Buying property is can be one of the most rewarding investments you will make, so use these 5 beginners tips for investing in property to help you get a head start. Who knows, you could change from a Monopoly player to a property mogul!
Property investments are no different to other investments – you need to do your research before you plunge into the property market. These days, there is a shortage of rental properties so if you choose the right kind of place you really can reap the rewards of your investments.
Here are 5 beginners’ tips for investing in property:
1. Take the long way round
When it comes to property investment, it is best to take a long term view. People tend to forget that buying a property doesn’t only involve the cost of the actual building – you also have to budget for upfront costs such as legal fees, and stamp duty. Selling the property also involves costs such as the selling commission form the real estate agent, advertising costs, and capital tax gains. This means that to make profitable sale, the value of the property needs to grow beyond the 5-7% of the property value that will be spent on buying and selling expenses. To ensure that you make a profit, you need to strategize in the long term (at least 5 to 10 years) to allow the value of the house to increase enough to make you a profit.
2. Choose the right property to invest in
Location, location, location! This is the most important criteria when you consider the success of your investment property. Choosing a good location gives you a better change to enjoy long term growth of capital and will attract quality tenants.
What makes for a good location?
- Good transport links
- Local amenities such as hospitals, leisure and shopping facilities, and schools.
- Construction projects and new developments in place.
- New infrastructure
- Suburbs experiencing population growth
Make sure that the type of building suits the area and the type of people who live in it.
3. Choose a property that has tenant appeal
To maximize your rental return, you need to look for properties that have tenant appeal. A sitting duck of a property just costs you money, so you want the property to be popular with potential renters.
- Look for clean, secure homes
- Low maintenance outdoor areas
- Good airflow and light
- Plenty of storage space
- Off-street parking (preferably in a carport or garage)
4. Get into negative gear
“Negative gearing” is an expression commonly used in property investment. To find an investment in property, most landlords need a home loan or some other kind of financing to be able to buy the property. This is where negative gearing can help you. Gearing refers to borrowing money to invest, like when you use a loan to buy an investment property so that you can afford to buy a property of greater value then you could with your own money. Negative gearing is when the cost of owning the property, paying off the loan and maintaining the property is greater than the rental income you are receiving. This difference counts as a loss that can be claimed as a tax deduction, reducing the tax payable on your income.
5. Decide what kind of landlord you will be
If you are a ‘hands on’ type of landlord, this means that you manage your investment property yourself. This does save money, but it also takes up a lot of time. You are also responsible for a number of legalities such as lease documents and attending to requests from tenants.
To avoid this extra administration, many landlords choose to hire a professional manager for the property to deal with the day to day running of the property. You will have to pay a fee for this service (usually a percentage of the rent amounting to around 7%). Be sure to choose an efficient and reliable property manager to do the job.