If you’re pondering of investing in property, where do you start? How should you start it?
Property investment is certainly a widespread countrywide pastime, in fact, about 2 million Australians are landlords. Just to add, more than 50% of total household wealth can be traced to residential real estate.
Interesting Facts about Property Investment – what you need to know:
- Out of total 2 million investors, an estimated 70% own 1 property, 20% own 2, and 10% own 3 or more properties (Source: Reserve Bank of Australia).
- Nearly 48% source of investor-owned dwellings are units (Source: Corelogic, 2016).
- Investment concentrations are at their highest at Gold Coast, Darwin, Brisbane, Melbourne and Sydney (Source: Corelogic, 2016).
Property Investing: Advantages vs. Disadvantages
Property investing is frequently seen as being less risky than other investment. But while it may appear to be simple, there are also many drawbacks to consider.
Here’s what you need to study about investing in property:
Advantages
- Less volatile – Property can be less unstable than other investments or shares.
- Income – If the property has a tenant, you are assured of rental income.
- Capital growth – If your property escalates in value, you are in for a capital gain once you sell.
- Tax deductions – You can do offsetting of most property expenses versus rental income, including loan interest relating to the purchase of the property.
- Physical asset – These are investments you have which are tangible.
- No specialised knowledge – You are not expected or required to have any specific specialised knowledge to do property investing unlike in some intricate type of investments. Although, educating yourself with real estate will be very beneficial.
Disadvantages
- Cost– Rental income may not include mortgage payments as well as other expenses.
- Increased interest rates – equal to lesser disposable income and higher repayments.
- Vacancy – At times, you may need to pay-up for some of the property costs yourself if you do not have a tenant.
- Non-flexible – You can’t sell off a dining room or a kitchen if you need to have some immediate cash.
- Loss of value – Once the value of the property drags downward, this results to your disadvantage of likely having a debt exceeding the property’s worth.
- Soaring entry and exit costs – These are your expenses when you buy or sell off your property which include the following: real estate agent’s fees, stamp duty, conveyancing fees and legal fees.
Costs of property investing
The act of all these – buying, handling and selling a piece of investment property can be pricey and will impact your overall return.
Cost in buying and selling
What are the costs included to buy and sell a property?
- legal costs
- conveyancing fees
- stamp duty
- pest and building reports
- search fees
Selling your property means you will also incur a number of payments, such as legal fees, agent’s fees and advertising expenses. In case the property has escalated in value, you will also have to pay for capital gains tax.
The costs to own an investment property:
What are the costs involved in investment properties?
Below are the ongoing costs for investment properties:
- building insurance
- land tax
- council and water rates
- body corporate fees
- landlord insurance
- repairs and maintenance costs
- property management fees (in case you employ an agent)
Doing property investment can be difficult. It can really be challenging, especially for beginners who are usually at a loss on where to start. If you’re one of those beginners in this property world – it can be totally overwhelming. You need to check several approaches, as there are different ways to invest and so many different areas that you can invest in. Do thorough research if you wish to be successful in this field.
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Be Ready with Your Financial Goals
What to do before you start investing in property? It’s actually a wise plan to sit-down to set your financial goals and objectives.
Know what you want in life and what direction you want to go.
Set a financial goal (e.g., $70,000 a year) as passive income.
It is best to put a timeline of 3 years, 8 years or 15 years or whatever you want. This is what will support you in choosing the right investment strategy.
Start by Choosing an Investment Strategy First
Proceed and decide on your investment strategy. But if you’re a novice on the property space, this is going to be quite hard to do since you are not knowledgeable about what investment strategies are available for you out there.
We suggest that you read some books (Top 30 Property Books List). Read up on a few investment strategies – but when you do, go through the activity fully aware that you are not making a decision on a particular investment strategy.
Books can be so promising, but they can be very compelling and conclusive as well so if you read a book on a single strategy and you go- “This is it, I will do this!” But then, if you read another book on a different strategy that you wish – “No, I like to do this!” and then you just shift.
It’s helpful to gather a set of various strategies, learn about them and then reflect about the financial goal you want to reach. Pick the strategy that matches you and your goals well before you even step out and start looking at properties.
Determining Your Investment Strategy
Make sure you have a decision on what strategy to do before you begin looking at properties. Study about various strategies on hand and then decide which one you’re going to implement. The strategy you choose will be your guide when you start lining up your property options.
If you are constantly undecisive without action on your part (not investing in any one strategy), perhaps you will not be good at it. On the contrary, if you pick one strategy and gain profit out of it, well then, you can just do the process all over again and truly be successful.
This is all about having that winning method that works best for you, and then maximizing it for all its worth.
The quicker you can look for and adopt on that successful strategy, the better for you!
Find a Mortgage Broker
You need to consult a mortgage broker before checking out properties. A mortgage broker will help provide vital information such as the amount of loan you can make and the type of deposit you may need to actually save to be able to purchase a property.
Many go through and think that they should save 10% or 15% or 25%, overlooking the other expenses, such as: solicitor’s fees, stamp duty, extra mortgage expenses, insurance costs and so on that they need to think of as well. Just to add, they imagine the banks have goodwill for them (news bulletin: they do not!).
Thus, a mortgage broker will help you realise how much you would need to save up and how much you can get as loan. In turn, you start to have a goal underway.
Accomplish your Recon Work (Suburb Analysis)
You should do both suburb analysis and recon work. Study how to research a specific area then check different areas around and know more about them. It pays to study all the good, useful stuff.
How do you see the population – is it on the rising trend? Or numbers are diminishing?
What do you notice on the area’s economics – is there a gentrification taking place in the area as the more affluent people move in, enhancing the suburb as an outcome?
As you start doing the research and appreciating the suburb dynamics and how these suburbs can assist you to opt for one suburb that is geared-up for growth, you are strengthening your chances of making a good profitable investment. Unfortunately, this type of analysis is difficult to do as there are several steps involved and may require a lot of time.
Research Done – Pre-Approval Next
This happens when you’ve finished your research, then you become cosy and comfortable in the market.
Before making an offer on a property, you need to have a pre-approval first from your mortgage broker. Your mortgage broker will help provide an indication on the valuation of the property.
This means that when you make an offer that is close to the indicative value of the property– there is a smaller gap of period between the time of doing that offer and your loan being completely approved.
Make the Offers
You can start making offers. Prepare offers on properties including those that you’re not necessarily going to buy. As by doing this, you get to test and explore the market.
In fact, you could also create offers even without checking the property. This makes you more experienced in negotiating and even more cognizant of the market.
It’s an impressive thing to do. But never do this consistently with just one real estate agent, of course (You do not want to annoy people, right?). Do it in different areas but just occasionally.
It’s still enjoyable and it will be less shocking when it is time for you to do that offer and purchase your first property. Yes, you’re going to be so poised and secure in making that offer – worry not! You will never be too anxious at all to do it. It will be an easy peasy thing to do in the long run
There is really so much to learn in property investing and SuburbsFinder is here to help you. We offer our services to help you find the best location to buy investment properties and more importantly, identify the right property to have.
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