might need to make to the property to make it rentable and how much these might cost – a repair that will keep a property going for many years might be worth the expense for you while a repair that is likely to be a constant requirement might not be.
This information has been prepared by Westpac Banking Corporation ABN 33 007 457 141 AFSL & ACL 233714 (Westpac) and is current as at 20 November 2017. BT Advisers are representatives of Westpac. BT Advice is a division of Westpac. The information in this article is general information only. It does not constitute any recommendation or financial product advice. It provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. The information has been prepared without taking into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. Before acting on it, you should seek independent financial and tax advice about its appropriateness to your objectives, financial situation and needs. This information may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. It should not be considered a comprehensive statement on any matter nor relied upon as such. While such material is published with necessary permission, no company in the Westpac Group accepts responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material.
©BT Financial Group 2017