Buying an investment property can be a very rewarding way to build wealth, but it requires careful consideration and planning. Here are some key factors to consider before making a purchase.
What are your financial goals?
Be clear with yourself about why you’re investing in property and what you are aiming to achieve. Decide if you are more interested in receiving regular rental income or long-term capital appreciation. Property is a long-term asset and consider how a property fits into your overall portfolio strategy.
Your financial goals will determine if or when you should invest in a property and how much risk you are prepared to take on.
Understanding the risks
As with any investment, investing in property comes with risk and it is always best to have an understanding what these are and what level you are willing to accept.
Capital growth is hard to predict
Property prices in some areas have grown in recent years but consistent price growth isn’t something that can be relied upon. Be prepared on who long you may need to hold onto a property to achieve your profit goal.
Rental income is not always consistent
You could face vacancies or tenants may default or cause damage to your property. Landlord insurance may help to manage this risk but consider the impact on your personal cashflow should there be a pause in rental payments received.
Finance
Property is a large commitment, and you will most likely need an investment loan to enter the market.
You will need to ensure that your loan meets your needs and provide a competitive interest rate. Consider how different rates and changes over time will impact your monthly payments and long-term profitability.
Being a successful property investor means that you will need to be realistic about what a financial commitment this will be for at least the next 5 to 10 years.
Maintenance and ongoing expenses
Make sure that you also budget other for operating costs such as council rates. property manager fees, insurance and strata levies.
Consider the age and condition of the property. If significant repairs are needed, this could have an impact on future cashflow and funding needs.
Do your Due Diligence
- Know your neighbourhood – Research the neighbourhood’s desirability, safety, and future growth prospects. Look for areas with low crime rates, good schools, and amenities. Examine local real estate trends, including property values, rental rates, and market demand.
- Inspect the Property – Have the property inspected to uncover any potential issues, such as structural problems, pest infestations, or needed repairs.
- Potential Rent: Research the rental market to estimate how much you can charge for rent. Look at comparable properties in the area to gauge potential income. Also, if there are opportunities to add value (eg adding a granny flat).
- Seek Professional Advice. Work with a knowledgeable real estate firm or buyer’s agent who can provide insights and help you find the right property. Find a conveyancer who can handle the legal work and a good mortgage broker who can arrange finance. Also, remember to consult your financial advisor to ensure the investment aligns with your overall financial goals.
Taking the time to thoroughly research and consider these factors will help you make a well-informed decision and increase your chances of a successful investment.