- On August 20, 2019
Without a doubt, purchasing an investment property continues to be one of the most popular ways for individuals to invest in Australia. And this is evident from the country’s tax data where 10 per cent of the taxpayers are landlords who have been continuing to invest in properties.
One cannot undermine the significance of investing in real estate in Australia as the country provides investors with loads of amazing investment options. But as appealing as it sounds, investing in the real estate market is not an easy undertaking. It is certainly not a rags-to-riches formula.
Successful property investors put a lot of work, time, effort and resources (tangible and non-tangible) into real estate projects to ensure positive returns.
If you are seeking a property in Australia that can generate high returns, keep reading this informative post to get the best tips on buying the right investment property in Australia:
Tip#1—Develop a Strong Understanding of the Fundamentals behind Property Investment
When it comes to buying property from an investment point of view, your primary goal should be to search for a real estate property that can help you earn a significant amount from the rental income as well as capital growth. It should cost you least in terms of insurance, repairs, council rates and interest costs.
Also, another important factor to understand is that ‘leverage’ can be the key when buying an investment property in Australia. For example: Suppose you invest in real estate with a 20% down payment. You are buying a property worth $500,000 with a $100,000 investment (leaving the transaction cost aside). Even If this property appreciates by 3 % on a yearly basis, your return on equity( it is your contribution) be 15 %. While looking at the positives, you also need to be mindful of the fact that the same is applicable in case the property value takes a dip.
Simply stated, unlike liquid investments such as shares, investing in a property is a long-term task with high entry and exit costs and requires a lot of research and understanding of the local real estate market. Also, you should be clear of what is involved in the process and if it matches your risk profile and lifestyle.
Tip#2—Evaluate all the Costs associated with buying an Investment Property
Another factor that you must focus on is on the costs associated with owning an investment property. Purchase costs:
- Property cost
- Stamp duty
- Pest and building inspection
- Legal fees
- Search fees
- Conveyance fee
- Interest costs (if you take out a loan, make sure to include the full mortgage payment to determine the required cash flow)
- Water rates
- Council rates
- Body corporate-levy (if applicable)
- Land tax
- Maintenance and repairs
- Agent fees (This includes advertising, leasing fees and commission)
- Non-cash expenses, such as depreciation.
- Tax implications. Please read our blog on negative gearing
Let’s take a look at the case study below for a better understanding:
Robert and Julie want to invest in a property that they have spotted recently. The investment property seems perfect and ticked all the boxes that matter to them, such as close to the train station, Hospitals, Shops and schools.
The price of the investment property is $500,000, while the buying cost is $23,000. The couple has a deposit of $150,000 and they will need to borrow approximately $373,000 to complete their purchase. The breakdown of their expected monthly income and expenses is given below:
|Income and Expenses||$$$|
|Less loan repayment||-$2725|
|Less allowance for expenses||-$225|
|Less strata fees||-$216|
|Less allowance for repairs and maintenance||-$500|
Robert can cover the monthly shortfall from Julie’s salary that they save. Furthermore, they also have an emergency fund, which they can use at this point to withdraw some money (if they can’t find tenants for a while).
It is very vital that you put the numbers on paper so that you know whether the property investment suits your lifestyle. This is important to do so because as we mentioned earlier, property investment is a long-term investment. It has high entry and exit cost. Therefore, conduct your research carefully and take into account the following factors:
- Location (its proximity to the train station, CBD, schools, restaurant and local shops)
- Job growth rate and opportunities
- Can the property be rented out easily?
- Is it well-maintained?
- Can you afford to keep it in case the interest rates shoot up?
- Recent sales and rental history
It is crucial to understand the market dynamics before you take the plunge. Once you have all the details, you can buy the property and make it more attractive for renters so that you can earn passive income through it. It is a win-win situation all the way.
In a nutshell, if you are a first-time investor, it is extremely crucial that you understand that property investment is a long-term endeavour. Therefore, you should not only invest after seeing a rise in real estate prices but several other factors. Remember that if you can hold an investment property for long, it can help you build your wealth. You should strive to find the right balance between growing your wealth through a diverse property investment portfolio in Australia and enjoying a great life.
Some calculators that you can use to work out the numbers: