When it comes it investing in property there are a few considerations that need to be understood before making a foray into the market.
Despite a dip in the market, Australian house prices still remain amongst the highest in the world. So, when you’re deciding to hand over your hard-earned money for an investment property it pays to do your research first. While, there is no fortune teller to tell you which suburb will be the next hot spot; savvy investors understand there are few hard and fast rules to adhere to before signing on the dotted line.
To negative gear or not, that is the question
Everyone’s heard of negative gearing, but what exactly does it mean? In a nutshell, negative gearing means ‘losing’ money on your property on an yearly basis. It means the incomings of the property (rent) don’t meet the outgoings (mortgage) and you will have to meet the shortfall. While negative gearing has some tax advantages if we have a change of government in May 2019, Labor has promised to do away with most of these tax breaks, meaning some investors will be left scrambling.
Begin with residential property
Whilst commercial property may be alluring to an investor, if you’re new to the property market it’s best to start with a residential premise. If you already own your home, then you will have some experience of both the mortgage process and the maintenance costs of running a residential property. While the search for a residential investment property doesn’t come loaded with the same emotional baggage as the quest for a forever home, you do face similar challenges when it comes to maintaining the property and balancing mortgage commitments. So owning your own home will have you in good stead.
Look for that quarter acre block
A vacant lot in the inner city is probably unheard of these days, but it pays to keep an eye out for a home with land attached. Generally, the more land, the greater the value of the property. By the same token, homes that are freestanding offer better value for money than a semi-detached or terraced house. Although, it’s not so much the bricks and mortar as the land they stand upon that decides much of a property’s value.
Are you really a flipper?
Anyone who’s bought a fixer-upper knows turning it into a dream home takes skill and gumption and bucket loads of cash. Now imagine the home you’ve bought is not your forever home but a bargain property you’ve decided to renovate and flip. Often the realities of flipping don’t match the hype. Successfully flipping a property requires skill and is often best suited to someone with building experience rather than a novice owner builder. Unless a big profit is predicted it can also be difficult to make money as you will be subject to capital gains. Consider the cost of renovations versus potential sale price and taxes before taking this route.
Diversify your property locations
Don’t invest in property in the same location as your home. Why? If there’s a downturn in the market in your suburb, you will be doubly affected. And whilst we’re on the subject of diversifying, consider different types of property in your portfolio.
Location! Location! Location!
When it comes to property there’s an old adage that nothing can beat Location! Location! Location! There is another homily that suggests you should buy the worst house in the best street. Both of these adages hold true. When looking for property investments, do your homework. Check council minutes for redevelopment plans, look for areas where new schools and hospitals may be built – they are great indicators of up and coming areas. And by all mean, do look for the worst house in the best street!