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Top 10 tips for property investing

If you're thinking of investing in real estate, check out RAMS' top 10 tips for joining (and climbing) the property ladder.

Top 10 tips for property investing

17 December 2015

1.  Know your budget

If you’re thinking of investing in property, it’s important to first set out a clear budget. Make sure you take into account the purchase price, stamp duty, legal costs, mortgage insurance (if needed) plus any extra funds you may need for renovations. 

Once you've done the numbers, and have a better idea of what the real cost of buying might be, ask your bank for a pre-approval on your loan so that you know approximately how much money you may be able to borrow before you start hunting for properties. 

2.  Seek advice  

When borrowing to purchase your investment property, there are different loan options for you to consider. Whether you choose interest only repayments for a period of time or pay principal and interest, or whether you choose a fixed interest rate or a variable rate loan, will all depend on your personal circumstances – consider your options carefully before you decide.  

Structuring your loan correctly is vital for long-term financial health, so seek advice from a reputable financial adviser, accountant and conveyancer.  

3.  Research locations  

It's important to buy in an area where there is strong demand for rental accommodation – so research the local demographic.  

Apart from rental return, you are also looking for capital gain. Each individual property market has its own growth cycle – this can be due to local supply and demand, economic climate and consumer confidence.  

The idea, if possible, is to invest in a suburb (town or region) that has just been through its cyclic downturn and is poised for a growth phase. Choosing an 'upcoming' area can pay dividends. 

Look for suburbs undergoing gentrification – signs include; the arrival of young people with good incomes, new homes and renovations springing up, plus new infrastructure like schools and business centres. 

4.  Know the market  

Once you decide on a location, do your research. Talk to locals, real estate agents and council to get a feel for the area, then check out recent sales to get a good idea for what property in the area is worth. 

5.  Be objective  

When purchasing a property for investment purposes, it's important to buy with your head and not with your heart.  

As an investor, you’re making a business decision and should be looking for property that is well presented and functional with potential for good rental return and capital growth in the future. 

6.  Get an inspection  

If purchasing an older property, making major repairs in the first few months of ownership could make a significant dent in your cash flow which is why obtaining a professional Building Inspection before purchasing might be a very smart move. 

Prior to signing the purchase contract, take time to understand the building inspection report to avoid expensive repairs down the track. 

7.  Freshen it up  

You'll attract better tenants if you have a well-presented property, so it pays to spend a bit of time and money polishing it up. 

Paying tradespeople to renovate your investment property is costly. If you're prepared to get your hands dirty you can save money and increase your profit margin by doing some of the work yourself. However you should stick with professional tradespeople for things such as electrical and plumbing work. 

Keep colours neutral to appeal to a wide market and make sure your kitchen and bathrooms are in good condition. A lick of paint and some new carpet can do wonders for freshening up a property. 

8.  Beware of costs  

Once you have bought a property you need to be aware of the ongoing costs involved in maintaining it. Apart from interest charged on your mortgage, there will be other outgoings including council rates, land tax, property management fees, strata fees (if applicable) and insurance. 

As a landlord, you will also be up for any maintenance repairs needed on the property. You will of course receive rent and you may be eligible for tax deductions to offset these costs but it's a good idea to have all your incomings and outgoings set out in a budget so you know exactly where you stand. 

9.  Employ a property manager  

An investment property manager (PM) is usually a licenced real estate agent who will keep things in order for you and the tenant. They can:  

  • Help locate and place a tenant
  • Undertake reference checks to ensure you find the right person
  • Advise on market rental for your property
  • Negotiate with a prospective tenant to get the best possible return on your investment.   

A good PM can also advise on the rights and responsibilities of landlords and tenants.   (You can also visit the Office of Fair Trading for information and consumer advice on home ownership, tenancy and property management)

They’ll also take care of any maintenance issues, manage rent collection, run regular property inspections and act as the point of contact between you and your tenant. 

The fee you pay your PM is usually a percentage of the rent.  

10.  Think long-term  

Remember that property investment is a long-term strategy and you should not rely on property prices rising in the short term.  

The longer you can afford to commit, the better – and as you build up equity, you can consider purchasing further property. 

 

Note: While these top 10 tips for property investing are intended as a guide only, your individual circumstances should naturally be taken into consideration. This is why we also recommend you obtain independent professional advice relevant to your financial circumstances.

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