In a country where property prices are a common topic of conversation, property investment is bound to be a widespread aspiration. Owning an investment property, done right, is a proven way to build wealth and ensure a more comfortable retirement.
However, only 50 percent of people who enter property investment do so successfully, according to property investment expert Michael Yardney, CEO of Metropole Property Strategists. The other 50 percent sell up within the first five years and give up on their property dreams.
So how do you get started to ensure you’re in the successful 50 percent?
Do your sums
Financial advisor Greg Pride of Centric Wealth says first up you have to determine whether you can afford to service the extra mortgage on the investment property. “The first step is, what is your income? The second step it to deduct your expenses, which leaves you with your savings capacity,” he says.
“Next, divide that sum by three – one third for you to spend, one third for a medium-term opportunity such as managed funds, and the final one third for a long-term opportunity such as property investment. If you don’t have a savings capacity, there’s no point getting started because you won’t be able to fund it.”
Before you buy your first property investment, calculate how much it will cost you each month – include the cost of renovations if necessary, repairs and maintenance, insurance, rates and property management costs.
Set clear goals
Are you interested in an investment property as a way of earning extra income from the rent or are you after maximum capital gains? Is it part of your retirement plan or do you have five-year or 10-year goals? Being clear on your goals will determine your investment strategy.
According to Yellow Brick Road founder Mark Bouris: “Be clear about what you want to achieve and in what time frames,” he wrote in an article for Fairfax. “Before you buy a property, you should decide on your earning goals. Will this be a negatively or positively geared investment? Will you invest in renovations to increase your rental return?”
Do your research
Before you buy, research rents and vacancy rates in different suburbs. Also keep in mind that within each suburb, there are certain areas or streets that may command higher rents and capital gains down the track. Yardney suggests avoiding main roads and secondary streets, and looking for streets with character, lots of trees, views and proximity to amenities to tick both the rental box and capital gains.
If you are buying more than one investment property, look to different areas to diversify your portfolio and minimise risk.
Get the right loan
Which home loan features will be of most benefit to your investment strategy? Take the time to research and compare different home loans, and consider whether you will opt for a fixed interest rate or variable, or a mixture of the two.
Who will manage the property?
Some property investors manage their own properties, but this can be time-consuming and dangerous if you are across tenant law or organized when it comes to collecting rent. A rental agent will provide ease of mind, but also take a cut in the rent. Once again, do your homework before you make a decision.
Have back-up funds
Property investment is like owning a business. Having a cash reserve to fall back on in tough times will help you hang on to your property and allow you to attend to any unexpected repairs or even hold out for a more suitable tenant.