19 Jul 2015
Property investment has always been popular in Australia. However, like all forms of investment, there are loads of variables involved and it’s easy to make expensive mistakes. Building wealth through property investment can be a lot of work – particularly if you’re new to property investment and are not aware of exactly what’s required. In this article, we outline some of the common mistakes made by first time property investors so you can plan ahead to avoid them.
Not doing your homework
Many people make the mistake of buying a property simply because they like it, or think it is a bargain. But not every property makes a good investment. When you find a property that you might like to purchase, it is very important that you do your research to ensure it will give you the return on your investment that you will need. Ask yourself these questions, and importantly, take the time to research the answers carefully:
• Will it be easy to find tenants/will the property be in high demand?
• What rental income can I expect?
• Does the property have strong capital growth potential? Is it in a growth suburb?
• Am I paying the right price? How long will I have to hold the property before I can make a profit by selling it?
Not factoring in all of the costs
Cash-flow is a very important factor when you plan to invest in property – and it’s the area where many first-time investors come undone. It’s not only important to factor in all the costs of buying the property, you must also factor in all the costs of running the investment and maintaining it from the outset.
When you research the rental income you can expect from a property, you will first need to know exactly how much rental income you will need to cover the costs of holding it. The actual costs will vary from property to property – if you purchase a new home, for example, you will not need to factor in much by way of maintenance costs at first. But if you purchase an older property, you will need to make an estimate of what work is going to be needed and when, and how much this will cost and factor that into the budget.
Ask yourself these questions:
• Will the rental income be enough to cover the costs of a property manager, advertising for tenants, regular general maintenance, council rates, building insurance and landlord’s insurance?
• How will I cover the costs of large repairs – say if the hot water system needs replacing quickly?
• How will I cover the costs when the property is untenanted and there is no rental income? How long is the average vacancy time in this area? How long will I have to budget for?
Not getting the property management right
A property manager is the liaison between you as the landlord, and your tenant. First time investors often believe that managing their own property will save them money. However, it should be remembered that your property management costs are usually tax deductible and few people have the skills to not only find tenants quickly, but choose the right ones.
Property managers find your tenants, vet them by performing credit checks and then collect the rent every month. They deal with tenant requests, organise regular maintenance and pursue action when disputes arise. They keep track of rents in your area and make sure your rent keeps pace with the market.
In short, a good property manager will help you maximise the return on your investment and save you from many sleepless nights. However, some property managers are better than others, and fees vary. You should carefully research your property manager before engaging them – ask around, check references and make sure they have the resources to do a good job. If you need help with this, ask us for a referral.
Not talking to a tax professional
Did you know that you should obtain a depreciation schedule as soon as you purchase the investment property, preferably at settlement? Not many people do. It’s a document that helps your accountant determine how much you can claim back on tax each year.
One of the major mistakes people make with investment property is not planning ahead to make the most of their tax deductions. In order to ensure you understand what you can and cannot claim, you need to talk to a tax professional and/or accountant early on in the process. Getting it right will help to ensure you come out ahead and enjoy substantial savings. Getting it wrong will cost you money you may never get back. We have many expert contacts in this area so if you need a quality referral to an accountant, please get in touch.
Getting the finance wrong
Before you commence your property investment journey, it is wise to make a plan about what you want to achieve – your financial goals for the future. We recommend you sit down and talk to us about getting the right financing to achieve these goals. Taking a haphazard approach to financing your first, and then subsequent investments, could cost you more money, limit the amount of investment properties you can acquire and even be a recipe for disaster if something goes wrong.
We can’t stress enough how important it is to formulate a plan before you begin, and talk to us about your financing before you even consider making a property purchase. We will help you set up the financing arrangement that is most advantageous to you – considering your goals and your personal financial circumstances.
If you’re thinking about making a property investment, why not talk to us? We are happy to take the time to discuss your plans, get you pre-approval for your financing and introduce you to a team of other professionals who can help you to avoid these expensive mistakes above! Give us a call – we’re here to help.
16 Jun 2015
With interest rates at historical lows, property investment is rapidly becoming one of the most popular ways to build wealth to secure your financial future. But how do you find a property in a location that will give you good capital growth and help to ensure the investment is a success? In this article, we take a look at what makes a good investment location – both for residential and commercial properties – and how to find one.
Location, location, location!
Choosing the right location is one of the most important factors in the success of a property investment. The right location can differ according to the kind of property investment you choose – commercial or residential. However, in both cases, the principal is to find a property that will be popular with tenants both now and into the future, as this will support your requirement both for a steady rental income and future capital growth.
What to look for in a commercial property location
With commercial property, you will need to assess the purpose of the property and if the location will be good for that particular business. Retail commercial property should be in a location that provides a steady stream of passing trade and is easy to reach via public transport or car. There should be plenty of car parking available and if possible, the location should already be enjoying good trade. Locations that are busy will create competition amongst potential tenants and this will always be good for capital growth.
For more industrial commercial properties, good road links and parking, ample space and excellent facilities are more important than passing foot traffic. You’ll need to ensure that the purpose or possible uses of the building are acceptable under local council zoning laws so that there is no restrictions on the type of tenants who may use it. Importantly, you’ll want to make sure the property is not too far away from a city or port – particularly if it is a warehouse or manufacturing building.
What to look for in a residential property location
You may think that it will be easier to find a suitable location for a residential property investment, however competition for good locations is on the rise. With residential property, you’ll also need to find a location that provides all the attributes a tenant will be looking for – just like with commercial properties, however their requirements will differ.
Apartment living is rising in popularity, particularly for working people with no families. If you’re choosing an apartment, make sure it has good public transport facilities, is close to amenities such as restaurants, shopping and entertainment.
Houses are more popular with families, and for an investment like this facilities such as parks, schools, and easy access to public transport are important. Suburbs that are already popular with tenants because of the quality and easy access to such facilities may be in short supply and therefore expensive, so look at adjoining locations that may be up and coming.
For both apartments and houses, the availability of work nearby for tenants will help to ensure its popularity with tenants and this adds up to capital growth potential. Properties that are a long way from employment may be less expensive and easier to secure, however rental returns may be much lower and the potential for capital growth reduced.
How to find the right location
All property investment requires careful research to find the best locations with optimal capital growth potential. Most people start with online research and by making contacts within reliable real estate agencies so they are alerted when investments with potential become available.
The first step is to look for areas where income levels are high and occupancy rates are good. Real estate agents and reputable buyer’s agents are a reliable source of this information, but it’s also a good idea to subscribe to a property market data service that will give you the information you need at your fingertips. (We can put you in touch with a reliable service, so just ask us.)
Try to avoid areas where future oversupply of properties may become an issue. This is particularly important when considering investment in an apartment – to avoid mistakes, check with the local council to find out how many developments are in the pipeline for the area as this may have a significant effect on values.
Houses appeal more to families and may carry better capital growth potential. Look for areas where infrastructure development is either good or planned for the near future.
Popular schools always attract competition for houses, so you may want to research which are the best schools in the areas you are considering and look for property nearby. University locations also create a reliable source of tenants and income, and often offer good entry level investment opportunities.
Remember, before you consider any property investment, it’s a good idea to set your budget and get your financing pre-approved. We’re here to help you get on the right track with your property investment plans, so give us a call today.