If you’re planning on becoming a first-time investor next year, you want that first rung on the property ladder to be a shrewd move. Follow these tips to make smarter decisions to set yourself up for the climb. Cec Busby reports.
Leave your emotions at the door
When you are buying your dream house it’s easy to be swayed by emotions, but an investment property is a different beast than your forever home. When you’re buying to invest it’s important to take a good hard look at the figures.
- What is the property valued at?
- What is the proposed rental return?
- Who are the potential tenants?
- What is the state of (dis)repair?
- Will maintenance be an issue?
Looking at the finances and approaching your property purchase from a place of research rather than emotion will put you in good stead to make a savvy first move on the property ladder.
What do you want from your investment?
Before you lay your cold, hard cash down on the table and sign on the dotted line for a mortgage, work out what it is you want from your investment.
- What is your financial plan?
- How will buying this property contribute to your financial goals for the future?
It’s also important to consider whether you want your property investment to serve as passive income, or whether it’s for a tax write-off. Your reason will impact on the property you purchase and the rental yield it returns.
Study up on the area
You are not simply buying a property, you are investing into a community, so it pays to do your homework.
- Is your investment property in a growth area?
- What are the past sales histories?
- What kind of facilities are on offer in the neighbourhood?
- Is it located near good schools, public transport, a shopping centre?
All these things will add value to any property you buy and will impact on the price should you decide to sell in the future.
Know your market
If you’re investing in a one-bedroom apartment in a country town, the chances are that your market for rental and resale will be limited. Why? Most homes in rural areas are three-four bedrooms. There is simply not the rental market for a one-bedroom apartment.
Whereas a one or two-bedroom unit in Melbourne’s inner-city would certainly attract both buyers and renters as it suits the market.
Understand what properties are popular in the area you are considering buying into. Opt to purchase something that meets the existing renter profile and you will improve your chances of finding a tenant and hopefully avoid vacancies.
Manage your cash flow
While you may not be paying for utilities such as electricity and gas, investment properties do come with the same costs as an owner-occupied home such as council and water rates and in the case of apartment buildings, strata fee and maintenance.
The rental income you accrue may go towards supporting the payment of some of these costs. However, you will need to be able to manage your cash flow to ensure you have enough money in your budget to cover on going expenses as well as any unexpected costs that might occur.