Tips for Finding the Right Investment Property
Are you considering investing in a rental property? There are abundant reasons to consider real estate a wise investment. After all, the property market has given rise to numerous wealthiest people in the world. However, true real estate experts recommend conducting complete and thorough research before investing hundreds of thousands of dollars in a property for obvious reasons.
While investing in real estate is considered a smart choice compared to other options, it is not a golden ticket. It takes a lot of hard work to find an investment opportunity with no guarantee of a payoff. This is often a big problem for property managers or those looking to buying properties to expand their investment portfolio. So, keeping that in mind, here are going to be some tips for first-time property investors.
Property Investment in Toowoomba
Although it’s neither simple nor glamorous, being a landlord can be an excellent way to generate real estate revenue. You must find a suitable property, prepare the place, and find trustworthy renters. In addition, there are recurring maintenance issues.
Do you have experience using a toolbox? How adept are you at cleaning a toilet or mending drywall? Sure, you could employ a property manager or contact someone to handle it for you, but it would reduce your profits. One or two-home owners sometimes perform their own repairs to save money. Of course, when you expand your portfolio of properties, all of that changes. So, it pays to know whether you are cut out to be a landlord or not before you sign on the dotted line.
Apart from answering that big question, here are some other pointers you should keep in mind when looking for property investment in Australia or any place.
1. Understand Cash Flow
After selecting an investment property, you have several options for raising money. You could need to look around for a loan, or you might have money to invest. Make sure you pay close attention to the facts if you take out a loan. A bad loan decision might be the difference between a successful and costly investment property enterprise.
The interest-only loan is one option, in particular, to bear in mind. For a certain period of time, often five years, you will only make interest payments each month rather than payments toward the mortgage’s principle.
After that period has passed, you might be able to refinance the loan, make a lump-sum principal payment, or keep making payments that cover the principle. These can be a fantastic alternative if you want to buy numerous homes because they have lower payback rates than principle and interest loans, which will make it easier for you to pay back additional loans.
2. Plan Your Finances
Investment homes often have higher approval standards and greater down payments than owner-occupied residences. You can’t use the 3 percent down payment you made on your present residence to purchase an investment property. Given that rental houses don’t offer mortgage insurance, you will require at least a 20% down payment. However, you might be able to use bank financing, such as a personal loan, to get the down payment.
Also, whether you finance or buy the property outright is another important question that needs to be answered depending on your investment objectives. Cash payments can contribute to a good monthly cash flow. Consider purchasing a rental property for $100,000. The cash buyer might receive $9,500 per year after taxes, depreciation, and income tax, which equates to a 9.5 percent annual return on the $100,000 investment.
Financing, on the other hand, may result in a higher profit. Consider the scenario when an investor purchases a home with a 20% down payment and a mortgage with a 4% compound rate. The annual earnings total around $5,580 after running costs and extra interest are subtracted.
3. Pick the Right Type of Mortgage
There are several significant variations between a mortgage for a primary house and one for a rental property. To begin with, there are greater rates of default on loans for a rental property since borrowers with financial difficulties usually prioritise their primary home’s mortgage first. Lenders often demand higher borrowing rates on rental homes due to the increased risk.
The underwriting requirements are another consideration; these are often stricter for rental properties. Mortgage lenders often pay close attention to the borrower’s debt-to-income ratio, down payment, and credit score. For mortgages on a rental property, the same criteria apply, but the applicant will probably be subject to stricter credit score and LMI thresholds—as well as a greater required down payment. The lender may also investigate the borrower’s job history and income more closely and want to see past landlord experience.
4. Choose the Right Type of Property to Invest
Because they are typically more affordable than similar single-family houses and are situated in attractive areas, condos might be a suitable choice for purchasers of rental properties. Because owners aren’t responsible for maintaining the grounds or the exterior of the building, units sometimes require less maintenance.
You could have no trouble paying the monthly dues, but if the building, for example, requires a new roof, you might have to make a one-time special payment that could cost thousands (or perhaps tens of thousands) of dollars.
