The Australian property market has long been considered an important source of wealth creation.
Most people purchase their own home first, followed by another property, even before investing in shares and other assets.
Before you buy your first property, there are some key points to consider before investing in real estate.
Investing in property is cyclical, most especially that property markets in Australia tend to move in cycles.
Investors with the tools and strategies to take advantage of market conditions can take advantage of outstanding investment opportunities as the market passes through the typical boom-and-bust phases.
Insights into sentiment and confidence
When the economy is at a bottom of the cycle, sentiment is important.
Rumours and negative media reporting can easily depress the real estate market rather than reacting to factual information.
It is important for investors to keep in mind that the Australian real estate market consists of micro-markets, each of which responds differently to various economic factors.
The property investment market will always be able to buck the downturn during an economic downturn. Your portfolio can be enhanced if you find, research, and analyse these opportunities before others do, using accurate, timely data.
It doesn’t take long for the situation to change as the market turns upward, confidence returns, and building approvals increase.
Investing in property offers many benefits, including;
Creating financial security and wealth for you.
Capital growth and/or rental income as a means of creating wealth.
Depreciation, after-tax tax losses, and the reduction in personal tax payments provide tax advantages.
By borrowing against your property, you can leverage your equity and grow your portfolio.
Choosing a strategy for investing in property
Take the time to select a property investment strategy that best suits your current situation before beginning your investment journey.
Consider, for instance, investing in real estate lets you ponder on some questions such as;
Invest in long-term capital growth to fund your retirement?
Become self-sufficient by generating a new income stream?
Developing projects with greater potential profits – but with higher risks?
Can you make a relatively quick profit by buying renovation properties and reselling them (trading) them?
In order to achieve this goal, you will need to calculate how much money you will need.
Consider, for example,
Is there a certain amount of equity or cashflow in your portfolio that you need to be satisfied during retirement?
Those who become wealthy through real estate investing are usually savvy, hard-working individuals who conduct lots of research, take calculated risks, and keep their ultimate goal in mind.
Collaborating with a team
It can be tempting to put off identifying professionals who can help you with your first real estate investment due to the difficulty of raising money.
You are in the “business of property” when you invest in real estate, much like running your own small business.
No matter how many properties you own, you will have to make decisions about tenants, maintenance, and property management.
It is also a legal requirement to keep detailed records of all transactions and dealings in order to comply with accounting, tax, and legal requirements.
Your time is valuable
Think carefully about hiring a contractor to handle maintenance work before deciding to take on these tasks yourself, or using a property manager for all the other decisions real estate investors face every day.
Take into account your own time. Your time is valuable. Is it really worth doing the work yourself when you can hire a professional and write off the costs as tax deductible?
Choose an expert team that includes
Lawyer
Mortgage broker
Property manager
Accountant
Independent valuer
Painters, plumbers, cleaners, pest control contractors
Finally, make long-term relationships with people you trust early in the process, and seek advice before you make conditional offers.
Be financially prepared
Funding and raising capital are major obstacles to real estate investment for many investors.
Your borrowing strategy and structure should align with your long-term investment goals when choosing the right financier.
Your team needs a broker or banker with experience.
The cheapest mortgage rate should not be the only factor you consider when buying a house or any other property.
Consider lenders that offer investor-specific loan products.
Finding a bank
Arranging for an official appointment with your local bank’s loans manager can be as easy as approaching a bank lender directly.
Mortgage brokers
Brokers know how to shop around for the best loan facility and options for you based on your financial situation.
It is recommended to find one who is not affiliated with a real estate or property development sales office.
Here’s what you need to know about financing.
Interest rate impact
Your budget needs to account for interest rate increases and other unforeseen costs.
You can pay off more of your loan faster if you maintain the same repayments when interest rates drop. As a result, it builds up a buffer.
Considering your spending and saving habits and the different loan products available is very important.
You can save interest by using an offset account if you have extra cash.
Choosing a location
Your investment strategy will determine the location you choose.
Compromises will always be a part of investing, but when choosing a location, consider:
Statistical data
Demand and supply
Population growth
Planned developments and zoning
Any location must be thoroughly researched. Researching suburbs and locations in advance will reduce risk.
Shortlisting properties and narrowing search
There are several factors to consider when choosing a property;
What’s the location like – schools, shops, daycare, sports?
Is there a train station or bus stop nearby?
Density, growth rate, and population growth.
Room size and usable living space inside and outside, as well as garages and storage spaces, are the rooms suitable for renting?
Could the property be developed or renovated in the future? Will surrounding properties be developed, e.g. with high-density housing?
Your property search during your investing career will be influenced by all of these factors.
At the very least, research the property once you’ve targeted it. It is important that you know the following;
Amount of time the property has been listed.
Whether its advertised price has changed since it was listed.
Previous owners’ sales history, i.e. how much they paid.
Historical capital growth rates and median sales prices for similar properties.
If you intend to let it as an investment property, what comparable properties are selling for?
How much do similar properties with the features you intend to add sell for if you plan on renovating and then selling?
The next steps depend on what kind of property you are targeting:
Cost analysis
Buying price
Taxes
Travel and time
Inspect buildings and pests
Costs of litigation
Schedule of depreciation
Assess the property’s ongoing costs
Charges for utilities
Maintenance and repairs
Capital improvements and renovations
Management of properties
Interests owed
Insurance
Corporate bodies
Unplanned vacancies
Considering your ability to service the loan you’ll need to finance the investment and the costs and benefits of the investment over time.
It’s pretty easy to figure out whether or not your investment is going to work if you forecast all of these factors correctly.