Top 5 property investment must-do’s
Thinking about looking up a buyers' agent and getting into property investment? As with any new venture, you'll have to make sure you hit the right marks and carry out all of the necessities in order to be successful. But first, you have to know what these necessities are.
Real estate investment is a crowded field, with the most recent statistics from the Australian Taxation Office revealing that there are close to 2 million rental property owners in Australia. To stand out from the pack, make sure to tick these things off your investment to-do list.
1. Get your finance structure right
It's not enough to simply take out a mortgage. You also have to make sure its structure – meaning elements like the length of its term, the interest rate and repayment type – is set up to benefit you. For instance, many investors choose to make interest-only repayments on their mortgage which they will later claim back as tax deductions. Others will set up a split home loan, fixing a low rate for one part of their mortgage while leaving another portion floating. It all depends on your circumstances and goals.
According to Moody's Australian Housing Affordability Measure for 2015, it takes 35.1 and 28.2 per cent of household income to make loan repayments in Sydney and Melbourne, respectively. But it could be much lower if you play your cards right.
2. Hire a property manager
It's not groundbreaking to point out that owning investment real estate requires time and effort. As a landlord, your responsibilities are legion:
- Marketing, interviewing and selecting tenants
- Inspecting the property
- Carrying out repairs and maintenance
- Negotiating with tenants
And this is just a small sample. Take into account the fact that there are also specific rules around things like raising the rent and entering the property, plus the matter of doing your taxes, you're essentially running a small business. Save yourself some stress by hiring an investment property manager.
3. Take out landlord insurance
Although you or your property manager will carefully screen potential tenants before handing over the keys to the home, nothing is ever foolproof. Even the most promising-seeming applicants may end up doing damage to your home or running off without paying the rent. The subsequent litigation can be equally costly.
Consider taking out landlord insurance to protect yourself in these and other cases. As an added bonus, the Australian Securities and Investments Commission points out that the cost of landlord insurance can be claimed as a tax deduction.
4. Take advantage of equity
The equity in one or more of your other properties can be a powerful tool for investment. If you've paid down a significant portion of your existing mortgage, you can leverage this equity you've built to use as a down payment for another property, effectively creating a cycle of wealth.
According to the most recent Australian Bureau of Statistics figures, Australians held equity worth $314,000 on average in 2011-12. That's a significant source of wealth that shouldn't go untapped – particularly if you're aiming to create a portfolio of properties. Before taking on the services of a property agent, look at how much equity you could take advantage of.
5. Keep your finger on the property pulse
Research is essential when choosing a property and neighbourhood to invest in. You need to look at median prices, vacancy rates, infrastructure projects and demographic statistics to figure out if a particular area is going to be a profitable investment down the line. But your research shouldn't stop here.
Successful investors will continue to stay abreast of what's happening in the market, both locally and nationally. This way, you'll know whether to keep holding on to your property or if it's time to sell. You should also stay attuned to the changing demographics of your area. In order to continue to attract tenants, you may have to renovate your home or make an addition that will appeal to the kind of people who live in the neighbourhood.