Assembling an expert team helps you get the most out of your investment property
With interest rates at record lows, an investment property can look like an attractive option to build your wealth and secure your financial future. However, there are a number of things to consider before buy to help ensure you make a sound investment.
Buying property is a popular form of long-term investment in Australia, with the perception that real estate feels ‘safe’ over the potential risk and volatility of investing in the share market. While investment properties can provide healthy returns from passive income, equity gains and tax breaks, it’s important to do your research first.
Here are 7 considerations get you started on your investment journey.
Work out your why
Why do you want to invest in property? The answer is going to be different for every person. Do you like the idea of building your property portfolio slowly over time? Or maybe you see an emerging opportunity that you want to take advantage of?
Discuss with your financial planner how an investment property fits into your long-term goals:
- What are your long-term goals?
- Is it right for you?
- What is your tolerance to risk?
Investment properties need to work for you. They’re a tool that’s working towards your bigger financial goals and need to be factored into your overall financial strategy.
Know your budget and equity requirements
Equity, budgeting and finance considerations are key to making your investment property work for you. Financial advisers like to work closely with mortgage brokers to meet their client’s needs. Once your investment strategy is set, a mortgage broker can provide invaluable advice on how to secure and structure finance and offer up-to-date property information.
Your mortgage broker can help:
- Match you with the lender that best meets your needs
- Calculate the equity requirements you need to secure a loan
- Understand your required income/debt ratio
- Choose the right loan structure. Do you want an interest only loan or principal and interest?
Speak to the experts to get a full understanding of the cost and pitfalls before you look to buy.
Understand the property you’re buying
Your choice of investment property will tie into your overall financial strategy. For example, are looking to buy into the commercial or residential rental market?
Here are some of the considerations that go into choosing your investment property:
- House or apartment? Green title or strata?
- Will you redevelop the site?
- What are the ongoing costs?
- Do you expect capital growth (e.g. on land value?) or depreciation (e.g. on building value?)
Fox Mortgage Services are happy to talk you through the available options and have access to the latest market reports and suburb data to help you make an informed decision.
Will you hire a property manager or do it yourself?
Being a landlord comes with a range of responsibilities. Are you the kind of hands-on person who likes to do their own home maintenance? Maybe you relish the prospect of negotiating rental agreements or disputes? Or maybe not.
A great deal goes into owning and maintaining an investment property, such as:
- Regular property inspections
- Rent negotiations
- Conflict resolution
Do you have the skills and the time? A good property manager can take the headache of renting your investment property by taking over these duties. Especially if you don’t live local to your property.
What are the expected returns?
Returns on investment are always only an estimate, and you can’t rely solely on projections and predictions in your planning.
Here are few things to consider:
- Factor in your expectations for returns into your long-term plan
- Can you afford to lose money, and for how long? Do you have an exit strategy?
- What if interest rates increase or property prices go down?
- Are you looking for a long-term rental income, long-term capital gain, or both?
Understanding average returns over time can help you set realistic goals and be prepared for less than expected returns.
Seek tax advice from a taxation specialist
Taxation advice is a specialist area that is best left to the experts. Speaking to your tax accountant about your financial structure and potential investment property purchases will help you make the most of your investment decisions.
Your taxation specialist will help you:
- Understand capital gains tax, income tax, property tax, land tax
- Understand your overall tax position and how an investment property will affect you
- Know the difference between deductible and non-deductible debt
- Advise you on legitimate deductions, negative gearing and depreciation allowances
The ATO has a few examples of deductible expenses on rental properties on their website.
As with any major asset, investment properties need to be insured for a range of potential problems.
Three major insurances to consider for investment properties are:
- Landlord’s insurance: defaulted rental income, property damage/vandalism, legal expenses
- Building insurance: Fire, flood, earthquake
- Public liability: personal injury or death on site where the landlord is deemed liable
The costs of insurance, while tax-deductible, needs to be factored into your cash-flow planning and overall returns assessment.
Set yourself up for success
Buying an investment property can be a profitable financial strategy. By seeking advice from the right experts, you can make informed and savvy decisions around the style of investment property to best achieve your long-term goals. For more information on general considerations for purchasing a residential property, see our post: 5 things you need to know before buying a house.
The Fox Mortgage Services team is here to help when buying an investment property. We can help connect you with financial planning, accountancy/tax and insurance professionals, as well as finding you the best loan for your investment needs. Let us take the hard work out of buying your investment property.
Nicholas Butler (via Google)
‘If you are looking to purchase a property and obtain finance look no further than Fox Mortgage Services. Paul is extremely knowledgeable and ensures you get the best deal out there. He is straight up with the banks and knows exactly what they are looking for so will give you the highest chance for success. He runs you through all the steps so you know exactly what you are getting into and does it in a friendly relaxed way. Coming from a Chartered Accountant I can’t stress enough how worthwhile it is to use Paul as he is a specialist in this area and will save you so much time and money!…’
The information above is general information only, we will need to do a full fact find and assess your full financial position before an offer of credit can be made.