June 2021
Reading Time: 3 Minutes
Investing in property is an exciting proposition. Here’s what you need to consider before you begin your search for your first investment property.
Before looking for your first investment property, consider your reasons for investing. Property provides two returns – the capital gain on your property and the rental income you earn from your tenants. What is more important to you? Are you interested in capital growth, or are you motivated by cash flow?
While buying into more exclusive suburbs may appear to have a larger potential for capital growth in the long term, the entry price is significantly higher. Often the rental level you can achieve is not commensurately higher, meaning that your return on investment isn’t that attractive. And demand for a high end rental is often slower, meaning you can have longer vacancy periods between tenants. Consider more affordable areas for better net profit and relative returns. Remember this property will be an investment – it needs to meet the needs of a discerning rental market, not match your dream home wish list. Read our Top Tips on What Makes a Good Property Investment to find out more.
Before you even think of investing, it’s vital to know what you can afford. Talk to your lending institution or a mortgage broker about pre-approval for a loan and make sure you have a good understanding of ongoing costs before you invest. Research the cost of insurance, rates, improvements and repairs. Be aware of the Bright-line property rule and its tax implications – and of course, the recent announcements on interest deduction denial for existing properties. Newly built properties will be exempt from the interest deduction denial rules, meaning they have become very popular with investors.
It’s a good idea to look in growth areas where demand for rental properties is high. Properties that are close to transport, schools, parks and shops are always in demand. When looking at properties, take time out to go for a walk and get a feel for the surrounding area. Take note of any red flags that will put tenants off and research the local crime statistics. Visit the property at different times of the day and night to check for noise and disturbing neighbours. Check out the public transport routes that run nearby, and be mindful of bike and car parking options.
As a landlord, it’s important to consider the needs of the demographic you are trying to attract when purchasing. Residential, single-family dwellings are popular with first-time investors as they attract stable, longer-term tenants.
However, not every property is suitable for a family and not every flatting situation is party central. If you buy an inner-city apartment, for example, it’s likely this will be attractive to groups of young professionals, who can make excellent tenants. Have a look at our top tips on tenant selection.
Always do your due diligence before you invest and make yourself aware of any issues that may affect the property or impose restrictions or obligations on you. Ask for a copy of the LIM report, get a qualified engineer to assess the structural soundness of the building, have a look at the title and consider getting an independent valuation or rental appraisal done. Always obtain legal advice (and get them to review the title and LIM) before purchasing to ensure there will be no nasty surprises.
Apartments can make great first investment properties, but be sure you understand your responsibilities as the owner of a unit-titled property before you buy into one.
Once you’ve found your perfect property, it’s a good idea to engage a professional Property Management company to help take the stress out of managing it.
Call 0800 CROCKERS or Call 0800 2762 5377
