Building wealth is an important financial goal for many who want to set up a comfortable future for themselves and their families. When it comes to choosing where to invest our money, many aren’t sure what’s best for their situation. Investing in property is an extremely popular way to grow your wealth – and for a good reason.
It’s important to remember that buying a property to invest in versus buying a property to live in is very different. This blog will take you through what you need to know about property investing, including how to figure out if it’s right for you.
Investing in propertyÂ
Property is a popular investment for many Australians (approx. 21% of Australians own an investment property). For those who are already homeowners, you may even be able to use equity from your existing home to start your investment property portfolio. If you’re ready to invest in property, here is how to go about itSpeak to a mortgage brokerÂ
Before you jump on real estate websites, engage your mortgage broker in a discussion. Knowing why you want to invest in property is important and a broker can help you to understand whether property investment is right for you and your financial goals. You should also consider what purpose you want your investment property for. Will you rent it out or use it as a holiday house? Is it something you plan to renovate or rebuild? Your mortgage broker will then help you get pre-approved with a lender so you can start attending open houses.ÂEstablish your budget
Once your mortgage broker has walked you through your options for purchasing an investment property, including whether you have any equity in your current property that can be used as a deposit, it’s time to establish your budget. How much are you willing to spend on an investment property? Are the mortgage repayments manageable for your current situation if you decide not to rent it out or if you have a period where nobody is renting the property? If you do decide to rent the property out, doing your research on rental rates in the area will give you an idea about the rental yield you can expect. Income from rent is a more immediate return than capital growth, and it can assist you with mortgage repayments and property costs Start putting offers on and bidding at auctions Once you’ve established a budget and been pre-approved, it’s time to start searching for your perfect investment property! Make sure you do plenty of research into the market and have factored in costs such as building and pest inspections. With these in mind, you can start heading to open houses and bidding at auctions. Consider using a buyer’s advocate  Enlisting the help of a buyer’s advocate can simplify your property buying process. While it’s not essential, a buyer’s advocate can help you find the perfect property for you. They complete all aspects of the research, due diligence, inspections, auctions, negotiations, and property buying. A bonus to a buyer’s advocate is that while they have a sound knowledge of the property market, they don’t work for real estate agents, rather they work for you – the buyer. For more information on buyer’s advocates, read our blog.Earning a return from the property
The main benefit of investing in property is the returns and wealth you build. There are two basic ways to get a return on your property investment. These are: Capital growth Capital growth refers directly to the equity that lies within your property. When you sell your property for more than what you paid, it’s called ‘capital growth’. Rental returns Capital growth takes time to build – you won’t see results overnight. Income from rent provides a more immediate return. With someone renting the property, their regular repayments can assist with funds towards your mortgage and property costs. Looking at rental returns in each suburb is important when deciding how much your rental repayments should be.Where and what to buy
Where you buy will differ based on your situation. When choosing somewhere to buy, you need to be objective and weigh up the pros and cons of each area. You should never buy somewhere based purely on an emotional attachment – there must be sound logic behind the investment. Considering whether to buy a house or unit is also important to factor into your research. While a unit may be a cheaper purchase cost, there may be an oversupply in an area. On the other hand, a house may be easier to rent but is generally attached to a higher purchase cost. Some things to consider when looking to purchase an investment property include:- Areas you’re familiar with versus areas you aren’t – which is best?
- Areas with high growth, higher rental yield and low vacancy rates.
- Proposed planning changes in the suburb that may affect future property prices.
- Properties with appealing features like a second bathroom, a garage, access to schools, shops and transport.
- Maintenance costs based on property type, age and features.