1. Choosing the right property at the right price
Investing in real estate is usually all about capital growth, so choosing a property that is more likely to increase in value is the most important decision you will make, so buying at the right price is absolutely critical.
Unlike buying shares where the value of a company is transparent, real estate is more difficult to price, this however provides you with the opportunity to acquire an asset below its real market value if you are patient and knowledgeable. The key for you is to do your research, work out what everything is selling for in and around the area and then you’ll discover that soon you’ll become very good at working out what a property is worth – you’ll know a bargain when you see it. Never consider purchasing real estate in an area that you are unfamiliar with, particularly when you are approached by real estate spruikers marketing interstate or offshore properties, many of these real estate marketing companies are paid very high commissions resulting in the price of the property being hugely inflated. If you do find a property that you like and are unsure of its real value we’d suggest contacting us or another lender so you can arrange for an independent valuation to be done on behalf of a bank and once you are armed with this information you can often use this as a good negotiating tool.
2. Do your sums – Cash Flow is always king!
Investing in property is a proven path to long-term wealth, however you should consider it a medium to longer term type of investment, so you’ll want to make sure that you can afford to maintain your mortgage repayments over the long term. You will not want to have to sell your investment property until you are good and ready and if you were to encounter some financial stress, this could force you to offload the property at the wrong time.
Once you own an investment property it can be quite inexpensive to keep it and service the loan, that’s because you earn rent and get a tax deduction on many of the expenses associated with owning he property and remember that over time rents tend to increase as does your own income – so expect things to get easier over time.
3. Find a good property manager and let them to do their job
A property manager is usually a licenced real estate agent that is a professional in their field, their job is to keep things in order for you and your tenant. They can help you with ongoing advice and help you manage your tenants and get you get the best possible value from your property, a good agent will let you know when you should review rents and when you shouldn’t.
The property manager should be able to give you advice on property law, your rights and responsibilities as a landlord – as well as those of the tenant. They’ll also take care of any maintenance issues, although you should approve all incurred costs in advance.
The property manager will also help you find the right tenant, conduct reference checks and make sure they pay their rent on time. It is important also that you don’t interfere too much with tenants because there are laws that give them rights, so always try to respect them. You should however make regular independent inspections of your property to make sure that the tenant is looking after your investment but always go through your agent and give plenty of notice.
The good news is that the cost you pay to your managing agent is usually a percentage of the rent paid, is deducted from the rent and is tax deductible
4. Understand the market and the dynamics where you are buying
Consider what other properties are available in the immediate area and speak to as many locals and real estate agents as you can – they’ll let you know if one side of a street is considered superior to the other. I always like to let competing agents know that I am looking at another similar property to see what they the say, it’s a good trick to get inside information. Make sure you do the leg work and consult professionals you can trust. Accessing independent information from a source such as RP Data can give you information on average rents, property values, demographics and suburb reports.
You can access a lot of information on the Internet but if you want a free RP Data Report, contact us and we’ll be happy to provide you with one free of charge as we subscribe to their services. It is also a good idea to find out what changes may be happening in your suburb and local council can often help here. For example, a major construction next to your property could make it harder to find a tenant at the right price or a planned by-pass may mean traffic will be reduced and this may increase the value of your property quicker than expected
5. Negative gearing
Negative gearing can offer property investors certain tax benefits if the cost of the investments exceeds income it produces. Australian law allows you to deduct your borrowing and maintenance costs for a property from your total income. However, you can only get a tax benefit if you earn other taxable income in the first place. So, while you are actually making a loss on the property, the advantage is that the loss can be used to reduce the amount if tax on your other earnings. However don’t buy an investment property just to get a tax deduction.