6 Steps to buying a great investment property
With the stock market being so hot and cold and interest rates at an all time low, I believe property investing is still a great place to park your money. In 2014 & 2015 there was an influx of investors so much so that APRA had to tighten lending requirements. They reduced the Loan to Value Ratio (LVR) earlier in the year from 95% to 80% and investors must now be able to service a loan at 7% (a 2 % buffer) pushing more to the sidelines or requiring them to downsize their buying ambitions.
However if you are buying an investment property here are 6 steps to help you buy a great one
1. Set goals – I have many clients that come to me and ask where they should buy an investment property. The very first thing that any property investor should do is work out exactly what they want out of the property’s ownership. Is it purely to make money over a long-term capital gain or do you want to buy a holiday house and stay there with your family? Do you need a high rental return or good depreciation benefits?
2. Structure – The next crucial step to investing in property is to think about how you will structure the property. There are all sorts of ways that you can structure your loan. You may look at a unit trust, a family trust or have it in your own name. It is very important to sit down with your accountant before you purchase any property and make sure that your structure is correct.
3. Super Fund – Another way to invest in real estate is through your super fund. The regulations around this are very strict so there is a number of criteria that you need to satisfy before you can purchase. I have bought many properties for clients in their super funds. But, beware the “property spruikers “ that tell you to buy new. The key to a successful superfund purchase is capital growth – always keep this is mind.
4. Capital Gain vs. Rental Return – Many mum and dad investors get drawn into the idea of positive cash flow. I am not against people making money from their investments, however, if you chose an investment purely because of the rental return then you may have a blind spot. For an investment property to tick all the boxes I believe that it needs a good balance of rental return vs. capital gain. How you achieve this is by buying a property because of it’s prospect to increase in value while having enough incoming to cover the expenses. If you want to find where to buy for good capital gain perhaps think about using a buyers agent.
5. House vs. Unit – Many of my clients have come to me with very specific wishes in regards to buying. There are pro’s and con’s for both and Sydney is ever expanding and growing. What I would say though as a blanket rule is this; no to units in areas that are or are becoming high-density areas (but there are exceptions to this rule i.e. Potts Point). The reason being is that they can be harder to rent out and suffer on resale. In terms of houses make sure that you don’t compromise by buying an under performer in a suburb that grows at a higher rate than your investment does. In terms of a unit buy the worst unit in the best block. Look for good living room and aspect, good bedroom sizes, potential to add storage or parking.
6. Buyer’s Agent – Using a professional that only looks at property all day everyday may be the way to go to when choosing your next investment. A good buyer’s agent is going to have access to off market properties. When it comes to negotiating the purchase a good one will be able to tell you what the property is worth as well as securing a great property that will perform throughout the years.
Now is a great time to be considering buying an investment property.
If you would like to discuss our great investment strategies and hear our success stories please call me on 0425221226 to find out how we can make your investment dreams a reality.