Plan to your budget
Before investing in property, understand your cash flow. Ask your bank for a pre-approval of your investment loan, so you know how much you’re able to borrow before you start hunting for properties.
Make sure you budget enough for rates, insurance and general repairs. And when you have purchased your ideal investment property, do what you can to prevent costly maintenance issues arising, such as replacing ageing taps.
Look for capital growth and “rentability”
Look for an investment property in an area where there is strong demand for rental accommodation. Buying a property close to shops and schools will make it more attractive to renters. It’s worth paying market value for a good property in a top location rather than trying to save by buying something no one else wants.
Cheap properties are cheap because they are not in great demand and there’s plenty to choose from. If the property is close to a town, beaches, schools and other facilities, it’s more likely to grow by more than the average in a good market and is more likely to hold its value in a down market. If you buy around the median price then more people can afford to rent it and more people can afford to buy it if you were put into a forced sale position.
Create quick elbow grease equity
Fast renovations such as a paint job, re-carpeting, tidying the garden, painting the fence, installing new curtains or blinds, and replacing the kitchen-cupboard doors can significantly improve the value of your property and make it easier to find the best tenant. Paying tradespeople to renovate your investment property is costly. If you’re prepared to get your hands dirty you can save money and increase your profit margin by doing the work yourself.
Have realistic investment goals
Are you looking for fast capital growth or wanting to hold the property long-term? During boom periods, it’s much easier to renovate properties and turn them over for a quick profit. In slower economic times, it may take many years to achieve the same growth.
Buy with your head not your heart
When house hunting, it’s very easy to get caught up in emotions. While a home on a steep block may have a stunning view, it could be a nightmare to renovate due to retaining or excavation costs. Remember a rental property only has to be clean and functional. Don’t get sucked into buying a property simply because it has a stylish interior. Be sure you weigh up the pros and cons.
Before signing a purchase contract, take the time to understand the building report to avoid expensive repairs down the track. Termites are one potential problem to watch out for.
Re-sign your tenants
Engage a professional property manager to ensure you get reliable tenants and that they pay a good market rent. Consider tying your existing tenant down to a new 12 month agreement. This will help guarantee your rental income.
Think carefully before negative gearing
If your repayments on the investment loan won’t be fully covered by the rent, your property will be negatively geared. While this can have tax advantages, it can also lead to financial stress if you don’t have enough cash flow to cover the loan repayments, rates or body corporate fees, so consider your budget carefully before buying