When it comes to building long-term wealth, it’s important to focus on a diversified portfolio of quality investments. With steady growth in capital cities and an ever-increasing population, property investment tends to offer reliable returns. For this reason, property is a popular option for Australian investors.
But, investing in property isn’t as easy as some reality shows make it out to be. There are a number of things to consider to make sure you’re getting a diamond, not a dud.
1. Go on facts, not feelings
This is the first point, and it’s probably the most important. When looking for an investment property, it’s essential that you remember you’re not buying for you and your family – your goal is to make a profit. So just because you love a place, doesn’t mean it’s a great investment.
Having said that, when it comes time to sell, you’ll attract the widest range of buyers – and maximise your selling price – if your property is attractive to both investors and owner-occupiers.
But don’t let that be your only consideration. Keep the numbers in mind – if they don’t add up, walk away.
2. Decide between off-the-plan or established
If you’re looking to add an investment property to your portfolio, one decision you’ll need to make is whether you should buy an established home or off-the-plan.
There are benefits to both: with an existing property you can see it, touch it and physically walk inside, which can help you know what you’re getting. On the other hand, with an off-the-plan investment property, you don’t need to worry about costly repairs and replacements of things like carpets and blinds. Plus, a brand new property can be more attractive to tenants.
Buying off-the-plan also allows you to lock in today’s prices with just a deposit and take advantage of growth while your property is being built.
3. Consider the location
As important as the property itself is, you also want to consider the overall location of the area to get a sense of the potential capital growth as well as rental demand.
As you’re researching suburbs and developments, look at things like:
- Public transport – what’s there and what’s planned in the near future
- Public amenities like schools, hospitals and parkland
- Proximity to major workplaces, shopping centres and recreation facilities
Once you’ve considered the general location, take a look at the type of people living in the area. You can get this information from property sites like Domain. If the area is popular with young families, you may want to look at properties that offer family-friendly layouts, like large bathrooms, living areas and adequate bedrooms. Likewise, if a suburb is more popular with single professionals and young couples, then affordability and proximity to public transport are key.
4. Get across the tax benefits
One of the advantages of buying an investment property is you can claim the cost of maintaining your property. Things like insurance, property management fees, rates and repairs can be deducted from your rental income, reducing your taxable income.
And, just like you can claim wear-and-tear against equipment purchased for work, you can also claim depreciation of your investment property against your taxable income. Both the building expenses (capital cost) and fixtures can be depreciated to reduce your overall tax payable and free up cash for further investments.
Gearing, tax deductions and depreciation are obviously very complex, and you should consult with an accountant or another qualified expert to fully understand how this may impact you.
5. Remember property is for the long-term
Property is a long-term investment so finding one that’s likely to increase in value is the most important consideration – no one wants to sell for less than they bought. This means buying at the right price and looking at the potential capital growth.
While negative gearing can allow you to offset any losses on your investment property against other income, the ultimate goal should be to make money.
Look at your budget, income and plans for the next few years to fully understand how much you can borrow and the risk you can comfortably manage. Ensure you can withstand a few weeks without tenants, or a few interest rate increases without having to drastically reduce your lifestyle or sell in a hurry.
Once you’re comfortable you have all the facts, have minimised your risks and know what you’re buying, then investing in property won’t seem all that daunting.
View Banks Homes is a family owned business with over 25 years experience in building quality homes across Melbourne. Discover more about our latest development, The One, here.