10 things to remember when buying your first investment property

Investing in property can be an ideal way to shore up your financial future, but there are a lot of factors to consider before taking the plunge.

Right Property, Right Price

It goes without saying that identifying a property that has the potential to increase in value is essential, as is getting it at the right price. Research is key: check out the local market a get an idea of current sales prices for comparable properties to the one you are interested in. Stick to what you know and buy in an area you are familiar with. The property needs to sit comfortably within the local demographic of the area – for example in an area inhabited mainly by families you’ll need to look for homes with decent sized outside space and good local schools.

 

Budget

Buying property is generally a medium/long term investment, so do your sums and make sure you’ll be able to afford the mortgage repayments over the total term. Once you have completed your purchase you should find you can easily cover the loan with the rent (plus many of the associated expenses are tax-deductible).

Delegate

A property manager is usually an experienced real estate agent. Their job is to make everything run like clockwork. They should be able to guide you in matters such as raising rent, coordinating repairs and maintenance, and best practice when it comes to all aspects of managing your tenants.

Market Knowledge

Local knowledge is like gold dust when buying property, so speak to as many real estate agents and local residents as you can to get the lowdown on the area you are interested in. Finding an appropriate agent in your is simply done with OpenAgent. You can also check with the local council whether there are any planning applications currently in the system nearby to the property you have your eye on – as such works could have either a negative or positive effect on the value going forward.

Mortgage Wisely

Structuring your mortgage loan to best advantage is very important, and you should always seek advice form an experienced financial advisor. Generally speaking, your individual circumstances will dictate whether you opt for a variable or fixed rate loan, but research both options before committing. Most investment property loans will be structured as interest only (as opposed to Principal plus interest) because this improves tax efficiency.

Equity

Using the equity from another property that you own can be a clever way to finance the purchase of an investment property. If you opt to use the equity in your current home, you may be able to borrow more cash against the investment property, thus increasing your tax deductions. 

Get in Gear

Negative gearing in certain circumstances will trigger some tax benefits if the cost of the investment exceeds the generated income. Australian law is structured to allow the investor to deduct their borrowing costs and maintenance costs for the property from their total income. However, this will only result in a tax benefit if the investor also earns other (taxable) income. So, though you are making an overall loss on the investment property, you are able to push down the tax you pay on any other earnings.

Inspect

Before you sign on the dotted line, it is definitely worth getting an in-depth professional inspection of your new property that will flag any potentially costly repairs or issues that could affect the price you are willing to pay.

Decorate

Even if you’re not planning a particularly high spec finish, all rental properties should be well presented and clean with modern kitchen and bathrooms. Decorate in neutral tones and make a note of colours used to make future touch-ups simple. Decent tenants will be attracted by a decent standard of presentation. You also need to keep one eye on the resale value. Maintaining your property to a good standard will increase your chances of selling it on for a profit in the future.

Long Term View

Always be clear when you decide to invest in property, you are in it for the long term. The longer you hold onto your investment, the more funds you can generate to invest in a second property. The ultimate aim is building up a large portfolio. It’s a question of finding the perfect balance between financial security and quality of life. Achieve that, and your future will be assured.

 

Author – Anne Grobler is the Head of Marketing and Communications Specialist at OpenAgent