Creating wealth through property investment is a well-established practice in Australia, with many property owners having reaped positive capital gains (profit) over the years.
However, buying an investment property can be quite different from buying an owner-occupied home.
There are a few key factors to consider:
- Suburb location?
- Is it close to transport?
- Is it close to shops, cafes, etc? Is it close to schools or other educational institutions?
- Is it functional?
- Does it need any repairs or renovation?
- Will the location fit my lifestyle if I plan to make regular inspections?
... Things that are practical and will make tenants feel comfortable living in the property.
When purchasing an investment property, you are also looking at different aspects such as:- Does the area have good capital growth potential?
- Is the demand for rental properties strong in the area?
- Will the property need a lot of maintenance?
Is there a real estate agent nearby who can manage your property?
... Things that indicate the investment will produce a sound return.
Here are some tips to buyingan investment property: Seek professional financial and legal advice There are a number of tax and legal ramifications with property investment, and it is vitally important you seek professional advice from a financial planner before deciding on a strategy.
Use the equity in your property to purchase Many established property owners may have a significant amount of equity in their homes or other properties owned that they can tap into to purchase an investment property.
Consider borrowing to cover the purchase price and costs
If you have enough equity in an existing property you may want to consider borrowing the full purchase price of the property and associated costs —you won't have to save for a deposit and you may be able to claim any rental short-fall on a negative gearing basis.
Carefully consider positive vs. negative gearing Consult with your financial advisor before purchasing an investment property on whether positively or negatively gearing the property is of greater benefit to your financial needs.
Choose the most suitable loan
There are many loan products available to residential property investors and the right loan will depend on your investment strategy. Consult with your Mortgage Choice loan consultant to determine the most suitable loan option.
Consider interest only vs. principal and interest loans
When deciding on the loan type for your investment property, your
Mortgage Choice loan consultant can show you interest only vs. principal and interest options. Although interest-only loans will not reduce the loan amount, they will result in lower monthly repayments and allow you to make greater contributions to your principal place of residence.
Take a long-term approach to investment properties As with all investment strategies, a long-term approach should be taken when purchasing an investment property. If you choose carefully you could expect good returns per year, and depending on market conditions and personal circumstances, you may look at keeping the property for 7-10 years.
18-Sep-2007