Buying an Investment Property

Where and what you buy will affect your return on investment.

Where to buy

  • Buy in a high-growth area where there is potential for capital gains. Read the newspapers regularly to pinpoint the up and coming suburbs
  • Look for properties that will appeal to tenants e.g. properties with a view or are close to shops, schools and transport
  • Research recent sale prices to give you an idea of what you can expect to pay for property in the same area
  • Find out about the vacancy rates in the neighbourhood. A high vacancy rate may indicate a less desirable area. This may make it harder for you to rent your property and may make it difficult to sell in the future.
  • Think about changes in the suburb that will affect future prices. Things like planned developments or population changes can affect the future value of a property. Don’t assume that last year’s boom will continue forever.

What to buy

  • Look for properties with features that will appeal to as many people as possible e.g. second bathroom or lock up garage
  • Look for a property that will attract more than one segment of the rental market such as singles, couples, young families or retirees
  • Low maintenance costs are important
  • Body corporate properties┬ácan be easier to maintain than freehold houses, although you may need to pay body corporate fees

Costs

Buying, selling and managing an investment property can be costly and will affect your return. When you buy a property, you will have to pay for lots of extras on top of the purchase price. Costs may include stamp duty, conveyance fees, legal charges, search fees, and pest and building reports.

As the owner, your costs may include council rates, water rates, insurance, body corporate fees, land tax, property management fees and other costs. Don’t forget interest repayments and possibly tax to be paid on your rental income.

If you sell the property, you will have to pay agent’s fees, advertising costs and legal fees. You may also have to pay capital gains tax.

Work out your investment return

Once you’ve decided where and what you want to buy, work out how much money you can potentially earn from your investment. Long term, you will be more secure if your rental income largely covers the ongoing costs of holding a property i.e. interest and expenses.

Work out the difference between your income and expenses with a cash-flow analysis, for example:

Income and Expenses $
Rental income (per month) $2000
Monthly management fees -$40
Monthly interest repayment -$2500
Shortfall (per month) -$540

If you have a shortfall, think whether you can sustain this over the long term.

Borrowing to invest

Most people will borrow to invest in property (called ‘gearing’). Remember that the more you borrow, the more you stand to gain or lose and the more it will cost you in interest expenses. That’s why you have to be very sure that your property will earn a positive return over time.

If you would like more information on investing, speak with an expert. Your Local Real Estate Agent Dave Williams will be more then happy to help, whether it just be some advice, or helping you find that ideal proeprty that best suits your situation. Call Dave on 0488 884 573.

Call Dave on 0488 88 4573
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