Buying over-priced property can set you back years financially. Chris Gray shares his best tips to help you improve yields and maximise capital growth in your own property investments.
Property has to resonate with the heart and the mind, but when making a purchase it is fundamental to make a financial decision before making an emotional one.
Unfortunately, some buyers get so excited about buying a property they often make choices with their heart – which are usually a poor ones.
Before purchase it is quintessential to know the medium house price, capital growth rates and rental yields of your area. Without it, a poor purchase may result in little or no capital growth or rental income for months at a time – leaving you out of pocket.
I recommend that prospective purchasers see at least 100 homes in the area in which they intend to buy. A purchase that will provide a capital growth of seven – 10 per cent and yields of about four to five per cent is the key for investors that want to build long-term wealth.
In under a decade, well-chosen properties in key hubs of Australia generally double in their value and produce consistent yields – and this was part of the key to my success.
Here are 10 key points that will help you maximise capital growth and yields in your own property investments.
1. Do your research
With property prices seemingly rising week to week, research has never been more important than now.
Look at as many properties as possible to get an idea about prices in your area. What adds value, which types appreciate faster, how to get a good deal (getting properties at much lower than market value), and the pitfalls are of a too-good-to-be-true deal.
2. Get the property valued before you buy
Even if you’ve done sufficient research, buyers can still pay overinflated prices for properties. I personally still pay for an independent valuation every time I buy.
3. Get the property valued before you renovate
One of the biggest misconceptions investors have is that the more capital they spent on a property, the more profit they will make. This isn’t always the case.
A valuer can tell you what your home is worth now, what it will be worth after, and whether your $30,000 kitchen renovation will actually add $30,000 to the home’s value.
4. Find a good property manager
This is the best way to maximize your rental income to ensure that it rises with the market.
Most self-managed properties are under-rented as owners are often hesitant of upsetting tenants. The property manager will also be able to keep on top of maintenance and other issues to do with the property.
5. Location, location, location
Look for areas with potential to maximise capital growth and create high yields. Important things to look for are proximity to public transport, leisure activities (parks, beaches and lakes), and to work and schools. Pay for some independent research which will tell you what the highest-rated suburbs are – it’s worth it!
6. Buy “better” properties
Physical factors to look for when researching properties are:
- good-sized bedrooms;
- off-street parking;
- good positioning;
- and a uniqueness that sets the property apart from others in the street.
These will ensure the property grows in value and desirability.
7. Buy blue chip properties
Cheap properties are often cheap because they are not in great demand. That’s a red flag during the current market conditions.
It’s often worth paying market value for a better property in a top suburb than it is to get a discount for something that no one else really wants.
8. Buy at, or below, market value
Yes, prices are soaring since the pandemic hit, but there are still ways to acquire good properties below market price.
Unrenovated properties in good areas can fetch lower prices and offer excellent opportunities to maximise capital growth. You can also achieve good yields if you renovate. Another is buying an emergency sale when vendors are hard-pressed to sell to finance a recent buy or relocation.
In a flatter market, clearance rates are around 50 per cent, making properties harder to sell. Here, buyers have greater bargaining power.
9. Get a good mortgage broker
As an investor a good broker should be one of the most important professionals on your team.
If I can borrow 80 per cent of a property’s value rather than 70 per cent, it means my limited deposits go 50 per cent further, as I only need to put 20 per cent down rather than 30 per cent. It’s not always about getting the cheapest rate.
The more legwork the broker does for me, the more time I can spend finding a better property.
10. Stick to your strategy
Work out what works for you. Once you find the strategy, stick to it.
You need to be aware of other opportunities and get advice, but often these can be distractions. A good strategy doesn’t have to be complicated – it’s often the simple things that work.