Property Investment Tips

Property Investment Tips

The following advice is designed to help you maximise the benefits of your investments in property.

Take the long-term view

The housing market generally operates on a 10 year cycle; it is a systemic principle that it will feature high points, low points, and steady periods in between. At the moment, as you are know doubt aware, we are passing through a period of contraction following a protracted boom time; but, just as in countless cycles before, this low point will not last forever. In view of this trend, ensure that you are comfortable with the amount that you are borrowing. Always keep in mind your financial goals, and plan accordingly. You may find a tenant who is in for the long haul, or you might be dealing with a revolving door of short-term renters – whichever it is, ensure that your incoming cashflow is sufficient to take care of the mortgage and other expenses in periods when your property is unoccupied.

Positive or negative gearing

Remember that interest and associated outgoings (ie. repairs and maintenance) are subject to tax deductions. When you negative gear, it means that your loan repayments and other fees and costs are more than you receive in rental income. In such cases, you can offset your net loss against income you make from other means, so that you can reduce the tax you pay on other income.

Positive gearing, by contrast, occurs when your income from rent each year exceeds the repayments and other costs that you are incurring on the property. In this case, you are receiving extra income, but you lose out on the tax benefits negative gearing affords. Another factor to consider is the capital gains tax that is payable should you choose to sell the property in future. Speak to your financial advisor about this.

Keep in the know

When you are up to date and fully informed about property values and trends, and keep an eye out for developments in the home loan market, you enhance your control of your investments and improve your chances of achieving financial success. Read articles in the paper and online, speak to companies who specialise in property research, get in contact with REIA (Real Estate Institute of Australia) or the state-wide equivalents, and talk to friends or family who know their stuff. Look into average rent yields, existing and planned infrastructure, and growth prospects and expectations in the areas in which you are interested. Spend time acquiring a good understanding of the market, and you can watch it pay off big time later on.

Think about equity in other property you own

Equity in the house you live in, or in other property investments you have made, can provide a useful launch platform when you invest in property. If, for example, your home is valued at $500,000, you still owe $250,000 in mortgage repayments, and you would like to invest 10% ($25,000) into another property, this ought to be achievable as long as you are able to afford the repayments.

Consider investing alongside others

When you pool resources with friends, family or colleagues, you assure yourself a much easier entry into the property market. Provided that you have the collective capacity to repay the loan, it is irrelevant if one party has greater income or liabilities than the other(s). The only consideration is that, come the conclusion of the term of the loan, shares in the property may not be evenly distributed. Paying your solicitor a visit ought to get in place a contract that sets out who is liable for what, and how much of the property each investor will possess once the mortgage has been fully repaid.

Find loans that are suitable for your circumstances

There exists a plethora of mortgage options, but the benefit of being inundated with different choices is that you are almost guaranteed to find one that fits your situation and requirements like a glove. Select a finance solution that meets your needs and circumstances as they currently stand, since it is always possible to refinance should things change subsequently.

Employ a buyers' agent

Look for advice concerning the sort of property that will optimise your investment. If, for instance, you are making repayments at a rate of 7%, and net rent covers 4%, then your property will need to secure for you a yearly ROI (return on investment) of at least 3% in order to be a sensible investment. Buyers' agents are professionals who understand the market better than any but the most committed amateurs, and they can be an invaluable resource when it comes to getting advice or engaging in negotiations with sellers and their agents.

Inspect

Get building and pest inspections performed by professionals. There will be expenses attached to this, but in the event of any problems you will save yourself money and hassle in the long run by spending a little extra now.

Look around closely yourself

Take the time to inspect the place on more than one occasion, and try to return at different times of the day and week to assess noise levels during different periods. If you can engineer it, come on a rainy day to check for any hidden leaks. If the property in question is an older place, lift up the carpets to check on the state of the floorboards – look out for indications of damp, mould, termites or other potential headaches. Still with the damp, if you pick up a musty smell, rising damp or water damage might be a problem that you'll have to contend with.

Speak to your accountant

Discuss your overall financial situation with someone who is familiar with both your situation and dispensing advice on diversifying investments. You want to ensure that your financial set-up will be enhanced by acquiring an investment property. You should also establish that you can comfortably afford the necessary repayments on the mortgage. This investment ought not to be a drain on your finances and mental health, but rather something that benefits you and works with your financial plan for the future.