An investment in real estate can be a lucrative affair but it's important to choose wisely.
Here are 5 things to consider when buying your first investment property.
Can you afford it?
With 1 in 5 Australian families taking on 3x their annual income in debt to finance a new home, buying a typical 'capital city' investment property may be out of reach for many first-time investors on a budget.
This isn’t to say that there aren’t alternative options.
Many of the best investment opportunities are found in country and regional towns, where house prices are often a fraction of the price of their inner-city counterparts.
Shop around for a deal in places that are more affordable
Is the investment in an area tipped for growth?
It would seem self-explanatory that for an investment property to be successful it would have to increase in value and give a good rental return, but picking an area that will outperform others can be daunting task with so many criteria and attributes to choose from.
Look for suburbs or towns that have a hospital, airport, schools (both primary and secondary), public transport, low-vacancy rates and low crime levels.
Do the research and find out how property in the area has been performing and also what development or growth in infrastructure may be planned.
Keep in mind that a suburb that’s been performing well in the past isn’t guaranteed to continue that way.
Invest wisely, not emotionally
As the old saying for property investment goes, “if you would live in it yourself, don’t buy it".
It can be hard for first time investors not to become too emotionally invested in their first purchase.
Often the best investment is the simplest.
Remember the purpose of the investment is to maximise your return, so don't pass a good one up because you don't like the bathroom tiles.
Having said that, a property also has to appear attractive to renters, so don't choose something that needs a major makeover unless you can afford it.
The backup plan
Owning an investment property is a journey that will continue to deliver new twists and turns.
It’s not uncommon for the unexpected to occur and to occur frequently.
Tenants may need to vacate suddenly, damage may occur to the property, tenants may default on rental payments – there’s an abundance of issues that can result in the loss of rental income.
It’s important to be prepared and have a buffer of several weeks’ worth of rent to avoid suffering financial stress.
Compare agents and their fees
Once you've found the perfect place, you'll need to rent it out. In most cases that will mean having a real estate agent go round to give you a rental appraisal, which is an estimate of the expected rental return that your property will achieve.
There are hundreds of agents and agencies to choose from, all providing different fees and levels of service, but the most important factor should be your faith in their ability to look after your investment, after all it’s likely the most expensive asset you own!
Finally make sure you have the appropriate buildings and contents insurance, so that if anything does happen to your investment you are totally covered.
Article by Callan Avery