5. Understand the Market and the Dynamics
Information about construction projects or plans that have already been zoned into the region may be found in the municipal planning department. A region is definitely an excellent growth area if there is a lot of building going on there. Keep an eye out for new construction that can lower the value of nearby houses. Your property could have to compete with brand-new houses.
Price, property, and position are all considered in relation to one another. A top-notch investment home in the ideal location will be quite pricey. Rent will need to be expensive, which reduces the number of available tenants. On the other hand, a cheaper, older house in a suburb’s outskirts will draw a different kind of renter. Make sure to take into account all three of these variables collectively rather than individually when looking at a potential investment property and analyse how they fit, particularly in light of your ideal renter.
6. Look For Growth Areas and Choose Your Location Carefully
Real estate is more difficult to price than shares, where a company’s value is clear. If you are persistent and competent, you may be able to purchase an asset for less than its true market value. The key for you is to do your homework, figure out what’s selling for in the neighbourhood, and after that, you’ll find that you’ll get very good at estimating a property’s value – you’ll know a deal when you see it.
Never buy property in an unfamiliar area, especially if a real estate salesperson approaches you about buying an interstate or offshore property. Since many of these real estate marketing businesses are paid extremely high commissions, the property price is sometimes greatly exaggerated. We advise contacting another lender or us to set up an independent appraisal on behalf of a bank if you locate a house you like but are unsure of its true worth. Once you have this knowledge, you may frequently utilise it as a powerful negotiation tool.
7. Take Some Time to Research the Area
Visit the area and take note of all the amenities that draw tenants, including the parks, eateries, gyms, movie theatres, and public transit connections. If you’re looking for information on where to find the ideal fusion of public facilities and private property, City Hall may offer promotional materials to help.
8. Avoid Off-The-Plan Properties
Off-the-plan homes are homes that have features in common with one another. They frequently have extremely similar, if not identical, designs and are frequently constructed at the same time by the same developer. They are frequently less expensive to produce because they are identical, making them less expensive to purchase.
Although it can seem like an advantage, it rarely is. Off-the-plan homes are typically not scarce by nature. They tend to go on the market about the same time as construction is completed or leases expire, and they are frequently grouped together. Because of this, it is challenging to make the most of the property’s advantages and location because there is excessive rivalry among property owners to draw in renters.
8. Inspect the Property
Once you’ve chosen a place, you need to find the appropriate kind of property there because you need to seek an investment property that will be in constant demand from tenants and potential house purchasers. The property’s suitability for the neighbourhood’s typical resident age is one item you should consider when doing your search.
Why is that important? Discover the area’s demographics, then decide what matters to that group. A property with several steps in an area where the population is elderly wouldn’t be something you would want to purchase. Additionally, you wouldn’t want to purchase a home with no outdoor space or living space in an area where young families predominate among the demographics. When looking for an investment-grade home, giving the type of property some extra thought in terms of its potential demand is a wonderful place to start.
10. Choose a Specialist Property Manager
The responsibility of a property manager is to maintain things for you and your renter. A property manager is often a licensed real estate agent who is an expert in their sector. The competent agency will let you know when you should evaluate rentals and when you shouldn’t. They can provide you with continuing guidance, assist in managing your renters, and help you obtain the greatest value from your home.
The property manager needs to be able to provide you with information on real estate legislation, your rights and obligations as a landlord, and those of the renter. They’ll also take care of any maintenance difficulties, but you must first authorise all expenses (apart from some urgent repairs).
The property manager will also assist you in finding the ideal renter, verify references, and ensure rent is paid on time. Tenants have legal rights. Therefore, you must constantly attempt to respect them and refrain from interfering with them excessively.
Although you should always go via your agent and offer plenty of notice, you should do routine independent inspections of your home to ensure that the renter is protecting your investment. The good news is that the fee you pay your managing agent is often a percentage of the rent paid, is subtracted from the lease, and is deductible for tax purposes.
Conclusion
The COVID19 pandemic has changed the way we do a lot of things – including how we deal with property investment in Australia. While the current real estate market presents many opportunities for savvy property investors looking to take advantage of low house prices to make capital gains, some factors still need to be considered when finding the right investment property in Australia that can’t be ignored.
