Taking a leap of faith onto the property ladder is one thing. But how do you know that the house you're interested in is the right one for you and will be a sound investment? These six tips will help you know if you're on the right path to securing a good investment property that’ll allow you to build wealth long-term.
1. Research your market.
Before you even go property hunting it is vital to research the market you wish to invest in. Think of everything you do as a strategic move to better your potential investment. Australia has many real estate markets that are defined by the geographical location which can determine the property’s value. You need to see how the property market has been performing to help you determine if you should or should not invest. Speak with local real estate agents and property managers to gauge rental availability, vacancy rates and the kinds of properties on the market.
2. Count the cost.
When it comes to financing CEO of Savvy Bill Tsouvalas advises that ‘it is essential that before taking out a home loan to cover your expenses you look at what is required of you financially. Run the numbers in terms of how much you expect in terms of growth vs the cost. It is always good to review this so that you will know whether it is worth the expense’. Don’t forget to weigh up the ongoing expenses that come with owning an investment property too, such as property management fees and maintenance costs.
3. Location is key.
Seek any property advice and you're most likely going to hear about the importance of the location and there is a reason for that. Where your property is situated can affect the long-term returns on your property value. You will have to look at the property's proximity to schools, public transport, shopping centres and more, those things future potential buyers will look at to determine whether they will buy into or rent your property or not.
4. Rental yield.
If you're planning to rent out your property to tenants, the rental yield will be a good indicator on knowing what your return on a property will be. To calculate the rental yield, you'll have to add the total income you'll get from the property then divide it by the sale price, then multiply it by 100. This will give you the rental yield in a percentage. Alternatively, you could enlist the help of a professional evaluator who will take into consideration the cost of your mortgage, property taxes and other expenses to help you know the true return on your rental yield.
5. Strike a balance in capital growth.
Capital growth plays a significant role in property investment. It is basically the increase of value in the investment you make over time. Your market research will come in handy as it will help you look out for areas that are expanding in good ways to see you get a return on your property investment. The expansion of economy or infrastructure in the area which you are looking to invest in is a good sign of strong capital growth. In the end, you want to strike a balance between the rental yield and capital growth.
6. Levies & taxes.
The levies, rates and taxes of a property can also be a determining factor into whether you can or cannot afford a property. Compare various areas in terms of its levies, rates, taxes and maintenance costs. ‘You will have to pay for rates or land tax, depending on your shire or council rules. This may range from $500 to over $1,000. Take the time to fully understand the financial commitments there are before purchasing your first investment property,’ advises Mr Tsouvalas.
Use these six tips to add to your nest egg through property investment. For more advice on investing in real estate check out these common property investment traps and how to avoid them and eight ways to add value to your rental property.
Bill Tsouvalas is the founder and CEO of Savvy, one of Australia's leading financial institution focusing on mortgage and automotive finance. Established in 2010, Bill turned Savvy into one of BRW's fastest growing companies in 2015. He frequently shares his knowledge and ideas on cars, mortgage, money and investment in the media.
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