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10 things to consider when buying an investment property

Investing in property is a popular wealth creation strategy that has proven to be especially lucrative in Sydney over the last decade. While the Australian dream is to own your own home, an investment property portfolio can unlock capital gains that could help build wealth quickly. Record low interest rates and a strong housing sector have created opportunities but understanding the options and risks is key to creating a successful property investment portfolio. Here are ten things to consider before jumping in.

1. Have an investment strategy in mind.

Do you want a passive investment income stream or are you looking for negative gearing? Do you want price stability or are you chasing capital gains? Each strategy has merit but the property you choose will depend on your strategy. Higher end properties generally will have a lower yield which is compensated by the fact they have enjoyed good capital gains in recent years. This property suits negative gearing strategies. The further from the city you travel, the higher the yield which suits those who want the property to generate a passive ongoing income. Speak to your accountant before making any purchase.

2. Apartment or house

A house will attract higher maintenance costs but apartments will incur strata management fees. Understanding the hidden costs in owning a property will help you make a smarter investment decision. Apartments with amenities such as pools and saunas require more upkeep and this cost is paid for through the collection of strata levies. The advantages of owning a house are numerous and include the ability to make major renovations such as additional rooms.

3. Off the plan or existing apartment

Buying off-the-plan means buying a unit before the builder has completed the project. Carefully consider the risks  before taking the plunge as there are many uncertainties. For example, the project may run over budget, the project may be abandoned, the quality of the building may not be up to scratch and there is a risk of overpaying which can mean the banks may not accept the purchase price as market value.

4. Manage your costs

Getting a $20 rental income increase is great news but most landlords forget that the best way to increase the rental yield on a property is to reduce costs. If you haven’t reviewed your investment loans in the last year, you are probably paying much more than you need in interest costs. Our free service will provide the information you need to reduce your interest costs. Call 1300 451 944 or email for a comparison.

5. Where to buy

The adage still rings true, ‘Location, location, location’. Use the knowledge of the experts to understand where the property hotspots are and which areas to avoid. Your real estate agent should be a trusted voice in any investment decision and may advise you of properties coming to market before they are advertised.

6. Know your price range

Know what you can afford before you wish to make an offer. A pre-approval gives you assurance that the bank has looked at your circumstances and will provide a loan subject to valuation. Each lender uses different lending criteria and your maximum borrowing capacity will change so a home loan expert can assist you in navigating these differences so you are prepared to bid.

7. Get the right loan structure

Principal and interest or interest only? Fixed or variable? Supporting security or stand-alone investment property? The decision on the bank to use and the structure will change depending on your medium and long term wealth creation goals.

8. Consider the renter

As an investment property, the desirability of your property is key to ensuring it does not remain vacant when a tenant moves out. Questions you should ask before buying include; does the property need renovating, is it close to transport, is the neighbourhood safe and is parking a concern?

9. Use a property manager

Your property manager will ensure that potential tenants are vetted thoroughly, inspections are carried out, your legal obligations are carried out with respect to repairs and disputes are dealt with efficiently. Please contact us to find out more.

10. Landlord insurance is a must

Insurance will cover the property for items such as malicious damage and loss of rent due to tenant default. Insurance should be taken from the moment the property is purchased rather than the date a tenant moves in.


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