Things to Consider Before Buying Your First Investment Property
Monday, 4 June 2018 12:00 AM
Time to Read: 3 minutes, 09 seconds
Buying your first investment property can be daunting. In contrast to buying your first home, buying an investment property requires greater research and objectivity. Put simply, buying an investment property is all about the bottom line – not the heart! In this post, we outline things to consider when buying your first investment property.
Get financial advice
The golden rule of property investing is to get professional advice
. Whether you use an accountant or a registered financial planner, this should be your first step. Your advisor needs to examine your personal finances (income and liabilities) and address the following questions:
Can you afford to buy an investment property?
Are you able to fund the initial costs (deposit, stamp duty, conveyancing) of the investment?
Can you use the equity in your own home to assist with the purchase?
How much money can you safely borrow?
What level of cash flow is required to make the investment worthwhile?
How will ongoing costs, such as property management fees and maintenance costs, affect cash flow?
Will you receive any tax benefits from negative gearing?
What type of interest-only loan should you take out: fixed rate or variable rate?
Can you still meet the mortgage repayments if something unforeseen happens? – for example, your tenant stops paying rent.
As you’re probably starting to realise, buying your first investment property can be complex.
Do your research
Once your basic finances are sorted, the next step involves buying the right property at the right price. As a general rule, you need to buy a property that will increase in value and maximise future capital gains. Your advisor
should be able to assist here.
You’ll also need to consider the impact
of stamp duty. Given that it varies throughout Australia, you may decide to buy an investment property in a location with lower stamp duty. It’s important that your advisor crunches the numbers, as it will affect your overall Return-on-Investment (ROI).
When selecting a property to purchase, many investors use the “100/10/3/1” rule: examine 100 properties, make 10 offers, expect 3 acceptances, make a final decision. The internet obviously makes this process
a little easier.
Buy a new property
In the early years, a new property usually provides more attractive rates of depreciation than an older property. You’ll need to discuss this with your advisor, as tax matters are inherently complex. Your advisor may even suggest buying a house and land package
, as stamp duty is usually only payable on the land component of the package (provided the house hasn’t been built already).
Another key advantage of new properties is that they’re cheaper to maintain than older properties.
Choose a property with broad appeal
This is probably common-sense, but you need to buy a property that appeals
to a broad range of potential tenants. Unusual or poorly-located homes are a big no-no. Tenants are generally attracted to homes with the following features:
A nice kitchen
A modern bathroom
Large living spaces
A garage (preferably double)
Good location – close to amenities such as schools, shops and public transport
A low-maintenance garden
A fenced-in backyard (particularly if children are present)
Air-conditioning or other heating/cooling systems
Get professional property management
Many first-time property investors make the mistake of trying to manage the property
themselves. Put simply, this is false economy. A professional property manager adds value by selecting the right tenant, collecting the rent, inspecting the property regularly and dealing with maintenance issues (24 x 7 x 365). A professional property manager also understands the law in relation to tenancies.
A final word
When buying your first investment property, you’ll need to exercise patience, judgement and restraint. Buy with your head, not your heart. Be patient with your investment, as wealth creation is usually a long-term process. As Australia's number 1 rated national home builder
, G.J. Gardner Homes offers a wide range of new home options and investment packages. For further details, please contact us
for a friendly, no-obligation chat.