We have all had an experience where we walk into a home and fall in love. However, being able to think logically is crucial when making high value purchases such as a property. Critically analysing whether the property is suited to the target market in the area, the state of the property and the area in which it is located all need to be taken into consideration. Remember it’s not what you love, it’s what your tenants will love.
We know setting up a budget can be daunting, but understanding your outgoing expenses and income will be crucial to effectively managing your investment property. As well as understanding your rental yield, your budget should include mortgage repayments, bank fees, insurance, maintenance, upkeep, rates and property management fees if you decide to go through an agent. It’s also important not to forget your acquisition fees!
Property investors usually lean towards one of two options. Capital Growth or Rental Income.
Capital Growth is when you sell your property for a higher value than what you purchased it for. It’s important to understand that while properties have historically increased in value, it’s by no means a certain thing or a quick win, it’s more of a long term strategy. If you’re buying for capital growth, look for well-located suburbs, and as a very general rule, closer to the CBD the better.
If you’re buying for rental income – outer suburbs, regional areas, or even interstate can be a good pick. If your property is close to amenity such as schools, universities or hospitals, there can be a higher rental demand. With this investment strategy, you need to consider rental yield as well – this is the percentage of the annual rent your property generates, and this is calculated against the property’s market value.
Established or off the plan? House or townhouse? Investors really are spoilt for choice when it comes to property types. There will be pros and cons to whatever type of property you choose so it’s important to weigh these up against your goals. For instance, if you’re looking for rental income, a low-maintenance townhome could be the perfect fit, but you’ll need to check about potential body corp/strata fees.
An established home might be more appealing to young families, and come with more land, but you may find there are more maintenance costs (remember as a landlord, you’re obligated to pay for any repairs!) While buying off the plan will allow you to save on stamp duty, and you’ll have a brand new house that will most likely include a number of attractive features for tenants. But, you will need to factor in the time that it’s being built when considering cashflow and rental income.
When looking at a location to buy, data will be your new best friend. You can research house and suburb trends and average rental income on websites like realestate.com.au, RP Data and Core Logic. If it has been rented out before check the rental history, the rent it received and its tenancy periods (are tenants staying for long periods or leaving as soon as the 12 month leasing period is up?). Suburbs that are easily accessible via freeways or public transport, close to employment hubs and other amenity like schools and universities, will be more likely to meet the needs of a wider rental market.
If you’re buying an established home it’s always worth getting a pre-purchase building inspection. This report will cover everything from cracks in the walls to unseen damage underneath the house, and many will give you rough estimate on how much those repairs may cost. It’s a good idea to get a pest damage inspection completed at the same time to find out if there is any damage caused termites and other pests. Although this is a small expense, it’s a small price to pay for your peace of mind.
If you’re building new, before you receive the keys, you’ll go through a final inspection stage. This allows you to pick up on any issues or outstanding areas that need to be addressed prior to the final handover. Remember, if you buy your investment home through Porter Davis, all of our homes go through a strict internal and external quality inspection process – one less thing to worry about!
The information provided is meant as a guide only. Porter Davis recommends that all clients seek independent legal, tax and financial advice. Full T&Cs here